Replacing the CEO is the last thing that investors want to face, so it takes a long time to get to that point. The CEO has successfully built a world-class development team and has delivered the product to several customers who are happy and satisfied with the relationship.
So what happened?
The failure is not building the transition from the founding team to a revenue engine (ARR targets, pipeline). For most startup teams, marketing and sales are outside of their experience, so they follow the common strategy of hiring a well-known executive at a very high price. That person is often not a hands-on person, so they either hire an agency, other full-time employees, or contractors. They build their team, which takes 3-12 months and produces some results. If the results are good enough, no questions asked. If the results are not good, then the staff or the CEO is replaced. Often the investors and board give the CEO one more chance to get it right. The process repeats itself either with the same results or results good enough to satisfy the investors and the Board. The additional funding required due to the delays is at a less than optimal valuation.
If a competitor raises additional funding during this period, the significant financing provides a competitive advantage due to scale.
How to avoid being FIRED
The transition from a founding team to a revenue engine is critical to set, test, and adjust the marketing strategy. Whether hiring full-time executives or agencies, the most crucial focus is on getting the ICP right for the next 6-12 months. At this stage, the company has a handful of customers that can provide valuable insights into the psychology of what the product and company offer. Take these insights and test them against a broader market by doing rapid iterative testing using primarily inbound and minor outbound outreach. Very successful companies have great psychology. Set a high target of interviews with potential clients that broadly match the ICP. A common failure here is to segment based on the product features instead of the problem solved. ‘Logic says we find out what they want and we deliver it, psychology/marketing says we find out what we can deliver and make them want it.’ (Rory Sutherland, Ogilvy) The ‘logic’ camp is favored by Tech Startups, leading to an ever-expanding feature list and an ever-expanding set of collaterals for each market segment identified. The expenses increase with the increase in time and materials.
As part of the interview process for these capabilities and skills, the CEO must ask the question about separating marketing from sales functions. The answer at this stage is that they must be combined or at least operate hand in glove. The rapid feedback improves the leads’ quality and focuses on the target ICP.
A complete integrated tech-stack is critical for automating the inbound marketing to nurture and develop the early awareness leading to the close of business. The funnel of prospects moves through the stages of understanding to the point where they are ready to move forward and buy (either with sales guidance or independently). The system must identify trends, costs, segmentation, patterns of behavior based on the data collected throughout the process. These analytics provide the insights to improve and tune the process from beginning to end continuously.
Conclusion
The psychological analysis, marketing, sales process, building the tech-stack, and executing do not cost $1,000,000 and take a year. Precisely the same as the development team, start with a small, focused, experienced, and talented team that has done it before. Build, test, and improve the processes, once demonstrated to work, begin scaling. One of the only advantages that a startup has is the ability to iterate quickly.
About us:
Part of our social mission is to mentor and guide Technology Startups in this journey. As investors, Board members, Entrepreneurs, and Operational Executives, we understand the challenges facing Founding Teams and are committed to helping them succeed. Please feel free to contact us with any questions.