Founders: What Are the Signs It’s Time to Evolve Your Core Customer Benefit?
Recently one of the founders of a hot startup asked me, “How do we know if we should add new value props for existing customers or continue to invest in existing ones? What would that balance look like? Given that we have finite engineering and product resources, what is the path forward?”
Founders with fresh capital and ambitious growth plans are deciding whether or not to double down on the core value proposition and find repeatable sales/marketing strategies for acquiring new customers. It’s not a simple answer, but there are critical data points that will point any founder in the right direction with near certainty every time.
What Does Growth Really Teach Innovators?
Every founder dreams of creating a business that conforms to 2T3D revenue growth phases, a path to achieve $100M ARR in 7 phases to achieve a $1B+ valuation. The initial phases 2 and 3 (the time between startups raising Series A to raising Series B) play a massive role in achieving the 2T3D growth dream.
Usually, the Series A round happens between Phases 1 and 2. Around that time, a healthy startup should have established:
- A solid team
- A great product/service with at least one core value proposition
- A base of loyal and highly satisfied customers
Once the founder sees good traction with 50+ enterprise customers and/or thousands of users, they face a dilemma. Should they/you evolve the features of the core value prop for existing customers or invest in and develop new value props and features for new, adjacent customer segments?
Here are the signs you should look for in your product lifecycle before you dramatically enhance or diverge from the core value prop.
Customer Growth Stalls and Cost Efficiency Declines
If you have a good product and a solid market opportunity, your customer acquisition should get cheaper (i.e., your sales cycles get shorter and cost of customer acquisition goes down over time).
When your customer growth is slowing, or customer acquisition costs are increasing, it is a sign that you have a core product or go-to-market issue that needs immediate attention.
Monitor Cohort Retention and Win Rates
When retention metrics drop significantly, it usually points to a loss of focus on the core product itself. In my experience, it’s a warning sign your product team is trying to do too many things, like focusing on solving problems your customers don’t care about, taking too long to resolve customer issues, or onboarding new customers that aren’t really gaining any value from your product.
If you have an SMB or enterprise sales motion, deal win rates are another vital indicator. When those win rates plummet or start a downward trend, you need to know why that’s happening. You could have more competition, and the core value prop is not differentiated enough. Maybe you’re selling to customers that don’t have an actual need for what you’re offering. Perhaps the sales team isn’t trained adequately. Are there capacity or incentive issues?
As a founder/CEO, any of these issues should prompt quick intervention. Your product management focus should include the constant monitoring and managing of those issues.
Negative Customer Feedback
Happy customers are open. They return your phone calls, buy more licenses, leave positive reviews, etc. They’re also voluntary. When they like what you’re already doing, they’re that much more likely to tell you not just that they want a new feature, but what new feature they need. If customers are already adopting the core value prop in high numbers, and adopt that core value prop as intended? That’s a great sign.
When customers are happy, they might let you know. If they’re unhappy, they nearly always do. When you see an increase in bug reports, a drop-in CSAT or NPS scores, a lack of testimonials, or lousy product reviews in public marketplaces (like G2 reviews, etc.), the product needs to address these issues ahead of any additional go-to-market investments or new features.
Product and Engineering Team Churn
Product teams are usually relatively small at this stage. With finite, precious resources and an aggressive roadmap, you need to retain talent and resources passionate about both your product and your customers. A 10%+ churn signifies you have serious leadership, cultural, or operational issues. When team members quit due to a lack of focus, dysfunctional culture, inexperienced management, or poor work-life balance: It’s up to the founder to figure out the fix.
Competitor Movements and Market Shifts
Markets are both competitive and dynamic. It’s important to know what your competitors are doing to get a pulse of your relative positioning. Most of the time, you don’t have to abruptly change your growth plans unless you sense that a big competitor move will have an outsized, negative impact on any of the above metrics.
Every Phase is a Growth Phase
Maintaining growth means that you have to apply a maniacal focus to each growth phase. From a product and go-to-market perspective, the key to winning each phase is to obsess on key customer outcomes around, namely:
- Customer Need and Value Delivery
- Customer Retention
- Customer Growth
- Cost-effective Sales Velocity
By deploying 70%-80% investments to bolster your current value prop and sales velocity in phases 2–3, you allow your team to maintain its focus on the here and now. At the same time, you, the company’s most crucial strategic lead, should keep a watchful eye on the phase coming around the next bend.
