.jpg)
gtmPRO
Visit gtmPRO to subscribe and get free access to our frameworks and guides!
Practical Go-to-Market guidance specifically for B2B software and service companies between $5MM-$50MM in revenue.
gtmPRO
#21: The Revenue Architect's Guide to the Lower Middle Market
Hello PRO's!
Do you really know the Lower Middle Market?
Do you want to know more?
Then this is for you.
Unlock the secrets to the lower middle market as we gather insights that shatter the one-size-fits-all approach to B2B software and services strategies.
Discover why companies with revenues of $5 to $50 million demand a unique set of tactics to captivate investors and spur growth.
Our conversation traverses the crucial alignment of company goals with financial targets, the art of distinguishing your brand from the competition, and the significance of carving out a niche to make your mark.
We promise you'll leave with a blueprint tailored for the lower middle market.
Not to pick on them, but they'll start prospecting, they'll start going into the well.
Tiana:You always say not to pick on them, and then you pick on them. I don't pick on them.
Gary:Welcome to the GTM Pro Podcast, your essential audio resource for mastering go-to-market discussions in the boardroom. Resource for mastering go-to-market discussions in the boardroom. Here we share insights for revenue leaders at B2B software and services companies, especially those with less than $50 million in revenue. Why? Because the challenges faced by companies of this size are unique. They are too big to be small and too small to be big. This dynamic pushes revenue leaders into executive leadership without a lot of help or support. We are here to provide that support. Your journey to boardroom excellence starts now. Okay, we are ready to go. Hey, it's good to be back. I missed you.
Tiana:Yeah, I missed you.
Gary:Yeah, I appreciate you keeping the wheels turning here at GTM Pro, so thank you. But Tiana came up with a fabulous idea, which is we talk a lot about the lower middle market and we presume that a lot of people know what that means, but that is probably not the case. That a lot of people know what that means, but that is probably not the case. So we're going to talk about it, not in the academic sense, but mostly because it has profound implications for companies and how they think about go-to-market, and not to trivialize it. But the reality is we need to understand the game that we're playing, and the problem that we get in the market today is that, with LinkedIn blog posts whatever is that the advice and experiences that people provide, while all valuable and relevant, are from a mixed background of stages and situations, and it's very hard sometimes to extrapolate what worked in a particular situation back to where we are today. So we're gonna try to boil that all down. We're gonna talk about what we talk about the lower middle market. What does that mean? And, for those of you that have been through some form of fundraising, excuse me, you probably have a pretty good idea of this, but we're gonna break it down for you. We also. We're going to break it down for you. We also are going to talk a little bit about what we see out in the interwebs, particularly on LinkedIn, about advice for growth and how that can be a dangerous echo chamber from the hyperscale background. Then we're going to get into the implications on go-to-market for lower middle market companies. So hold us to that, tiana, so that we don't get too far off path. All right, so let's dive in.
Gary:So the lower middle market really originates from. It's a construct or description, if you will, for the investment community, and so there's large cap, and this maybe start at the bottom. So there's a lot of us know the acronym SMB for small to medium sized businesses, or SME for small and medium enterprises, and this can mean a variety of things, but it largely is those. These are companies that are less than $5 million in revenue and, in many cases, will never be above, or rarely get above $5 million in revenue, and this is dominated by services. It's a lot of the local businesses, whether they're services or product providers or what have you, but they tend to serve a local market or a region a local market or a region. The next tier up is then the middle market, but it's a very broad definition, from 5 million to a billion dollars in revenue.
Tiana:That's a pretty big gap Spectrum yeah.
Gary:Yeah, some of them have a 10 to a billion, but we like to think of it as five to 50, excuse me, five to a billion. So that's why they break it up into the lower middle market, the middle market, and the upper middle market, the lower middle market. These are companies that are $5 to $50 million in revenue. Now, what's important here and Andy pointed this out is that we often get confused with quote startups, because there are a lot of startups that are in that revenue range, but they are playing a different playbook, which we will get to in a second. Then there is, more classically, the middle market, and this is when you start to see, um, you know these are many, very often public companies or large private companies, and then the upper middle market is 500 to a billion and, of course, large cap is a billion and up in terms of revenue. Now, so what does that mean for?
Gary:Uh, as we think about the, really it's a function of how capital is deployed to these spaces. In small and medium enterprises, it's very hard to get any kinds of economies of scale, and so a lot of the capital deployed there is friends and family, local banks, private investors. Very hard to pull that together, because there's just not a lot of scalability, although we are seeing some more funds that are taking some investments there, more longer term, kind of evergreen investments in that space and in the lower middle market. This is where we actually start to see those that invest capital, and now I'm talking about institutions, so this can be everything from family offices, high net worth individuals, pension funds, endowment funds, insurance companies. Those are institutional investors and they have an investment allocation across a bunch of different asset classes, one of which may very well be specifically the lower middle market, and one of the reasons that that's so attractive is that there are a very large number of companies there.
Tiana:Hey, this is Tiana speaking, just a commercial break to get back your attention. We know this is a little academic, but believe us, it's totally necessary. But don't worry, we will get to the sauce in a second, Don't forget. We will be talking about the risks of one-size-fits-all strategies, diversity in resource allocation and go-to-market strategies, balancing scale with personalization, and much more. So if this is anything you're interested in, stay tuned.
Gary:There's also the opportunity to generate outsized returns there, because there's a lot more risk, a lot more work, but the valuation multiples tend to be a little bit lower and there's real opportunity for operational improvements, and so that's why there's an allocation of capital there. Consider it if you were investing in public companies the equivalent of small cap stocks or micro cap stocks. Then you get up into the middle market upper large cap. What have you? So that's where the flow begins. Right, those that have the money are determining how they're going to deploy it. They then look for private equity managers who focus exclusively on companies in the lower middle market, because it takes a certain skill set and rigor to be able to do that well. And so that's how we have a whole class of private equity and slash growth equity and investment banks that are focused in the lower middle market. So they are providing services and capital to companies in that space to help invest in them and get them to the next level. And this is where it gets. Really important Is this is what we say the game to be played important is this is what we say the game to be played. So in the lower middle market, let's just take a typical $10 million company growing 15% a year. Ideally we're at or close to cashflow break even, so we don't really need capital to survive, but we need capital to grow. That's a good spot to be Somewhere around 60 employees probably, assuming 167,000 revenue per employee. We'll get to that in a second. That means that departments if you think about the six primary departments sales, marketing, customer success, product slash engineers and admin you really can't have more than 10 people in a department.
Gary:The founder is typically execs and these companies are single product segment, one to two channels. What have you? If you contrast that with a startup, the typical VC backed company, at $2 million in revenue, a company can raise $18, $20 million. It used to be more. It's come down quite a bit, although actually held up pretty well. Series A has At Series B. Then I can be at only $7 million and raise 40. Now let's pause there and contrast. So it's $7 million. I'm $3 million less than one of the company I just described and I've just raised close to $60 million on my balance sheet in two years.
Gary:And imagine now the resources that are available to them. Also the demands on them in order to create value, they have to triple in size in a year and then triple again and then double, double, double. That is the game that is being played there. So that is why, when it's very important that we think about okay, what is the objective of what we're trying to accomplish here and at that level? We are not trying to triple our revenues and therefore there's a different set of playbooks that we need to play, because our goal is for capital efficient growth 15, 20, ideally, 30% growth, which is pretty heroic if you think about that, and that's why that is so important. We really are working to a different outcome, a different objective, and as we work our way up the lower middle market from 10 million to close to 40, 50 million, what we're doing is we're graduating from the lower middle market and moving up into the middle market, and that opens up a brand new group of investors who are willing to pay more on a multiples basis because there's less risk now in this business.
Gary:Why is that? Well, at $50 million in revenue, we have somewhere between 200 and 250 employees. We have 40 employees per department. We have a professional C-suite CEO, coo, cfo, cmofo, cmo, cro. These are people that have, you know, decades of experience, who have done this across multiple companies. This might very well be a founder of the founder founding team, but there is a very senior level of there's enough heft in the organization to be able to compensate and afford, uh, and attract people of this caliber to be able to help run the business.
Gary:Multiple products, multiple segments, multiple channels. So that's where we're trying to get to and that's what we want to be able to create, and so we have to think very differently than a venture capital backed company would, because we're playing a different playbook. So I'll pause there. That was a bit of an academic discussion, but I think it's super, super important because, especially if you're a revenue leader and you're coming in and you're reading blogs and information and you're looking at all the playbooks that people are running, it's really easy to get sucked into the oh, I need to be doing that too, because that's how they got from zero to a hundred million Wrong, wrong playbook and it's so, so dangerous.
Gary:So we need to understand what is it we're trying to accomplish. What's the next waypoint and it probably in the next two to three years is we need to look like this so that we can raise more capital, so that we can get to the next stage and open ourselves up to the next piece, or we're managing towards a certain market segment that is attractive for investment or in which investors are, but the reality is that we're driven by what are we trying to accomplish from a capital raising perspective or outcome perspective? I'll pause there because I've been going on. So, andy, tiana, jump in.
Tiana:Yeah.
Tiana:I was just about to ask, like who do you think, who are the people that you think that should be listening to this? Who are the people that will listen to this and think about? This is me, and this is what I'm experiencing, and who is this advice meant for?
Gary:So a couple of points. It's CEOs or founders who have perhaps raised a little bit of and we see this frequently raised some early on, some seed funding from small VZ firms or what have you, and they're thinking now about what that next waypoint is. And maybe they're surrounded by other friends and colleagues who raised venture capital money, but they themselves aren't on that same playbook or the trajectory of that company. There's also there's pros and cons, right. I mean there's the more capital you raise, the more dilution you take, the bigger the swing has to be for you personally to be able to earn a decent outcome from that.
Gary:The other is revenue leaders at these companies really understanding what are we actually working towards. Yes, we want revenue growth. Yes, we want profitable revenue growth. Revenue growth yes, we want profitable revenue growth, but it's more than just revenue growth. It's how do we do that in a way that is repeatable, sustainable and understand what the objectives of, in many cases, either the private equity group, that is, either an owner or a partner in the company, or some of those private companies that are looking for capital that will likely come from a private equity group, because that's going to really help us understand ultimately how we're being measured.
Tiana:And so I'm a revenue leader and I believe that my board, or my CEO, is just directing these types of biases against the playbook that we are supposed to be at. How do you encounter that? How do you go as a marketing leader or a sales leader and talk to your CEO and think this is not what we're supposed to be doing? How do you put them in the context, into what you really are like, where you're really at?
Gary:Well, and it's a good question, and I think that's why, as a revenue leader, really understanding the underlying fundamentals of the business, which, from an investor perspective, if you think about what an investor wants to see in any business, is that well, again, not venture capital, but what we would call a cash return investor is that the capital in which they invest can be efficiently deployed to create growth that is repeatable and sustainable. Contrast that with the venture capital playbook, it's really the same thing, but accelerating that growth into a much tighter timeframe, and therefore you have to take big bets, big swings, in order to make that happen. And one of the challenges with the venture capital model is that if you swing and miss and you fall off that trajectory, you fall out of the asset class, you are no longer investable from a venture capital perspective, because the only way that investment model works is to swing for the fences, especially at the early stages. And so, from a revenue leader perspective, understanding the so, as we, you know we're thinking about what we're trying to accomplish. It really is just sitting down with the CEO and understanding, okay, what and this is good advice for the CEO is being transparent about our goals. What is it we're trying to accomplish and, honestly, I don't really want to hear the build, the enduring company that services our customers, dah, dah, dah, dah dah, because it doesn't actually help me.
Gary:What do we want to be in two years? We want to be at X million in revenue. Well, why do we want to be at X million in revenue? Just because, well, that's where we start to get to. Well, that's what the investment bankers told her I need to be at. I'm like, okay, now we're getting somewhere. Why do we need to be at that level of revenue? Because investors are looking for that. Okay, now we're getting to. What does this business need to look like so that I can start to manage the inputs to get you to that point? So what is that? That helps me understand that.
Andy:I think the big you just hit on the big thing there, which is Venture capital, is going to be bigger bets. It's going to be swinging bigger, going for bigger things, bigger risk, going for bigger things, bigger risk. And I think, with how we approach the lower middle market and the typical entities that are funded by private equity, it's de-risking the business. I don't think you're ever going to Well, you'd never go wrong doing that, probably even with venture capital. But if you come up with I bring this up all the time ICP right, like if you know your market cold, you know exactly who you serve, you know exactly who you serve well, and you build an engine around that as a foundation and as a starting point, you're never going to go wrong there. And that works really well in the private equity lower middle market space because they're looking to see can I grow but at a relatively low risk, certainly relatively lower than something in the venture world, and if you can do that it's never going to land you in a bad spot, right?
Gary:So implications from a go-to-market perspective. We are hearing more and more the virtues of quote niching down, and that's always been true for the lower middle market and it's increasingly true for companies of any size, largely because it has gotten very, very difficult to garner anyone's attention, and so the more broad you are, the more, the higher the probability that whatever it is you're saying is diluted noise in the marketplace, and so it's hypercritical that we are niching down Now. The difference from a venture capital perspective, however, is that the only way that they are going to be able those companies are going to be able to drive the kinds of growth that they need to drive is that they are operating in what we call multiple horizons at the same time. So they may be, and that's why they have to raise so much capital, because they're trying to perfect a current motion product to a particular zone or whatever. At the same time, product development is trying to determine what we're going to need next year in order to move up market, open a new segment, launch new product features. What have you so that we can continue this accelerated growth? Because if you think about tripling this year, tripling next year, then double, double, double. Tripling this year, tripling next year, then double, double, double. The only way to do that is to start laying the seeds today for the growth engine that's going to be there next year, and then do it again, so you're always out ahead of yourself, while at the same time you're trying to maximize where you are today.
Gary:If we contrast that with the lower middle market and we're thinking now about capital efficiency and that is cash flow producing quick payback, excellent returns on capital, 15% to 30% growth, and do so profitably that means that we can't afford to make mistakes, because we lose the compound benefit of time upon which we so rely in order to get to those growth targets, which also means, then, that we have to be really, really specific about whom we serve, and that's not just from a go-to-market perspective. We hear a lot about ICP from a go-to-market perspective, but at this case, more than ever, it is actually literally the target customer around whom we serve. Our entire company is built, and that would be from a product perspective and certainly a go-to-market perspective. And that would be from a product perspective and certainly a go-to-market perspective. And so that's the first place to start and really understanding that, so that we can build our motions around okay.
Gary:Well, how do we go attract those customers? How do we go deepen a relationship with those customers? How do we future customers? How do we enable them and educate them? And in a market where we are likely not the dominant provider in our space, how do we create, carve out our niche in that space so that, in the absence of any differentiation, so that, in the absence of any differentiation, companies are most likely to choose the category leader because it's the safest. And so we have to be very good about how we do that.
Tiana:Yeah, I was about to ask, like, taking account of the echo chamber of go-to-market applies, what are the risks of the one size fits all strategies? Like, what are the potential pitfalls of applying the same go-to-market strategies across various stages of company growth? Like with the companies that you've worked with, have you ever encountered anything like this and like what were the consequences of it? So that, like, people here can understand, like the impacts from it.
Gary:That's, yeah, such a good question. So if you're not careful as a marketing or sales leader, even CS, you're going to hear about all of the things that we should be doing. We need to start a, we need to be a media company, we need to. You know, we need community, we need a higher tech driven approach on customer success, we need SDRs and AEs and senior AMs and junior AEs, and we need all this structure in place.
Gary:And it's really easy to think that we need to be doing all of these things when, in reality, that advice is for companies that either are much larger and already have that infrastructure in place and therefore need to be operating on multiple products, multiple channels.
Gary:They need to support all those things, and so that's the problem with what we hear out in the world is here's what good marketing looks like, either for quote a startup, which is again we've established on a completely different playbook trajectory, or for a larger company that has a C-suite level, a few directors, several managers.
Gary:They have teams of specialists who are working on a particular thing, and we take that advice and think we need to do it. What ends up happening is a small marketing or sales or customer success. Teams of less than 10 people are trying to do all of those things, and what is the magic sauce for any company, but especially those in the lower middle market, is the coordination of steps across the buyer journey to remove friction. Be hyper-focused on our customer so that we can increase velocity, reduce time and increase the ACV the average selling price, ASP, if you will, the average selling price ASP, if you will. And so it's coming at it, looking at it as a system through the eyes of the buyer, versus what are all the things that we believe we should be doing that are quote marketing or sales or customer success.
Andy:Yeah, you can still have budding areas, have budding areas in future horizons. That's a great thing to get invested in is you've shown that there are these potential bright spots where you have some additional product market fit. You can't fund that and that's possibly one of the things you're asking to fund, but you still can do that. You're just not going to be able to place all those bets and actually manifest that with your operations. And I think what you just said, gary, is super accurate.
Andy:Channels are one that you know people hear about.
Andy:Oh so-and-so is doing this partnership thing. I got to go do that Technology right, there's always these really cool things out there that you know people are using and you hear about, and then you find out it's, you know, a six-figure type of platform that you'd have to invest in, so you can't do that that you'd have to invest in, so you can't do that. And then, of course, the organization that you also mentioned is a dimension that you're just not going to be able to have all those layers, all those bells and whistles on most of the people that do specific things Like we're just fighting oftentimes for let's get some rev ops in here, let's get some product marketing in here. Those are big ones that fundamentally, I mean that goes without saying. In either venture or just larger companies they're going to have those functions and they're going to be pretty well fleshed out. But we're just fighting to get that actual function in there, whether it's one person doing a couple of things, you know that actual function in there, whether it's one person doing a couple things.
Tiana:Yeah, I was actually about like. I was about to ask like how companies can ensure that they are not just merely replicating like other go-to-market strategies, and like how do they get to the customization of these go-to-market strategies for the industry that they serve? And it's exactly what you two said, that uh, for one, you need to know who you serve and you need to just go very specific at it. You need to like reduce the space where you, to the people that you think you serve, to the companies that you think you serve, and actually, as Andy usually says, like be the Coca-Cola of your company. Just be like very specific about your messaging and how you position yourself in that space in the industry, so that the first thing that people think about when they know they have this problem is about you and there's just no other alternative.
Andy:If we bring it back to a goal being I want to increase my enterprise value. I want to increase my enterprise value. I want to increase the value I could sell my company for or get additional investment for, the multiple. It is exactly that, tiana, which is how can I show that I do something really well for you know a particular segment and they know me for that, and that is that's the brand thing, that's the Coca-Cola thing. Like, if you can show that, if you can exhibit that somebody's going to desire that from you, you know, or somebody will say I'm willing to fund for you to figure out that next chunk, that you can do that for.
Gary:But I think the challenge is how do you actually get your organization to have those capabilities to do that? Working with over 50 of them in the last several years and investing in some and serving on boards of others is we need to start thinking differently about what are the capabilities our organization needs to have in order to do that. The only way to truly understand to be the Coca-Cola of your industry is to actually know, a your industry and B those buyers, and what actually pains them. I mean really, really specifically, and the only way to do that is to talk to your customers a lot, and there are so many digital and analog footprints available for you to go do. The challenge is that the organization does it in pockets and pieces.
Gary:Sales has one perspective. Marketing has another. Product has one perspective. Marketing has another Product has another. Customer success has another.
Gary:And there's no, especially as you think about an organization that is, say, $10 million, $15 million in revenue. They've been around 10 years. The founding team is still in place. There's probably some continuity on the product side, but we've probably been through three, four, five marketing leaders, a handful of sales leaders. Salespeople have come and gone. Cs people have come and gone. Marketing. People have come and gone, and so there's this very loose tribal knowledge around who is the customer, whom do we serve? And it's evolved over time, and so some of the big fundamental changes that we would recommend is we really need to think about how do we consolidate and make this an always on thing, which is this insight on the customer.
Gary:Sometimes that happens in product marketing. There's a variety of ways to tackle it. We advocate for what we call the investigative journalist, which probably sits in marketing. What we call the investigative journalist, which probably sits in marketing. It's most frequently in a content marketing-ish role, but it can be served by a product marketer as well. But it is a maniacal, deep and intimate understanding of your customer and that drives everything.
Gary:The other thing that Andy touched on is RevOps, and it's such a polluted term today because most of what we see is we call it RevOps, but it's basically your Salesforce administrator who's called RevOps. Revops is both understanding the technology that we use to run our business but, importantly, the analysis, analytical side of being able to interpret what's happening and proactively creating recommendations around that. So we ideally we don't have sales reporting, sales and marketing reporting, marketing. We have RevOps reporting on the revenue engine, from acquisition at the very top of funnel, all the way through to expansion, because that is the only way that we get to understand the system.
Gary:We don't actually control revenue as much as that is the number one metric. We don't actually control it. What we control are the inputs that drive revenue, and so what we need is to be able to understand when we revenue is an output, it is an outcome metric, it is a compound metric. That is everything that happens to the system, and so the only way to understand what's working, what's not and how to drive change is to have insight on operational metrics across the system, because any change we make in any part of the system is going to affect others, and if we're not careful and we start try to manage that system by silos, we end up with local optimums where, hey, marketing is hitting its targets, but sales is not. Well, that's not a marketing problem, that's not a sales problem, that's a system problem.
Andy:And the linchpin in all that is the buyer. So another good asset test for that is to we use the concept of zones, which you can roughly break down into starting a relationship, deepening it, getting someone to raise their hand and say, in the case of SaaS, it's often a demo. Right, I'm ready to have a demo. Okay, what's the demo like? And then what happens after that? Right, if you can see all of that literally through the eyes of the buyer, that puts you in a good position to understand is this optimized as a system, as opposed to to? Is everybody kind of doing their own thing? Does marketing and sales have the same positioning? As a starting point?
Andy:But really, looking at it through the lens of, if I'm coming to this problem from out in the world, you're one of many solutions typically right. World, you're one of many solutions typically right when I hit upon you through whatever means, what is that like for me? What is my experience? And is it consistent? You know, across all those phases and does it make sense and does it solve my problem? And then, obviously, this ties to targeting and who your ideal customer might be. But for them, is that it does it make a lot of sense that's. That's obviously who you're, you're going to want to optimize that for, but that's a that's an important asset test. Does it make sense to somebody coming out from randomly into the world, into your orbit? Does everything make sense to them as they progress?
Gary:And one of the advantages of the zones approach is that you know each zone butts up against the next, and so what often happens is one department is responsible for one zone and another department is for another zone, but the buyer has is the one who traverses between the two Right, and nobody has any idea what happens like. What's the experience? What would happen and this is where the the compounding effect of really fixing these pieces is what would happen if somebody came to a demo page and we actually provided them what they felt they needed, that encouraged them to view the demo not as okay. This is the only way I can see the product, but I'm actually genuinely interested in talking to somebody who can help understand help me understand how this tool can be used in my specific use case. At that point, it's almost a consulting call right that. What would happen to our the quality of people that come and talk to us?
Andy:That's. It would just be useful to know how many there are of each Right, how many, how many want to just kind of see it for themselves up front, maybe self-serve? That's a. That's an open ended conversation. That's another one. I want to talk to someone about solving a problem and I want to actually get that from them. And I want to talk to someone about solving a problem and I want to actually get that from them and I want to hear, you know, hear their thoughts about like just if I'm targeting well and the people come into the orbit that way, how many of each of those are there Like can I detect that and can I serve that? I often think that if you think through the lens of, obviously, the buyer, but also maybe through the self-serve lens not that you're necessarily going to be able to do that, because it is a whole other motion but if you think about self-serve as an ideal, you're probably going to get better at sales led as well, again through the lens of the buyer yeah, yeah, I.
Tiana:I definitely believe that one of the problems well, I well, the biggest challenges is that, uh, companies are now, like lately, structured for, like the people that work in it to think according to their goals and what was set in their goals, and people don't think behind that number, like why was that goal actually set? Like why, what, what? And people don't think behind that number, like why was that goal actually set? Like what am I trying to accomplish through that number? And that's what really matters. And that's also a problem. Like the lack of synergy between the mindsets of the departments is just what, for me, brings a lot of trouble to the buyer experience and that's actually what, just, I don't know, messes the whole process up. That's a great point.
Gary:Tiana, I mean, and I was actually just thinking about this so one of the awesome things about working in a lower middle market company is that the formula to revenue or formula to value creation is actually not that hard to do. It's just that to get the information requires everybody to sit in a room and figure it out. And so you went back to goals. Let's talk about how goals are typically set. The board typically says well, you need to be at X million in revenue next year, because that's what we need to see from an investment perspective and that's how we're going to get to X million in revenue the next year. So that is typically where it starts.
Gary:As a top-down number, finance then seeks to deconstruct okay, well, how many opportunities does that mean given a certain value size? How many based on current conversion rates? How many leads does that mean? Yada, yada, yada. And that's why we end up with goals for marketing and for sales. Go, hit these goals right. But we never rarely do. We do the bottoms up portion of that and what happens is they'll get their goals and they'll go back and they'll look at it.
Gary:Okay, well, what does that mean that I have to do? And oftentimes we start pulling rabbits out of hats, and one of the worst things that can happen I've lived it myself and I have seen it over and over again is that you actually successfully pull rabbits out of hats and you hit your numbers. You hit your revenue number at the end of the year Hallelujah, we did it. That's great. Guess what this year's target is, next year's baseline? You got to do it again Now. You got to pull two rabbits out of the hat because you didn't build anything foundational. You didn't actually solve the problem, and so one of the most powerful things for a revenue leader to be able to do would be if I were a CEO, I would get and have been.
Gary:But today, if I were a CEO, I would get finance. I'd get the whole revenue team and finance in a room and I'd say we are going to build this thing from the bottoms up through the eyes of the buyer and see where do we have opportunity to expand and grow, because then, and only then, do we have something that is sustainable. And then look out into quote horizon two, which, if I'm planning for 25, I'm thinking about 26 and maybe even 27, which is is that repeatable at the margin? Like would this get us to where we need to be for our next year's goal? The answer is probably not, because we're going to reach diminishing returns.
Gary:And so that to Andy's point is where okay, well, we need to start thinking today about the places we need to experiment that will be the growth drivers in the future, and if we don't reserve a little capacity on the team to be able to explore those things, we'll be right back and pulling rabbits out of hats again. And guess what? Investors can sniff that out in a heartbeat, because they bring in people like us to get under the hood and see is what you've built sustainable and repeatable? And I can tell you from experience that many, many, many times the answer is no, and so that level of detail, done well on the front end so that everybody understands the engine, is such a powerful unlock we cannot say it enough. And that is so critical in the lower middle market, because it's not about swinging for the fences in any one area, it's about pulling these pieces together across the buyer journey so that the equation makes sense.
Andy:When you pull rabbits out of hats. The other byproduct of that, to some extent, is you start to shoot at everything that moves right Because you're scrambling. At that point, any deal gets me to my quota. Any deal, any deal. And that's the key Sales. Not to pick on them, but they'll start prospecting, they'll start going into the well.
Tiana:You always say not to pick on them, and then you pick on them.
Andy:I don't pick on them.
Gary:Well, let's see, I was just going to say, let's just come clean, andy's a marketing guy. It is.
Andy:That's the old tribal thing coming out a little bit, but it really what it. What happens, though, is they're doing their job and they're they're, they're trying to make quota and they're trying to make sales, and you end up with a lot of different types of customers, right? Um, that spins a lot of things up. That spins up marketing to try and come up with ways to sell all those different kinds of deals, you know, sizes, industries, whatever it may be, different use cases, right, not scalable. Then what happens? Customer success gets them. They start to try and onboard these people. They're like it doesn't even really really help. You get into all this stuff. Obviously, that has churn implications too, but what that is is that is not a solid foundation to grow systematically and that does not look good to investors in the future.
Tiana:Yeah, like you said, they're just trying to do their job and it's not their fault because, at the end of the day, it's because the company lost sight of their actual purpose, like, what's their purpose to the buyer, what's the job that they solve for the buyer? Well, of course, generally they have a product team that just starts creating new features to adapt to these different clients and it just all starts to get too messy. And talking a little about that and the resources that we have mentioned that they have, I want to ask, from a resource allocation perspective, how should lower middle market companies allocate resources between through-brand go-to-market strategies, experimental approaches, what's the aim on that?
Gary:That's a good question, I think, generally speaking, what we find is that companies are over-invested in sales and it's largely because that's what's worked to date. Right, they started with the founder and then we hired a few salespeople and we had some success and you know, whatever, whatever that looks like, and I honestly too, at a time when, when even outbound right, if we go back, even through the pandemic period up to that all of those things work, like being being sales heavy actually did work not necessarily the most efficient, but it got you to a revenue number and so but in today's world with so much noise, um, we're going to have a whole discussion, probably in may, around outbound, so we'll get to that separately, but uh, that's typically what we see is that we have to go back to what is it we're trying to, what is the system that we're trying to build? And in order to design this system to be efficient for the buyer to navigate, to build a system that allows the buyer to buy the way they want to buy, means that we have to know our buyer. So we have to allocate some resources to that and not making it a project ad hoc thing, but something that someone somewhere in the organization owns. Buyer insights from top to bottom and product uses that. Marketing uses that, sales uses that, and there's so many places to do that. We have a whole podcast on that. Uses that and there's so many places to do that. We have a whole podcast on that.
Gary:Um, the other is equally important is the understanding, the cockpit controls of the system, and that's where rev ops comes in, like the ability to instrument the tech appropriately so that we get the data that we need, and then the ability to analyze that data, so we know what's happening at the input level. How many visitors of a particular ICP profile are we getting to the website? Is it going up and to the right? How many of those are then landing on key pages that we believe indicate education or further interest in exploring who we are or getting a relationship with us? Is that up and to the right? Are we getting better conversion rates? Is it happening in less time? Are we getting less drop off? Are we seeing ACVs going up? How are win rates doing?
Gary:We have to understand all of those pieces. If we make this change up here, it's going to impact down here. Andy brought up a fantastic one, which is what's happening. Yeah, we're having success closing deals. Guess what. They're not great fit clients for our product and so CS is having to do acts of heroism to get them into a place and they end up churning. Are we actually looking at that and understanding that that's the downstream impact of this quote sales success.
Andy:Yeah, that research thing you talked about researching the buyer, really understanding them intimately goes hand in hand also with one other piece. It's like a B to that which is understanding the market right.
Andy:So, as you go to that next bowling pin, as we like to describe it, but the next place that you want to seek product market fit, you want to seek scalability, is really understanding the dynamic. Where are you best set up to have success with a slightly different segment, with existing product, or slightly different product manifestation to the same type of market, and so on? So you need that function to do that effectively. And you mentioned sales. To give them credit, tiana, sales.
Andy:Oftentimes in that sort of a situation, they're doing their own marketing right. So when you're talking about outbound, that's marketing. And they do that because there's a vacuum there. They have to make their quotas right. So they're doing outbound and they're doing acts of heroism and they're doing marketing. They're like you know what I don't have? I don't have a, you know, a solid foundation by which to work from there. So I'm going to do it, I'm going to come up with my own positioning, I'm going to come up with my own pitch, I'm going to find all these leads that I can go out and do outreach to so that happens. And and again, that's that's just another thing that needs to be. Call it centralized, but systematized, and really have a thoughtful, solid foundation for.
Tiana:And well, to your point, like so sales have to be like, very like they have. Well, the buyer has to have a very personalized experience for them to like. If you really know your buyer, if you really know your ICP, it's going to nail, it's going to boil down to being very, a very personalized experience and you should be like, you should know a lot about your customer. So how can lower middle market companies, like, balance the need for scaling their operations with the need for personalized customer interactions in their go-to-market strategies?
Gary:That's a doozy yeah.
Andy:That's probably a whole other podcast, yeah, actually. But I would just simply say you can do both. You can have scale and then be personalized, and that's the key. It's a matter of timing, right, right. So we talk about getting people into your orbit by way of being helpful and then detecting those signals of who's like they're rumblings, that they're interested, they come to your site, you know. The obvious example is they they ask for a demo request, but, um, that's when you, that's when you really try and figure out who you're talking to. So you can kind of do both. You can have scale on the I'm creating relationship with what I believe to be my ICP, but then, when you see indications of interest, you can really understand who they are and make sure they indeed are your icp and obviously speak to them accordingly yeah, yeah, the holy grail is that your sales team is only working on, excuse me, people who are objectively in market Active, yeah, yeah, actively in a buying cycle.
Gary:But your engine, as Andy pointed out, is finding a way to start relationship with people who are your target market, who we want to have that awareness, that is brand, and then we deepen that relationship and then we use those signals to help us understand not, oh, they're in a buying cycle, time to sell them, but they seem to be more actively engaged in trying to find answers to these problems and these questions.
Gary:How can we help them do that in an accelerated fashion in, in leaning in that basis, which will naturally then lead you to a conversation, ultimately to position your product um, and it might very well be that they're doing some research in advance of the organization even being ready to do it, like we might currently be under contract with an existing provider, but everybody's unhappy. I believe there's a better option. So I'm out researching those things, but we're nine, 12 months away from that and we may not know that necessarily through an interaction other than a sales conversation. But that is a prime opportunity to be in the pole position for when that happens and the challenge with sales is that we need to make quota.
Andy:It takes a lot of discipline. That's really, I think, the operative word there is you can do, do all that, but it takes discipline because the temptation will always be when, when numbers or when the the pipeline's down a little bit, is to is to start, for lack of a better word, failing a little bit well, okay, we had we covered a lot of ground here, so I think we, as I say, let's land this plane.
Gary:But hopefully this was helpful, as we have talked about the lower middle market and the importance of it, but really not from an academic perspective, but we're really zooming out and thinking about capital formation. Where does the capital come from that is investing in these spaces, and what are they looking for, what are they expecting, what are the resources we have available to us and, therefore, what are the implications of go-to-market? And that's so important. And there's a lot here and there's some graphics that I think will help make a lot of sense. So, if you haven't already done this and you're hearing this, check out gtmproco and think about subscribing, because we're going to put a excuse me we're going to be putting a more detail out newsletter out on that next week.
Tiana:All right.
Gary:So for that, so I don't cough your ears off. We will see you next week. Bye, bye. Thank you for tuning in to GTM Pro, where you become the pro. We're here to foster your growth as a revenue leader, offering the insights you need to thrive. For further guidance, visit gtmproco and continue your path to becoming board ready with us. Share this journey, subscribe, engage and elevate your go-to-market skills. Until next time, go be a pro.