Go-to-Market Maturity Model Pillar 1: Targeting the Right Customers

In my first post in this series, I introduced the GTM Maturity Model. This post will dive deep on the first pillar, targeting.

The takeaways from the first post are:

• Many organizations aren’t intentional about building their go-to-market engine. Rather, they fix the issue of the moment without building for scale. This eventually results in companies hitting a wall on their growth curve.
• There are 4 key pillars of the go-to-market engine, as shown in the graphic below
• These pillars are multiplicative, not additive. They need to evolve in lockstep with each other and reinforce each other.

Now, on to the focus of this post: Targeting

Targeting the right customers is one of the most basic levers sales and marketing leaders have at their disposal to improve sales efficiency. It is literally how the organization “aims the guns” of their sales machine. Think for a minute about a naval battle in the days of sailing vessels. The best navies had well-choreographed steps to align their ships broadside to their targets and then fire their cannon, training the guns of the fleet on the enemy. In contrast, imagine a fleet pointed in several directions, firing where each individual gunner wants to. They may cheer when one lucky cannonball takes down an enemy’s mast, but an awful lot of ammunition winds up in the ocean. As sales organizations grow in scale, the benefits of focusing on the right targets, and the costs of not doing so, grow rapidly.

Incentives for both sales and marketing tend to drive an upside-down focus on the 80% of accounts that drive 20% of the value

I identify 5 stages of development in the way a company prioritizes its sales targets:

1. Reactive
2. ICP (Ideal Customer Profile) well-defined
3. Segmented
4. TAM (Total Addressable Market) is fully mapped
5. Segmented based on lifetime value

At MuleSoft, each account in the top end of the market was worth 10X - 50X the value of accounts at the lower end of the market

In detail:

1. Reactive

Early-stage companies are often, by definition, figuring out who their targets should be, and therefore acting opportunistically based on inbound demand. To move through this stage efficiently, you want your organization to be able to learn as quickly as possible. Keep basic data about your prospects, and make sure it’s clear who is on point to harvest that data and identify patterns.  

2. ICP (Ideal Customer Profile) is well-defined

Eventually, companies reach constraints on two dimensions. First, the company starts to make marketing investments to proactively drive inbound demand, and the marketing team needs a persona to build content around. Second, the SDR team becomes overwhelmed by the inbound lead volume. They can’t follow up on all of them, so they develop qualification frameworks to decide where to focus. This may sound obvious, but as you develop the ICP make sure sales and marketing leaders are talking to each other and picking the same targets. You might be surprised by how often this doesn’t happen!

3. Segmented

Companies gain the most leverage when they use segmentation to focus resources on the highest-value accounts. Often, however, companies initially carve off a patch to make room for a more junior team. The initial segment line is almost always way too low. To use our naval battle analogy, the warships are largely still aiming in random directions with one specific group concentrating firepower on taking out the enemy’s dinghies.  

The beautiful thing about changing segmentation is that it improves performance without having to change the behavior of individual salespeople. You don’t have to make better gunners. You just give them different targets.

The 80/20 rule, or even the 90/10 rule, where a small number of accounts generate most of the revenue and even more of the profit, is an inescapable truth for most software companies. But the incentives for both sales and marketing tend to drive an upside-down focus on the 80% of accounts that drive 20% of the value.  

First, start with marketing. Marketing is usually measured on volume of activity -- total website visits, content downloads, event attendees, leads, or qualified opportunities -- without regard to the value of each. For most products, there are far more possible buyers in the long tail of smaller (i.e., low-value) companies than in the small number of (high-value) big companies. Applying the simple 80/20 rule, 20% of this activity will drive 80% of the value for the business. Rather than trying to improve performance at the top 20%, demand gen leaders will often take the easier route of showing further increases in activity driven by the least valuable 80% of accounts. Worse, because the leads that marketing generates have a strong influence on where the average sales rep spends their time, marketing is also driving the sales organization to spend 80% of its time on the accounts that will drive only 20% of value.

Now consider sales. Because large companies take a long time to break into, many AEs prefer to do more, faster deals at smaller accounts. While some account executives will gravitate towards big, sexy logos, many will look at those companies and make a (reasonable) judgment that getting into those accounts will take too much time and effort. It is simply easier and faster to get a deal done at smaller accounts. New reps, in particular, face enormous pressure to get on the board quickly and demonstrate success.  

Big accounts are very risky for a new AE. I can think of several sales reps who focused on big deals and took 2-3 years to close their first account. Those deals wound up being massive wins (the biggest the company had seen at the time), but if their management team had not had the patience to support them through many quarters with nothing to show, the AEs might have been relegated to collecting unemployment checks instead of a large commission check.

The best companies start by identifying which accounts belong at the top of the segmentation pyramid. No more than 20% of your total account base should fall into this segment, and it may need to be even less than that depending on how broad your market is. Typical metrics like employee count or revenue are good guides for your first cut at this.  

Most high-growth organizations can’t hire sales headcount fast enough, and as a consequence territories are too large. 

How many segments should you have? The short answer is more than you think but few enough to maintain critical mass in any given regional operating unit. The complete answer is a function of the breadth of your market and the size of your sales team. I apply these guiding principles:

• Make sure your highest-value accounts get enough focus
• Ensure that each selling region has at least a handful of sales reps in each segment. This may mean that EMEA and APAC don’t have all the segments that North America does
• Reflect real skill differences across your team. If you have both newly-minted commercial AEs and seasoned enterprise AEs, don’t give the commercial AEs accounts so complex they are destined to fail. That said, if you are hiring top talent they can probably do more than you think they can
• When in doubt, move segment lines up. I haven’t seen a company suffer from too much focus. Big territories are OK in the lower segments
• Within a given segment, there will almost always be accounts that aren’t getting enough focus. Balance the value of reducing this yield loss with the complexity of more segments
• Segments don’t need to be fully reflected in titles. You may have multiple variations of Enterprise AEs, for example. This is OK
• Changing segments is always contentious and political. Ignore the whiners and apply the principles above. The whiners will be OK

For reference, by the time MuleSoft had about 200 account executives, we had 5 segments. This created the right balance of fine-tuning focus on the right accounts without creating too much complexity. An additional, equally-significant benefit was that segmentation allowed us to create career paths for account executives that had appropriate and achievable “spacing of the rungs” on the career ladder. This accelerated our ability to develop our own talent out of our SDR organization.

Most high-growth organizations can’t hire sales headcount fast enough, and as a consequence territories are too large. Because of the 80/20 rule, this is most damaging in the highest-value segment. Any headcount you add in a lower-value segment will have a lower ROI -- often dramatically so. Make your territories as small as you can get away with in your top segment, focusing as much headcount as possible there. Then fill in down-market. This will result in much smaller territory sizes (higher sales rep density vs accounts) in the upper-end segment. While those AEs will take longer to ramp, they will drive far more value for the company over time. The lower-end segments will have larger territories, allowing them to maximize deal velocity by qualifying aggressively for pain and need.

I’ve had many account executives tell me how much more productive they were with smaller account lists

At this point Marketing also needs to shift from looking at total activity to activity by segment. Again, it should allocate most of its investment to the top segment. Particularly expensive investments like ABM and events should have their success measured solely on impact to the top segment. This will be a shift -- marketing managers will not having to exclude large numbers of leads from key metrics.  

Making the decision to segment is always politically challenging, which is why many companies often put it off too long. Companies enjoying success often procrastinate longer, because there are no poor results to force the issue. In one company I know, it took a new CEO to drive the change. Even if Sales adopts segments, Marketing may still continue to report on the same, largely meaningless, total activity metrics for years. The top sales reps -- and their managers -- will resist having their territories shrunk dramatically, even though they’ll privately acknowledge that they couldn’t effectively cover their old territory anyhow. There will also likely be battles of egos between the leaders who manage the segments and see the allocation of accounts as a zero-sum game.  

The irony is that I’ve had many account executives tell me how much more productive they were with smaller account lists. They could stay focused and shift from playing whack-a-mole across a broad patch to developing the depth (both in terms of account coverage and insight) needed to be effective in selling to larger accounts. The smaller segments benefit from larger relative territory sizes. Marketing spend gets more efficient. Productivity goes up for everyone.

A sales organization has only two raw inputs: people and accounts. Both are scarce resources that need to be managed carefully.

4. TAM (Total Addressable Market) is fully mapped:  

The next big inflection point comes as a company realizes that it needs to supplement its inbound demand with an outbound motion. Going outbound is expensive if it is not efficient. It is critical that SDRs and AEs target the right accounts, and this can only be done reliably if those accounts are in the CRM system. Achieving this stage requires that:

• All relevant prospect accounts in the marketplace exist in the CRM system with accurate geographic, firmographic, and technographic data
• Sales and marketing both use the CRM system as the source of truth for account data, not offline spreadsheets
• Accounts are explicitly mapped to AEs and SDRs (as opposed to using geographic boundaries and other implicit assignment rules)

Yes, it is a lot of work to do this… but it becomes hard to run a business at scale effectively without it. I think of a sales organization as having only two inputs: people and accounts. Both are scarce resources. Companies can get away with rough geography-based territories when there are lots of accounts to go around. As the sales organization grows and territories shrink, accounts become more precious. Mapping your addressable market allows you to effectively manage this critical driver of revenue.  

Mapping accounts has several key benefits:

• It saves SDRs and AEs time from identifying prospects on their own
• It drives better alignment with Marketing because everyone knows which accounts are being targeted
• It allows Ops teams to gather and populate more firmographic and technographic data about those accounts that can help refine segment lines. At MuleSoft, we created segments based on revenue, industry, and technology usage. At Responsys, we built segments based on web traffic and technology stacks.
• When done right, it reduces squabbling between teams about who owns which account
• Territories can be more scientifically balanced and scored
• Leadership gets a more accurate view of market size

Sales must buy into and use the account data. Too many Ops teams miss this point. They claim they are 80% right, and that the last 20% of accuracy is impossible to achieve. They say that the sales reps are whining and need to simply accept that there will be inaccuracies. This may be fine for an Ops team that doesn’t need to actually make a living from the accounts, but often the concern from the field is well-placed. Most salespeople have been subjected to horrific data quality for their whole careers. No wonder that a few bad data points make them question the whole affair.  

The best strategy is for Ops and the sales team to work collaboratively on cleaning the data. Ops provides the best data available, and Sales does the final scrub. It helps Sales trust the process and provides Ops with insights that data alone would never provide them. Most importantly, both teams learn to trust the process and each other.

The value of one account vs another can vary dramatically. At one company, 9% of accounts drove 76% percent of all expansion bookings. So why not focus your efforts where it will drive the greatest return?

5. Segmented based on lifetime value

The most mature phase of focusing on the right targets comes when companies align market segments based on expected lifetime value. This important refinement of the initial segmentation focuses on two key issues:

• Some companies are much more likely to adopt your product than others of the same size
• In a land-and-expand model, the initial deal size may not be a good predictor of the ultimate value of the account

First, start with the propensity to adopt. If you are going to make territories small in the uppermost segment, they had better be packed with viable accounts that stand a reasonably equal chance of becoming customers. An account’s industry can provide a rough sense of relative propensity: a bank with $5Bn of revenue and a university with $5Bn in revenue are not likely to purchase technology at the same rate. If a Strategic AE has a territory of 5 accounts and 3 are technology laggards that are unlikely to buy in the next decade, you are not setting that AE up for success.  

At MuleSoft we found that if a target account had adopted a few related technologies, they were 2-3X as likely to become a customer. They were also likely to spend twice as much as other accounts of the same size.

Second, the best companies use ultimate account value as a yardstick, not the size of the land deal. Many companies with a land-and-expand model drive at least 50% of their growth out of their existing account base. This ACV is wildly profitable as the cost of sale is much lower. Expansion is the real driver of these companies income statements. This expansion, however, tends to be highly concentrated in a small number of accounts. At one company, 9% of accounts drove 76% percent of all expansion ACV. 

Isn't using the size of the initial deal for segmentation close enough? Let's use MuleSoft as an example. We would typically start by selling into a single IT project. The value of this first deal was somewhere in the range of $50k - $150k regardless of the size of the account… not a huge spread. A few years down the road, however, a small account might max out at $300k while a large account could be deep into the 7 or even 8 figures. If we had decided to allocate sales headcount based on the value of the land deals, we might have concluded that all segments merited roughly equal investment. In reality, each account in the top end of the market was worth 10X - 50X what the lower end of the market was worth to us.

In this scenario, the incentives for the typical sales rep make segmenting the market based on lifetime value essential. For a “hunter” rep who is motivated (and measured) by closing new logos, the small variation in land deal size pushes him or her to focus on velocity. The rep will win by maximizing the number of deals closed. This, in turn, pushes the rep to focus on smaller accounts. However, this is exactly the opposite of what is in the best interest of the company, which succeeds when the business closes as many high-value logos as possible. Segmentation creates the “guard rails” which keeps AEs focused where the company needs them to be.

Conclusion

Once you reach a point that you:

• Know who your target accounts are
• Your sales and marketing teams are both using the account data in Salesforce
• You are segmenting the market based on propensity to buy AND ultimate account value

… you are now efficiently and effectively targeting your organization’s fast-growing sales and marketing firepower on the accounts that will most effectively fuel your growth as a business. Like the well-trained navy we imagined at the top of this article, your teams are acting in unison, aiming at the right targets, and systematically dismantling your competition. Life is good!

To read more, see the other posts in the series:

• Introducing the GTM Maturity Model
• Pillar 2: Messaging
• Pillar 3: Sales (& Buying) Process
• Pillar 4: Accountability