Navigating the Changed Fundraising Landscape, Three Tips on Building Great Product Teams, The Key to Winning Mid-Market Customers - Tactician #0050

"Navigating the changed fundraising landscape? It's like showing up to a costume party and realizing it's formal wear. You gotta adapt—turn that Batman cape into a bow tie!"

05/02/2024

Navigating the Changed Fundraising Landscape

Jason M. Lemkin, SaaStr Founder, provides insights into the current state of venture capital funding for startups in “Dear SaaStr: Can A Startup Without Any Prior Experience Raise Money From VCs?”

• Investment Activity and Expectations:

  • There's a shift towards more scrutiny on startups with an emphasis on proven product-market fit and growth, especially for founders without a prior track record.

    • "The less proven you are, generally speaking, the further along you need to be to raise from VCs."

    • "But founders out of nowhere, really, with no track record? You need to prove product-market fit and strong growth, at least relatively speaking in the early days."

• AI Strategy's Rising Significance:

  • Emergence: A convincing AI strategy is now crucial, reflecting investors' demand for startups to integrate AI meaningfully into their products.

    • "Half of them maybe not surprisingly also told us that a convincing AI strategy has become more important than it was previously."

    • Investors will ask you that question and they might wonder if you're just trying to sprinkle some AI on your product or sprinkle some AI on your deck because you know investors are going to ask for it."

• Implications for Startup Strategies:

  • Advice: Startups must anticipate inquiries about their AI strategy and demonstrate a unique value proposition in an increasingly competitive and data-driven market.

    • "Expect to be asked about your AI strategy."

    • "You'll really have to think about what's your Edge given that these big companies have the data and the customers and a lot of knowledge."

• Navigating the Changed Landscape:

  • Strategy: Sustainable and healthy growth is prioritized over rapid expansion, advising startups to optimize their sales and marketing spend.

    • "Investors Care Now much more about healthy and sustainable growth."

    • "If your sales and marketing spend is efficient then you probably want to try to protect that and find other ways to reduce costs in order to increase your Runway."

Three Tips on Building Great Product Teams

Harry Stebbings, Founder at  20VC interviews Will Wu, Chief Technology Officer at Match Group in “20Product [...] with Will Wu, CTO @ Match Group”

• Embrace Diverse Backgrounds in Teams:

  • Wu highlights the value of assembling teams from varied backgrounds to bring fresh perspectives to problem-solving and innovation.

    • "… just bringing together people from diverse backgrounds and perspectives, I just can't underscore enough how important that is so that you have people thinking about the same problem that same human need that you're trying to solve from a totally different perspective. Like I said whether it's engineering or someone who's trained in fine art or graphic design or fashion design or architecture whatever is like bringing these different perspectives together can help you analyze a problem in a different way."

• Balance Between Innovation and Revenue Generation:

  • Wu suggests having distinct teams for innovation and revenue generation to prevent conflicts and ensure both objectives are pursued effectively.

    • "...having two separate teams dedicated towards each of those two independent goals... One team dedicated towards revenue generation, another team generated towards innovation because often times there's a really strong tension between those two when you're building a product you might have to deteriorate your revenues with a new feature in order to experiment with some really innovative new idea and if it's the same team making those decisions that conflict of incentives can be paralyzing for development."

• Preventing Culture Fit Issues Early:

  • Wu acknowledges the mistake of not acting swiftly to address mismatches in team culture, emphasizing the importance of maintaining a healthy and cohesive work environment.

    • "...not getting rid of poor culture fits fast enough... I think it can be a lot of different signs but you see the way that they're treating another coworker if they've got an ego and they think that they know it all, I think these are the things that can be deteriorating to your culture that you're trying to build over time."

The Key to Winning Mid-Market Customers

Tracy Young, Co-founder of Plangrid and TigerEye, advises startups on strategic market targeting, arguing against the mid-market as an initial focus in “Mid-market is no man's land

• Defining the Mid-Market and Its Challenges: 

  • "I define mid market as companies with 100 to 999 employees, but how companies draw their mid-market lines will vary depending on their segmentation needs."

  • "It takes very different skills to build for and compete in SMB versus Enterprise. The mid-market is the transitional segment between the two."

• The Three Flavors of Mid-Market Companies:

  • "Ramping: Mid-market companies that still behave like SMBs."

  • "Graduating: Mid-market companies in the process of, or those that have already spent millions in preparation for, scaling to the next level and aspiring to match their enterprise counterparts."

  • "Autopilot: Mid-market companies that have hit a wall in terms of total addressable market and rapid growth."

• Strategic Focus on SMB or Enterprise: The author advises startups to initially target either SMBs or enterprises to naturally cover a portion of the mid-market that aligns with their offering, avoiding the pitfalls of directly targeting the mid-market.

  • "If you want to sell to the first two mid-market categories I've defined above, it's best to pick one outer lane first, either SMB or Enterprise, which will automatically include either ramping or graduating mid market, respectively."

  • "What we don’t want to do is compete on two fronts, against well-resourced incumbents on one side and hungry startups on the other."

• Understanding and Addressing Ramping Mid-Market Needs:

  • "Ramping mid-market companies, which have recently graduated into this segment, often experience growing pains. As a result, they are not afraid to make decisions quickly, and adopt new technology to make their days less painful."

  • "Most startups can successfully build for ramping mid-market companies by solving a single pain point really well then broadening their feature set later on."

• Navigating the Complexities of Graduating Mid-Market Companies:

  • "Graduating mid-market companies have more decision-makers across multiple departments, with a greater number of internal processes."

  • "To successfully sell to this group, there are minimum table stakes requirements that you have to meet to get past the front door."

• Approach for Autopilot Mid-Market Companies:

  • "Autopilot mid-market companies often have sufficient revenue to place them in the mid-market segment, but their growth has slowed."

  • "Typically, these companies are in cash conservation mode, focusing on strategizing new ways to accelerate their growth."

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