Startups should have a well thought out go-to-market strategy, or a blueprint for how it plans to obtain customers and generate revenue. For investors, understanding a startup’s go-to-market strategy can be an important component of conducting due diligence. In this blog, learn more about assessing a startup’s go-to-market strategy, evaluating how the startup plans to evolve its go-to-market strategy, and some key considerations.
Evaluating Go-To-Market Strategy
While there is not a one-size-fits-all strategy to assess a startup’s go-to-market plan, investors may want to first understand the high-level plan, specifically taking a look at the following areas.
Market Segmentation and Targeting
Investors should be able to understand the initial customer segment the startup has identified. Is it well defined? Is it specific enough? This can also involve taking a look at the criteria the startup used to identify this customer segment. Is the focus on geographic, demographic, or behavioral factors? Why are these specific segments being focused on over others? A startup attempting to serve “everyone” may demonstrate a lack of strategic focus. The strategy should articulate a clear understanding why this specific segment has a need for the startup’s solution, and is willing to spend money on the solution in the first place.
Business Model
Does the startup’s proposed business model match the target customer’s buying behavior? Investors should consider if the primary sales channel, like direct sales, retail stores, etc., are places that the target customer already utilizes. The chosen business model should be appropriate for the sales cycle complexity and customer profile. Investors may also want to verify that the startup’s projected customer acquisition cost (CAC) aligns with industry benchmarks. Furthermore, the strategy should address how the startup plans to initially locate and engage its first customers, moving beyond generic digital marketing claims to specific, actionable tactics.
Economic Model and Key Metrics
Investors should also consider metrics such as customer lifetime value (LTV) and customer acquisition cost (CAC). A go-to-market plan may include reasoned assumptions for both, and an LTV:CAC ratio that exceeds 3:1 as a benchmark typically could be a positive sign. Other metrics investors may want to assess include sales cycle length, pipeline conversion rates, and anticipated customer churn. Even in early-stage companies where historical data is sparse, the financial projections should reflect a logical connection between the proposed GTM activities and the resulting revenue growth, with assumptions that are neither overly optimistic nor dismissive of market realities.
Evaluating Execution & Adapting
Once investors have assessed a startup’s go-to-market plan, they can continue with their assessment, evaluating the startup’s execution of its go-to-market plan and future iterations. For example, does the startup have the team and resources necessary in order to carry out its go-to-market plan? Does it have the connections needed to pursue sales channels? Is the team adaptable to sales challenges, product-fluent, and capable of operating in an environment of uncertainty?
Finally, how does the startup adapt in the face of challenge? After the startup goes to market, was the original target market the correct segment for it to target? Is there success in the targeting business model and sales channels? While it can take some time to see results, how prepared is the founder to pivot their product, target market, business model, and sales channels in order to make the most impact? A startup’s ability to answer these questions, pivot go-to-market strategy, and innovate in the face of challenge can be important for investors to consider.
Final Thoughts
For a private market investor, a thorough assessment of a startup’s go-to-market strategy can be a multifaceted process. Understanding how a startup plans to go to market, execute its plans, and pivot if necessary can be an important aspect of due diligence when evaluating an opportunity.
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Want to learn more about investing in startups? Check out the following MicroVentures blogs to learn more:
- Going Public: Direct Listing vs IPO vs SPAC
- Understanding Voting vs Non-Voting Shares
- Developing Your Investment Thesis
- Learning From Failed Startups
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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.
