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April 26, 2023

How Investor Pressure Has Turned Sales into Marketing's Job

How GTM Leaders Can Overcome a Culture of Short Sightedness

It’s critical to understand the role that cheap capital and a growth-at-all costs mentality have played in creating a culture of unrealistic expectations from executive leaders on their go-to-market teams, specifically in venture backed technology companies. 

Shortsightedness and impatience are the achilles heel of many upstart and growth stage companies. At best, it yields burnout and a rapid depletion of cash that’s critical for survival. At its worst, impatience can lead to impulsive decision making, and in many cases, the premature death of a company that never really had the proper chance to show its value to the market.  

We’ll expand on this more below, but if nothing else, what’s important to take away here is that:

Ease of Raising Growth Capital ≠ Ease of Converting B2B Prospects into Buyers

To explain this in further detail, in this article, we’re going to cover:

  1. How Impatience from VCs Has Led to Unsustainable GTM Expectations
  2. Why Sourcing and Closing B2B Buyers Isn’t Fast or Easy
  3. How to Solve Short-Term Growth Needs with a Hybrid Inbound/Outbound GTM

How Impatience from VCs Has Led to Unsustainable GTM Expectations

Why It’s Been So Easy to Raise Capital

For the last two decades, accessing capital for relatively cheap has been abnormally easy for a number of reasons, including but certainly not limited to:

Historically low interest rates that have:

  • Made it easier for established companies to grow using debt financing/loans
  • Driven investment demand into alternative asset classes, due to low bond yields
  • Bullish investment appetites in tech, driven by anomalies like Meta, Google, and Netflix
  • A rise in VC funds fed by Boomer wealth, looking to get in on “J-curve” growth without the technical knowledge to perform in-depth diligence on technology investments

All of these elements – and a lot more – have led to a rapid infusion of capital into technology businesses, catalyzed in 2020 as the pandemic forced a seemingly ubiquitous, overnight adoption of technology infrastructure that, beforehand, may have been seen as a nice-to-have. 

According to Reuters, in 2021 alone, private technology companies received nearly $350 billion in venture capital investments, nearly double the $164 billion in VC funds raised just a year prior in 2020, according to the National Venture Capital Association.

“Growth at all Costs” Mentality Has Set Unsustainable Expectations

Quick, large infusions of cash don’t happen by coincidence. They happen out of demand from investors who expect to receive an outsized return on their investment, in a much shorter period of time compared to publicly traded companies (excluding the notorious SPAC, but we’ll save those for another blog), real estate, or other investment classes. 

So with VC money comes an imperative said bluntly by McKinsey & Co: “grow fast or die slow.”

Simply put, VC-backed companies must demonstrate rapid year-over-year growth – generally quantified by a combination of growth in Revenue and User Count – or risk not meeting the milestones required to raise their next round of funding, a survival necessity for companies setup to burn cash in the pursuit of rapid market share, at the expense of sustainable profit. 

This mentality only works in an economic environment where the capital required to bridge a massive deficit between revenue and expenses is easily accessible and cheap to borrow. Based on the Fed’s nearly 3x rise in interest rates from 2021 to 2022, it’s no surprise that this isn’t a sustainable model, and the numbers say the same: VC fundraising plummeted by 31% from 2021 to 2022 – an almost perfectly inverse illustration of a simple reality we need to accept:

The era of cheap capital is over. And so must be the era of blind, directionless growth.

Sourcing High-Intent B2B Buyers Is Hard and Takes Time (Especially in New Markets)

Rapid Growth Expectations Shape Tactics That Optimize for The Wrong KPIs

So how do cheap capital and a boom in VC funding affect marketers, especially if this isn’t going to be the norm moving forward? It’s a great question.

We can’t overlook the constraints that have been placed on marketers in the past decade of high-growth – constraints that threaten not only the profession but the viability of the function itself for the organization, should the residual expectations born of this era continue to linger in an economic climate that, in many ways, is the antithesis of the conditions that created these constraints.

Rapid infusions of cash, and the subsequent mandate to see nonlinear increases in Revenue and User Count – often in less than 12 months in order to reach the next funding milestone – have created a go-to-market culture that is incompatible with the realistic nature of B2B customer acquisition. 

Most B2B CMOs are being measured on the number of marketing-sourced leads (MQLs) generated for their sales teams, and given the rapid timelines required to reach their next milestones, positive movement in these KPIs are usually expected in less than three months of time. This is a recipe for haste that makes waste.

The Overlooked Truth: Investor Impatience is Incompatible with B2B Buying Cycles

Expecting a marketing team to source truly qualified leads for a sales team in less than six months, let alone less than a quarter, is not only ineffective, in most cases, it simply isn’t possible for reasons incompatible with the very nature of how B2B customer buy:

  1. New technology often solves a problem users don’t know they have
  2. This results in less existing demand in the marketplace for new-to-market solutions; this also creates a hurdle of education that can often take months to overcome
  3. Expecting qualified marketing-sourced leads to surface in less than 6-9 months in a market with little existing demand, directly compromises the ability to educate and inform the market of your product’s existence through critical brand awareness efforts that create the demand missing in #2
  4. Bypassing this, in effect, makes it harder for sales to sell, due to lack of brand familiarity
  5. This is all on top of sales cycles than can range from 2-12+ months, depending on the size and stakes of the enterprise deal, and the complexity of implementation

For all of these reasons, expecting Marketing to rapidly generate new revenue – let alone qualified Leads – in a handful of months, for a product or service that has little to no existing brand awareness and demand, is simply asinine. 

The elephant in the room is that this was never realistic, even during the high growth era. 

Now, the antarctic blue whale in the room is that in an era of increasingly constrained resources (both for marketers, and for those we’re selling to) as interest rates rise, achieving this type of movement in such little time is simply impossible. Something needs to change.

How We Solve This: A Hybrid Go-To-Market Strategy

Identifying the Root Cause of GTM Misalignment: Over-Emphasis on Top of Funnel

The vast majority of turbulence during the go-to-market phase is a consequence of focusing the entire Revenue Organization (Sales and Marketing) on Lead Generation alone, prematurely. 

It is understandable for revenue generation to be the primary focus of an early-stage company, however, to assume that Lead Generation is the only way to influence revenue growth is a dangerous oversight that can actually be counterintuitive to an organization’s survival.

Consider the Sales Velocity Equation:

Most first-time founders, especially technical ones who have never built a revenue organization before, tend to over-optimize for the top of the funnel (i.e. the number of new opportunities or leads). While average deal size is arguably more fixed, very little emphasis is typically placed on marketing’s ability to influence Win Rate or Sales Cycle Length, which is where dollars are left on the table.

How to Increase Revenue with Fewer Leads

Let’s consider the following two scenarios for an early-stage company with an Average Deal Value of $50k, that has five outbound SDRs who are pre-qualifying a cumulative 50 new Leads per week, or 200 qualified leads per month. 

In Scenario #1: 

The Marketing team:

  • Is responsible for running lead generation campaigns on AdWords and LinkedIn
  • Spends most of their time on paid media campaign optimization and display ad design
  • Generates an additional 50 inbound leads per month, via landing pages

The organization brings in a total of 250 leads (50 sourced by marketing), of which:

  • Only 10% of them convert – most determine during the demo that they do not need the offering, or that it solves a problem that they don’t have
  • The Sales Cycles takes 6 months – due to roundabout internal conversations, and the customers’ internal decision makers citing the “business not being around for long enough, not wanting to take a chance on a startup that’s not legit”

Net-Net, the organization’s Sales Velocity comes to: 

  • (250 Leads x $50k x 10% Closed-Won) = $1.25M
  • / 6 Month Sales Cycle
  • = $208k Net New Revenue / Month

In Scenario #2:

The Marketing team:

  • Spends zero time or ad spend on paid lead generation; leaves this to SDRs
  • Have a weekly sync with Sales to identify:
    + (a) The most common objections that are coming up
    + (b) Which industries are gaining the most traction, and why
  • Modifies the website using Sales’ insights, and builds targeted industry pages
  • Develops Case Studies that proactively address the main objections coming up
  • Creates an arsenal of collateral that tells the product story for different personas 
  • Begins postings on LinkedIn and the blog, so Sales has content to direct prospects to

The organization brings in a total of 200 leads (a 20% dip, none sourced by marketing):

  • 30% of them convert – most of them attended the demo ready with questions, having researched the product / use cases on the website ahead of time
  • The Sales Cycles takes 4 months – and each proposal sent came with a case study, and often times a tailored piece of collateral for the CFO, that addresses some finance-related concerns that sales cited continually arising

Net-Net, the organization’s Sales Velocity comes to: 

  • (200 Leads x $50k x 30% Closed-Won) = $3M
  • / 4 Month Sales Cycle
  • = $750k New New Revenue / Month

The irony in this scenario is that, despite sourcing zero new leads, the marketing team’s contribution to creating content and refining foundational brand assets that the buyer interacts with mid-funnel, ultimately drove up Close-Win rates and shortened Sales Cycles, while yielding a 300% increase in Sales Velocity, despite spending zero time on paid lead generation.

What cannot be ignored here is that:

  • If we only focused on what we can measure (marketing-sourced Leads), we would be dis-incentivized to devote marketing resources to critical sales enablement activities that have a multiplicative impact on sales efficiency (we’re talking 3-5x)
  • This is where a prematurely delegating Lead Generation to marketing – simply due to the appeal of being able to measure and attribute – leads to neglect of the most important work that marketers could do to influence buyer-enablement
  • Lead Generation is still important, but it’s about who owns it during the very early stages, in which Product-Market fit is still being refined. In this case, a dip in Lead Volume (due to relieving Marketing of this work) still yielded a 3x increase in Sales Velocity, by reallocating the team’s efforts to less measurable, equally critical mid-funnel support

Outsourcing the Revenue Gap to Marketing is a Recipe for Failure During Early-Stages

Too often, the startup problem of OpEx exceeding Revenue gets outsourced to marketing to solve. That’s a recipe for failure on all sides, from the CEO to the CMO they’re delegating to. It’s not about who should carry the pressure of revenue generation. Rather, it’s about a fundamental misalignment in the mechanics of the business at that stage, and what is actually possible when it comes to sourcing B2B revenue in a short period of time.

Effective marketing requires two things to work:

  1. Product market fit – which is the basis for all messaging; and
  2. Time – in part to experiment with what works, and in part to accommodate the fact that B2B buying cycles can take 2-12 months for a prospect to even move from brand-aware to solution-interested, let alone to make a purchase.

Often times, early stage companies have neither of those two things: 

  1. They’re still experimenting with product-market fit
  2. Their runway is finite, sometimes less than a year, which doesn’t leave enough time for an inbound marketing strategy to really show its value if you’re resting your entire revenue gap on marketing.

Shifting Marketing’s Emphasis Down-Funnel During Early Stages

What the above conundrum implies is that expectations of marketing’s role need to shift during the early stages. A true inbound marketing strategy can take a year or more to start to pay dividends at the top of the funnel (i.e. inbound, qualified sales opportunities), which can be a recipe for disaster for a company that is expecting inbound, marketing-sourced revenue to close their revenue gap before their runway is depleted, or before their next fundraising milestone. 

Where inbound marketing can provide instant value is in the middle of the funnel, when a prospect sourced by your sales team is actively researching your company to make a purchase decision. According to Forrester, 90% of B2B buyers want to consume relevant content from vendors at each stage of the buyer journey, to give them confidence that the vendor both understands and has the solutions to really solve their problem. 

In these cases, content marketing (think: blogs, case studies) and product marketing (think: industry landing pages, product collateral) can play a powerful role in keeping prospects confident, both accelerating your sales cycle and driving north your win rate.

Covering More Ground, Faster, with SDRs for Lead Generation

Knowing that inbound marketing doesn’t pay off overnight, but that you need revenue in a relatively short time, the role of sales cannot be understated at the top of the funnel. This is where hiring 1-2 SDRs, instead of dumping money down the drain on paid ad spend, can be a highly-effective way to build your top-of-funnel in a cost effective manner, while also providing your company with a feedback loop on what messages are resonating with outbound prospects. The manual nature of this, coupled with the grit of a sales rep, will get you in front of new logos a lot faster than inbound marketing will, during early stages. 

The Bottom Line

If your company is in a state in which net new logo acquisition isn’t just a valuation driver, it’s a survival imperative to cover your burn rate, the smart thing to do is leave top-of-funnel metrics to your sales team, and focus your marketing team on increasing the efficiency of your sales team through sales enablement. In practice, the tactics won’t look much different, but the KPIs you monitor will. By not forcing marketing to own the New New Lead metric in the first 6-9 months, you’ll give them breathing room to build an inbound play that will generate results more organically long term, while allowing them to build tools that help Sales close faster.

About the author

Sam Malik

Sam is the Founder & CEO of Notable

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