Market Annealing: Getting to $10M ARR in Very Early Markets

Summary

Summarized wtih ChatGPT

Market annealing is the process startups use to adapt their approach and offerings in immature markets to achieve growth. Founders should take an active role in sales and hire marketing generalists who can help shape the go-to-market strategy. Success in early markets requires persistence, flexibility, and a focus on direct customer engagement rather than relying on traditional marketing tactics.

Key Takeaways:

1. Founders should lead sales efforts to better understand the market.
2. Hire product marketing generalists who can adapt strategies as needed.
3. Focus on direct customer conversations and rich content over traditional marketing methods.

Highlights from Article

Most companies don’t find a magical product that just happens to address a key pain point in the market, thus making their go-to-market (GTM) plan a straightforward one. Rather, they engage in a multi-year-long battle of hammering the shit out of the company and the market simultaneously, trying to get the two to hold together. It’s a feedback cycle that often starts with product vision, goes to sales and marketing, and then returns back to product. The cycle continues while the company morphs into something molded by the market, and the market softens to the point where it can consume the product.

• PMF is usually market and product beating each other up until they fit together.

Market annealing is different from finding PMF because it focuses on the steps a company needs to do to shape both itself and an early market, rather than assuming there is some existing product-market combo that just needs to be found. And it’s different from category creation in that it considers the tactical steps a startup needs to take to muscle its vision into the market before either are ready, rather than the long arc of creating a named market with a new buyer, budget, or category — which may never happen.

• Unlike PMF, this also shapes the company. Also, its more about shaping the confines for the category creation

The hard truth is that figuring out the right GTM approach is often as much an exploration as finding product-market fit, because how the market buys is much more likely dictated by the market than the company. It can take many years and false starts to find the right GTM motion, and the single biggest mistake we see companies make is to lock in and scale a GTM motion too early.

In early markets, if the right GTM motion is unknown, or it’s clear that the right approach is top-down, then it’s best for companies to double down on founder sales. If a founder can’t sell it, nobody can. Founder sales can get a company a lot further than many boards realize, certainly to the first $4 million or so in ARR.

• Without knowing GTM, start with founder sales

So take your time. It’s hard. It often takes years of grinding with very little to show. It’s important to remember that the most expensive sales model is one that doesn’t work.

Renaissance reps should help provide market feedback on the buyer, use cases, pricing, GTM approaches, and other considerations.

What AEs, or account executives, are good at is qualifying whether an opportunity is real, navigating a buyer, finding budget, figuring out how to position the commercials, and navigating the procurement process.

• In early satges, AEs can find out if the opp is ready for the founder

sales engineers (SEs) often can help get a buyer to technical close. So SEs are a very good way to scale out founder sales without dropping the ball on technical close.

Try to establish/rationalize a first-year quota at 1x the loaded cost of the rep. If you were doing founder-led sales before bringing on the first sales rep, there will be some understanding regarding what can be sold, at what price, and over what timeframe. Founders need to recognize that, early on, they are likely to be far more successful selling than the first reps, so factor this into the analysis. There will be a ramp time to productivity, so pay base+commission for at least two quarters. This will allow the sales rep to get comfortable with the environment and become productive in your market segment.

• Year one quota should be 1x rep cost. Build in two quarters of base+commission. Adjust commisions on the way

Our view is that a sales leader should only be hired once the primary GTM strategy has settled.

To summarize how we think about sales in very early markets: If the founder can’t sell it, no one can. If a senior rep working directly with the founder can’t sell it, then a sales leader won’t be able to build a team that can sell it. And if a sales leader reporting to the CEO can’t build a team to sell it, then no third-party sales team outside the org can sell it. So build out sales in that order.

• Early marketing should be product-first (and support everything second)

First marketing hires should be product marketing generalists that are equally comfortable with core product-marketing work (e.g. product, pricing, placement, promotion) as they are handling events, social, running content campaigns, and doing sales enablement.

in most early markets, pipeline comes from founders, open source communities, the founders’ network, the early investor network, events, and sales prospecting.

• Early market marketing wont drive most leads

A CEO who isn’t the source and the central nervous system for the core messaging will be far less effective running the company. And please, for the love of all that is holy, never hire an external firm to help you with messaging, positioning, or to help “create your category.”

• Founders must drive their messaging.

Early marketing can also play a big role in brand development to create a look and feel the company can use on the web page, product, pitch decks, and other collateral. This is one of the few areas where a company can get a lot of leverage from outsourcing, and an early marketing hire should know how to manage that relationship.

• Outsourcing design in early stages is okay.

In very early markets, the primary methods for generating qualified, interested customers are rich content, great products, and conversations direct from the company.

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