When growth is under pressure at a B2B startup it can be difficult to diagnose what the rate-limiting problems are.

Plus, how to evaluate these identified problems individually so they can be prioritised against their potential to unlock value if fixed.

From a mindset perspective, it’s pretty commonplace for B2B startups to ‘live’ and focus at the end of the GTM motion — the KPIs generated from tactics.

Struggling companies see:

• 🔽 Low leads

• 📉 Rotten ROI

• 🌪️ Chaotic churn

• 🚽 Puny pipelines

• 💤 Anemic adoption

• 💸 Pressured pricing

• 😵‍💫 Perplexed prospects

• ⚠️ Crippling conversion

• 🔀 Mismatched meetings

• 🚧 Obstructed onboarding

… 🌬️ Suffocating silence

The natural response is to tackle these things head-on.

This often means:

• 👩‍💼 New hires

• 💬 New pitch

• 🏷️ New offers

• 💲 New pricing

• ✨ New features

• 📡 New channels

• ✍️ New messaging

• 📣 New campaigns

• 📝 New procedures

Sometimes this is the right thing to do.

Many of these things on their own could resolve a significant bottleneck and unlock desired growth levels — particularly if the productivity of one function of the business is clearly inhibiting the others, relatively speaking.

But, for B2B startups, this is often not the case. There can be many weaknesses and problems with no obvious connecting theme.

This is because the largest value unlocker is not a tactical iteration. It’s strategic. It’s the foundation of the GTM motion itself. It’s the Positioning.

What Are We Diagnosing, Exactly?

A GTM motion is designed based on the desired end results.

The objective of a venture-scale B2B startup is to hit and sustain hypergrowth.

That means growing at least 3X per annum. For SaaS, a commonly referred model is to “triple, triple, triple, double, double” annual revenue through each of the first 5 years post-achieving “product-market fit”.

In today’s economic environment, 4-5X would be much safer territory between Seed and Series B if closing another VC round is required.

This is a tall order. So, the GTM motion has to be equally bold to match it.

But, where does one start?

The journey to “product-market-fit” and “repeatable hypergrowth” for any one company is chaotic, circumstantial, and complicated.

So, let’s make it real simple, using first principles.

The only major obstacle between 0X annual growth and 3X annual growth is perceived differentiated value.

It’s the delta in perceived differentiated value between competing solutions and a proposed solution.

What’s “perceived differentiated value”? The unique value a solution provides relative to competing options in the mind of the prospect.

In B2B most value propositions are either indistinguishably differentiated or incrementally differentiated.

Indistinguishably differentiated value propositions primarily grow as a result of referrals and reviews. They are functionally undifferentiated. For example, you may choose a law firm because a friend recommended them.

Incrementally differentiated value propositions primarily grow as a result of a unique feature or benefit-unlocking theme that delivers incremental perceived value. For example, you may choose a law firm because they have an app where you can track the progress of your case remotely.

That works in both scenarios because most B2B companies are happy to grow incrementally. They are not seeking venture-scale.

However, neither of these dynamics work for B2B startups seeking hypergrowth. They need to establish a perception of radical differentiated value in the minds of their prospects. It’s a huge mental difference and distance.

The bar for radical differentiated value is several orders of mental magnitude higher than incremental differentiated value.

Why? The objective is to ‘shock’ the prospect. To be pattern interrupting. To make the proposition a priority. To create a sense of urgency. To overcome switching costs. To overcome the fear of failure. To adopt it mentally.

Radical differentiated value is the essence of what it means to have “product-market fit”.

What does it look like?

I previously wrote about the ‘content recommendations’ category as an example.

Years ago, publishers used to pay to host content recommendation widgets on their websites (the collage of image and title thumbnails that tease other content at the bottom of articles). It was a cost centre.

Screengrab of a widget👇

An example of an incrementally differentiated proposition back then would’ve been a solution that improved engagement (click-through rate, avg. time on site) for a specific industry vertical of publishers (e.g. finance). In other words, a content recommendation cost centre but ‘better’ suited to a niche.

Then, along came Outbrain and Taboola who inversed the value proposition: they provided publishers with a content recommendation solution and paid them.

It was new revenue added to publishers’ bottom line. A cost solution turned into a profit solution for publishers.

This created the perception of radically differentiated value:

This aligned with the priorities of commercially-minded publisher executives and drove adoption quickly. Today, Taboola has a market cap of $1.1bn.

I can’t overstate how important radical differentiation like this is to achieve and sustain hypergrowth. It is the only thing that matters in the beginning.

It’s the centrepiece of Positioning that supports everything else.

If a radically differentiated perception is not being established in the mind of the prospect, all tactics are neutered in effectiveness. It’s the grind zone.

To use an analogy: no matter how an F1 car is tactically changed, operated, and optimised — even hiring the best driver and chief engineer — it is never going to win the Dakar Rally.

For a long-distance off-road race across the desert, the race team needs a radically different vehicle to win.

Positioning is the set of instructions for the GTM vehicle a company needs to build and improve upon iteratively.

So, what are the signs Positioning is weak?

Diagnosing Weak Positioning

Broadly speaking, B2B startups with weak Positioning fall into two buckets:

1. Incremental Startups. Pre-radical differentiated value.

2. Commoditised Startups. Post-radical differentiated value.

For both, tactical symptoms can provide a high degree of confidence the Positioning is weak. Let’s start with the first bucket, Incremental Startups.

Incremental Startups

If a startup has not achieved radical differentiated value in the minds of prospects but is trying to grow like it has, expect to see weak KPIs all over the place — marketing, sales, product, monetisation, etc.

Symptom checklist:

• [Y/N] Leads are elusive

• [Y/N] Leads are expensive

• [Y/N] Customer retention is low

• [Y/N] Marketing and sales ROI is negative

• [Y/N] Revenue run rate growth is below 3X

• [Y/N] Pipeline metrics are difficult to improve

• [Y/N] Net revenue retention is flat or negative

• [Y/N] Conversion rate from lead to customer is low

• [Y/N] Pipeline prospects don’t fit the ideal customer profile

• [Y/N] Pricing is under pressure. It’s a key lever to close a sale

• [Y/N] Time-to-purchase is long and there’s no urgency to buy

• [Y/N] Reviews highlight attributes that aren’t defined as attributes

• [Y/N] Word-of-mouth referrals are low relative to size and industry

The more “Yes’s” to this checklist the more likely the company has weak Positioning. In other words, the more likely it is pre-radical differentiated value.

It’s not unusual for at least one function to be relatively strong. This can create a false impression the company has achieved “product-market fit” or is close to it, further compounding the belief that better tactical execution in other functions is the answer.

For example, net revenue retention could be strong because prospects are referred by word-of-mouth and the product delivers functionally. However, that doesn’t mean the value proposition can scale within that or other channels. This is analogous to a law firm that grows via referrals, incrementally over the years.

Also, expect to see sporadic glimpses of scaleable success: a specific campaign, event, or channel that delivered against the desired return on investment for a brief moment. There are nearly always pockets of opportunity like this.

To build a more informed and decisive view, it is important to understand the perception of the proposition in the minds of prospects: through customer interviews, focus groups, and surveys.

Commoditised Startups

This type of startup once had radical differentiated value and lost it.

It’s a common scenario: a B2B startup develops a breakthrough proposition and grows superfast for 1-3 years. Then, things start to slow down.

What was hypergrowth becomes fast growth. What was fast growth becomes incremental growth. By years 3-5, growth has become a grind.

Why can this happen?

Many reasons. From a Positioning standpoint, the most prevalent reason is how the differentiated value was Positioned from the beginning.

Sooo many B2B companies build their core Positioning on the features and benefits of their proposition and not the idea behind the proposition.

Why? Because it’s easier.

If a B2B solution can deliver 50% higher ROI, it’s a powerful narrative device to single out, capture attention, and drive prospects through to conversion across the sales pipeline.

That works fine for a while. But, eventually, competitors pop up with propositions that directly compete from the perspective of prospects.

When this inevitably happens, the original B2B solution faces serious headwinds. Since its inception, the startup has positioned — and trained — its prospects and customers to think about its solution in terms of hard benefits: 50% higher ROI.

This makes it commoditised in the mind. If New Competitor A pitches 65% higher ROI, they win business. If New Competitor B pitches 60% higher ROI, they win business.

I call this dynamic the ‘battle of benefits’. It’s a race to the bottom.

Symptom checklist:

• [Y/N] No longer the clear choice

• [Y/N] One of many vendors in a deal

• [Y/N] Customer churn is higher than before

• [Y/N] Revenue run rate growth falls below 3X

• [Y/N] Sales cycle duration is trending upwards

• [Y/N] Hard to predict which customers will churn

• [Y/N] The sales dialogue is laser-focused on hard benefits

• [Y/N] Pricing is under pressure. It’s a key lever to close a sale

• [Y/N] Increased growth comes at the cost of margin depletion

• [Y/N] Marketing and sales initiatives do not scale like they used to

• [Y/N] Prospects negotiate the terms of a deal heavily and frequently

The more “Yes’s” to this checklist the more likely the company has weak Positioning. In other words, the more likely it is commoditised in the minds of prospects.

As said above, this is a starting point. It is important to go deeper and validate the initial assessment by understanding the perception of the proposition in the minds of prospects: through customer interviews, focus groups, and surveys.

That’s it for today. I’ll be back in your inbox soon.

Martin 👋

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