The figure below is the Chartmogul dashboard which connects to the AdvisorStream Stripe account – We had one larger enterprise customer paying $20k/month USD who didn’t pay by credit card and was not reflected in this dashboard/screenshot. The dates are kept private. This figure clearly illustrates the three distinct phases of business building: Validation, Efficiency, Scale.
“We had just raised $1,100,000 in seed financing, we had a good product, a great market, and some beta customers. We needed to get the product in the hands of more people and achieve scale.
However, our message wasn’t resonating. We had enterprise deals in the pipeline, but they were taking longer than expected to close. We tried selling direct, but we were unable to get success. We needed to get to our first million ASAP.
We were referred to Nick by one of our board members, and we decided to start working with him to build out our sales funnel. He helped with messaging, sales scripts, ads, landing pages, comp. structure, CRM integration, hiring, investor decks, financial forecasts and analysis, capital allocation, channel partner agreements and the customer success process.
The results were incredible.
Within 12 months, we grew to over $1M annual recurring revenue. The funnel worked and it was profitable.
Because we had traction, we were able to close larger enterprise deals and sign healthy channel partner agreements.
We are now cash flow positive and growing fast using the systems Nick helped build.
Nick continues to consult with us.”
Kevin Mulhern, Founder and CEO @ AdvisorStream
In this article, I’m going to share with you the story of how I took a small fin-tech company from $0 – $1mm ARR and increased their valuation by $10mm in only a few months. I’m also going to explain some basic principles and strategies you can use in your business to experience similar results. Finally, I’m going to give you 5 steps that you can use to go from product validation to scale in a relatively short period of time.
A quick note: If you find value in this article, please share it.
At of the time of this writing, that small fin-tech company, AdvisorStream’s ARR is well past $2mm, they are growing and healthy and they are gearing up for the next step function increase in revenue to $10mm ARR.
So, the reward for understanding this stuff is massive. I see so many companies squander time, effort and investment capital because they don’t employ the proper strategies to finding and validating a profitable distribution channel.
If you have a great product and you really understand how to find and validate a digital distribution channel, you can achieve explosive, PROFITABLE growth relatively quickly and build an incredibly valuable business.
Who this article is for?
Many concepts in this article transcend different industries and business models, however, my story and concepts directly apply to high-growth, funded tech companies. If you are a founder, a CEO, or a head of sales/growth/marketing at a growth company (maybe SaaS), and you are shooting to build a $10mm-$100mm ARR business using venture capital, venture debt or any type of growth financing source as your fuel, then this article is for you.
If you are employed at a venture firm or you participate in tech company investments and you want to learn a little more about what goes on under the hood, then this article is for you, too.
If you are working for or are interested in starting your own tech company and you are looking for the shortest route to traction and profitability, then this article is for you.
So with that out of the way, let me get to my story.
Not too long ago a small fin-tech firm out of Toronto, AdvisorStream came to me because they had a massive problem.
On paper, AdvisorStream looked good. They had some interesting technology, a good team of engineers, some enterprise contracts in the pipeline (on which they built their investment thesis), a motivated and competent founder with deep domain expertise and a solid offer:
For $199/month a financial advisor could get unlimited access to up-to-date premium, relevant content to use in their marketing campaigns – Basically, Netflix except instead of movies, it was content financial advisors could use for digital marketing.
They had just raised a small seed round of $1.1mm to get the thing off the ground and they had a working MVP, some initial BETA customers and a vision to take their company to the moon.
It was the typical story – they had a good offer, good tech, a good team, good leadership, a good market, a problem worth solving, a few sheckles in the bank and about 1 year of runway.
But…. Wait for it……
They had been operational for quite some time and their expenses were adding up. The no customer thing was starting to really worry the core team.
The thing was, the team had been so focussed on trying to sign multiseat, larger enterprise deals and line up channel partners, that they didn’t actually go through the initial validation phase. They were trying to skip validation and efficiency and go right to scale…
There is a time and a place for scaling, however, you need to walk before you can run; in other words, you need to sell the product yourself before you can expect someone else to do it for you.
For one, without any traction, enterprise customers won’t take you seriously and you will find it extremely hard to close any big deals since you don’t have proof that the solution works and that you can deliver at scale. Enterprises won’t just hand you $2mm a year simply because you ask nicely. Unless you have big names on your board of directors, you are going to have to prove that you got the goods.
The most obvious implication is that without revenue, your expenses eat up your runway and you are forced into a corner with little breathing room. What happens if your enterprise deals don’t close? You die or have to go running back to your investors and ask for a refill.
On the product development side, your engineers are executing against a roadmap with their eyes closed – meaning they are building something without customer feedback (crazy). This could potentially cost you hundreds of thousands of dollars and months of work. What happens if you bring on 1000 customers using a channel partner but find out what you built was the wrong solution? It will be a disaster.
On the investor relations side, the longer you go without traction the less hot your company is and the harder it becomes to gather interest and close your next round… AKA, the longer you go without customers, the worse the story gets.
On the recruitment side, without traction, it’s much tougher to attract great people. Great people want to be on a rocket ship. Not a camel.
So in sum, it’s extremely important to validate your business and stand on your own two feet before you start doubling down on larger distribution plays (save them for scale phase).
The fastest way to get through validation phase is to sell via a direct distribution channel and get to your first 100 customers all by yourself 🙂
So AdvisorStream had their back up against the wall. They needed customers ASAP or they were in some deep doo doo.
It didn’t matter how amazing their product was if they couldn’t get traction, the dream was dead.
That being said, I liked the product, the market, and the founder, so I decided to help AdvisorStream solve their little traction problem.
They gave us a blank canvas, some growth capital and one goal: Get customers and traction.
We signed a rev share deal and we got to work.
Here’s what we knew:
The Target: US/Canada financial advisors
The Ticket Price: $199/month
CLTV (Customer Lifetime Value): > $3k (can’t share exact value but this part is important)
CAC (Cost of acquiring a customer): Unknown
Now in SaaS and plenty of other business models, your direct distribution process can be broken down into two distinct mechanisms:
- Lead Generation – How will you get people interested in learning more about your product
- Conversion – How will you convert your prospect’s interest into revenue
The two mechanisms need to work together to give you what is called your CAC, or cost of acquiring a customer.
Again, in SaaS and many other businesses, you want your CAC to be much less than your CLTV (customer lifetime value). Only then, will you see a profit.
A good rule of thumb for SaaS:
If your CLTV/CAC > 3, you are in the money and you should start scaling. If your CLTV/CAC < 3, stop everything and fix it before you scale.
If you don’t follow this rule and start scaling prematurely, you will either lose money with every customer you bring on until you eventually die, or it will take you 100 years to build a meaningful business.
Validating A Lead Generation Source
Since we had a great offer, step 2 was to validate a lead generation source – one that would give us accounts at a cost much less than the CLTV.
Leads are like the oxygen to any growth engine. You can have the best sales closers or conversion mechanism in the world, but they or it will suffocate if you don’t have a steady lead gen source.
There are many ways to generate leads in this day and age. You can try cold calling, trade shows, sponsored content marketing/guest blogging, outbound email prospecting, direct response advertising, affiliates, channel partners, SEO, TV ads, radio ads, etc.. The list goes on and on.
However, lead gen channels follow a power law distribution which means for each business, there will likely be only ONE lead gen channel that will give you MOST of your results. For instance, you can try SEO, sponsored content, and direct response ads all at once, but then soon find that maybe just SEO delivers 90% of your leads and the other channels barely move the needle.
Another important thing to remember is that some lead gen sources take longer to develop than others.
For example, SEO and sponsored blog posts could take up to 6 months to get going. If you are trying to validate your offer, you don’t have that kind of time on your hands. You need to validate your offer and message as fast as you can which means you should use channels like paid ads, outbound emailing, affiliates, etc.. Yes, they are more expensive, but the feedback loop is much tighter. You need to refine your message and your offer before you opt to experiment with more organic lead gen sources or your burn rate will catch up to you.
So at AdvisorStream, we set up 4 tests and we let them run for about a week. Within a few days, we found our golden goose! Now, I can’t tell which lead gen source delivered MOST of the results but I can tell you that it did account for 90% of the leads.
So we doubled down on the golden goose lead gen source and scrapped the others.
With lead gen solved, we needed to move on to the next step which was converting the leads into closed accounts (Closing/Conversion).
Converting Leads into Accounts
Like lead gen, there are many ways to convert leads into money and the different mechanisms depend on the ticket price and the complexity of your offer and your solution.
For example, if you are selling a $49 digital product, you can use a simple sales page to convert.
If you are selling a $49/month product that doesn’t require too many human touch points to explain, you can use a webinar or a free trial to convert.
If you’re selling a more complex SaaS solution for which the CLTV is over $8k, you could use inside sales to convert accounts and if you are selling a $2mm enterprise solution for which you need steaks and strippers to sign deals, then you should probably opt for an outside sales mechanism (elephant hunters).
Since this was a SaaS product and the CLTV was greater than $3k, I decided to use inside sales as the conversion mechanism. Outside sales was too expensive and the current product was too complicated at the time to sell using webinars or free trials to paid.
I did the math:
In order to keep the growth engine profitable and the inside sales rep salaries paid, the sales velocity needed to be pretty high. Each inside sales rep needed to sell more than 20 accounts per month to keep things profitable. Any slower and we would lose money.
Our current lead gen source insisted that we keep the demo close rate extremely high, which meant the sales script needed to be absolutely lethal and the sales ramp time needed to be short.
So, I wrote a lethal sales script and tested it myself. It WAS lethal. We were closing like champs.
Sales scripts are extremely important to get right. If you don’t have a solid sales script you will spend much more time than necessary training and ramping new reps, you will have to hire seasoned reps with industry backgrounds (not young, ambitious recent grads), and you will have to spend more effort than necessary managing your reps and making sure they are doing the right activities.
However, if you do have a lethal sales script, you can hire a cheaper, less experienced recent grad (saving you an arm and leg in salaries), you can ramp your reps in a week which will decrease the cost of mis-hires and training, and you can depend on your process and script to answer any questions your prospects or sales rep might have during the sale which will save you management resources and a ton of frustration.
So in a month, we closed the loop. We could generate leads using a channel that wouldn’t exhaust anytime soon and we could close deals like champs using inside sales and a lethal script. We tuned and optimized the landing pages, the CRM, the email follow ups, and the ads until the whole machine was humming along and making money hand over fist.
We were in the black: The CLTV/CAC was > 3 (again, I can’t get into specific numbers).
It’s was at this point when it made sense to scale it up a little.
Since we didn’t have millions in the bank, we needed to be careful.
My next task was to find myself some handsome, charismatic, salespeople that could execute the lethal sales script. I needed them to be confident, intelligent and able to say the words I wrote for them 10 times a day without tiring.
When I hire reps, I look for people who attended a good school, an engineering or commerce degree and a history of athletic success. I look for the athletic part because selling this way with a script is pretty much like playing a sport at a high level.
It requires discipline, focus, attention to detail and consistency. Just like athletes in sport, a sales rep needs to wake up every day motivated and prepared to execute. They don’t need to think since the script does the thinking for them; they need to perform.
In my experience, the creative, entrepreneurial, artsy types or the introverted, techy types can’t handle the demands of this game. They burn out, become frustrated or get bored.
So I found myself some athletes, paid them less than $40k (again, can’t get into specifics) per year and offered them a generous commission plan.
I trained the new hires on the script and we spent a few days practicing it until I thought they were ready to go into battle.
In just one week, they were pitching real people. They were trained and eager. I told them, “Say the words on your paper and don’t stutter!”.
Within 2 weeks, the reps were closing! Fastest sales hire ramp time ever!
My colleague called it baptism by fire.
If your script is solid and the ramping process is tight, you should be able to ramp your reps in only 2-3 weeks and they should be fully ramped and be hitting their numbers in only 2 months (max). I’ve read books and articles that state that it should take up to 5 months to fully ramp a rep, but I think that’s insane. With a solid process, you should be able to cut that time down significantly.
If the rep can’t ramp in a few weeks, fire them. It just means they are slow learners and keeping them around will be extremely frustrating and the team will suffer. It’s better to have a smaller team of high-performing reps than it is to have a larger team of lower quality reps.
Fast forward a few weeks.
We hired another few reps, trained them on the lethal sales script and ramped up lead gen.
Within 2 months, each rep was hitting their numbers and we were growing at 15%-20% month over month!
We kept pumping along until we finally hit over $1mm ARR in just a few more months 🙂
The valuation increased by $10mm and Kevin, the CEO secured another round of financing. He also got a ton of attention from larger enterprise banks and esteemed investors.
Like I said before, at the time of this writing, AdvisorStream is sitting pretty with over $2mm ARR and are mostly distributing through enterprise channels and using strategic partnerships:)
It goes to show that you first need to create your own destiny by selling directly before you can lean on your channel partners or the elephants to take your company to the next level.
Steps To Get To $1mm ARR
I’ve summarized the steps below. If you follow these steps, you will save yourself a lot of time and money on your way to building a great business.
- Start with a killer offer (make sure your product/solution rocks – 10x better than competing offers). Use Steve Blank’s customer development/product development strategies for this part.
- Develop a lead generation channel (outbound prospecting, content marketing, direct response ads, viral vids, influencer marketing, Super Bowl ads, etc.. Just pick one and double down on it). Don’t do anything else until you crack lead gen.
- Develop a lethal closing/conversion strategy (inside sales, webinars, sales pages, outside sales, email cadences, etc.. just pick one that works for your business, price point, and product). If your CLTV < $2k, you probably can’t afford too many human touch points and inside sales doesn’t make sense.
- Make your engine efficient – Optimize your CRM, optimize your landing pages, tighten up email campaigns, tighten up retargeting ads, hire a good sales manager to keep the troops closing, buy a coffee machine to keep the troops buzzing, etc.. Just make sure CLTV/CAC > 3.
- Scale – Focus on bringing on good people and training them on your system. Hire people that are smart and do what they’re told. Don’t hire the creative, entrepreneur type…You already built the system. You need to focus on execution now. Increase spending on ads or whatever lead generation method you are using. If you want to take your ARR to the next level, start pursuing larger enterprise deals and channel partner distribution strategies.
- Exit – Go find an investment bank to sell your company.
- Celebrate – Go buy an island, start giving to charity, start another company, party your face off, or do whatever you want to do with your new exit money.
If you follow these steps to a T, there is no doubt you and your team will build an amazing and profitable business.
Putting It Into Action
Now obviously, this stuff is much easier said than done. Executing a strategy like this requires that you and your team be fluent in a lot of the cutting edge digital marketing and management practices.
For instance, you first need to develop messaging and language around your killer offer, you need to build killer landing pages and ads and copy that actually convert!
You need to track everything like a fox to make sure you are gathering the right data to use during the iteration process – basically, you need to be a Google Analytics Wizard.
You need to tie all the data together into your CRM and close the loop to determine which campaigns are actually giving you a positive ROI. Some campaigns will generate leads, but if they don’t lead to sales, then you need to scrap them fast.
Lastly and most importantly, you need to write an absolutely lethal sales script for your reps to use or for you to use in your webinars or sales pages. The script is like the heart of the whole operation. Everything else in your machine doesn’t matter if the rubber never meets the road and you can’t actually collect someone’s money.
Now if you or your team have these resources in house and you have the expertise to execute these experiments, then take this information and run with it.
Getting Some Extra Help
If you are a founder/CEO with a good product, some money in the bank, smart people on your team and some runway, but you don’t have the traction you want and you don’t have the resources to execute properly in-house and you are asking questions like…
What lead gen channel should I use?
How do I do outbound email prospecting properly?
How do I track everything and tie everything together into my CRM?
How do I write a lethal sales script that converts?
How do I build killer landing pages that convert?
What’s a good conversion rate?
How much should I pay my reps?
How do I hire cheap, recent grad that gets the job done?
What tools should I use? How much should I be paying for my tools?
What advertising platform should I use?
Then you might need some help.
The truth is you can’t simply just “do” inbound ads or “do” outbound prospecting or “build” a script. Each of these steps requires someone who is extremely skilled. If you don’t do them right, then you will get a false negative. Maybe a channel is your golden goose, but you got a false negative because you didn’t execute the experiment properly.
We would suggest that you try to recruit a specialist for each experiment.
For example, if you want to test inbound ads, outbound prospecting and SEO, you need to first find an experienced marketing person to build landing pages.
Then, go find the best ad person out there to set up your tests and track your results.
Then, go find the best outbound prospecting consulting person out there and track your results.
Then go find the best damn SEO person out there and track your results.
Once your find your Golden Goose, you need to crack conversion and get a solid script written.
So what do you do? You guessed it.. Go find the best damn conversion specialist out there and pay him/her handsomely until you crack this code.
Alternatively, you can hire our firm, Salesprocess.io to help you do all of this, however, we only work with 3-4 companies a year and we are extremely picky when it comes to companies we work with.
We like working with companies who have strong signs of product market fit, a smart, lean team, some growth capital in the bank ($1mm at least) and a thirsty market. We work on a performance basis (Rev share or equity). So if you meet that criteria just book a call with me here: Here
For everyone else, I’m going to try to put more technical articles out to help out.
Please join my mailing list and share this article if you found value in it.
If you have specific questions, just email me at email@example.com
I’ll be happy to answer them in email or article form.