One of the things many investors look for in early stage startups (especially around a Series A or B) is the emergence of a scalable and repeatable go-to-market model. In fact, in another post I've written that not testing for one is one of the most common mistakes I see early stage startups make. The importance here isn't because investors are overfocused on revenue at the expense of getting the product right, but rather because go-to-market success in a scalable way is one of the surest ways to prove that a company has found a broad enough product market fit to succeed. Startups needn't have a go-to-market machine running to successfully raise a round of venture capital, but being able to article a vision for one and show proof points that it is likely to be work will be a big boost to any fundraising process.
To help startups identify if they're going about it right, here are five signs a startup's go-to-market is scalable and repeatable:
1) Deals are closing without management getting too involved- This can be broken occasionally in "big deal" models, but in general it is best if deals close while involving only a unit of growth (see #4). If someone is too high in the management stack, they're not it.
2) Deals are closing without engineering getting too involved- The essence of product market fit is creating something that generalizes over the use-cases of a diverse user base. When sales start happening with only a few touchpoints (with time value far less than the resulting revenue), that's a great indicator of true prodcut market fit.
3) Leads are coming from repeatable, sustainable sources- Go through some recent closed deals and see where the leads originated. If a healthy proportion come from paid marketing, inbound marketing, etc. then it is likely you've hit upon on repeatable, sustainable source of leads.
4) There is a clear "unit of growth"- If the answer to "how do I grow bookings?" is as easy as "hire another sales rep," then you've reached the point where you have a clear unit of growth. The key traits of a unit of growth are that they are scalable and measurable: you can imagine the company with many more of them, and you can measure their output in terms of growth. Sales reps are by far the most common unit, but in the end it doesn't matter as long as whatever unit you choose is both scalable and measurable.
5) Customers coming through paid channels cover a decent swath of the target market- Though it is great to focus in and own a "micro-market" in their early days to drive customers and revenue, a go-to-market is truly humming when it proves you can sell to a big chunk of the target market. One way to calculate your current TAM is to estimate how many customers you can get who look like your current customers- i.e. which customers segments have you proven to be addressable? A big enough addressable market is key for scalability.
Of course, there are no absolute rules in startups and this piece is meant to provoke thought more than anything else. If you build a go-to-market that is scalable and repeatable without most of these traits, let's talk (seriously!). At Matrix, we do our very best to evaluate each investment on its own merits, even as we try to provide advice that generalizes well.