Main illustration: Lily Wang
During your first wave of growth, your initial customers are very important. You have to build a product that solves a problem and works well for them.
As you reach your next wave of growth, you need to continue to invest in those customers and in that product, and recognize that, in order to keep growing, you need that product to appeal to more people.
The first strategy of that next wave of growth is to expand your addressable market. You have to figure out how your product can solve that same problem, but for a broader set of customers. If you only serve your original customers and other companies like them, you are stunting your future growth.
How to expand your market
There are three ways companies typically expand their market:
- By expanding to other verticals.
- By starting at the higher end and expanding downmarket. In B2C, that is companies who start with a high end product and then create simpler or less expensive versions of it.
- By starting at the lower end and expanding upmarket. In B2B, that is companies who start by selling to smaller businesses and then expand to mid-market and enterprise.
The third here is classic disruption, where a company provides a simple and improved solution to an existing problem and meets enough of the needs of higher end customers, often at a lower price, thereby disrupting the incumbent high end players. There are many ways to do this well, but also paths that you don’t want to go down.
“Your strategy is as much what you do as what you don’t do”
One path that is very tempting is to find a large customer and build to their needs. The risk here is using your company’s time on something that isn’t scalable – you might build something that is great for one company but doesn’t solve the most important problems for others. Designing a stellar product that is good for exactly one customer is the definition of not scalable.
At Intercom, we had the opportunity for a multi-million dollar deal with a large, well-known company but with a 137-line RFP (request for proposal) of special requirements. We passed in order to focus on making products that are valuable for many customers rather than valuable just for one.
Consider what you say yes to and what you say no to. Your strategy is as much what you do as what you don’t do.
“Don’t get blinded by a big check. Invest in what will scale”
There is a famous Mike Tyson quote that I love: “Everybody has a plan until they get punched in the mouth.” Here is my variation, “Everybody has a strategy until they get handed a big check.” Don’t get blinded by that big check. Invest in what will scale.
The best way to expand upmarket
I’ve found that the best way to expand upmarket is to do it one step at a time. Do this by:
- Finding customers who are one step larger than your current sweet spot. You can do this by finding the customers who have just grown out of your product and have left you.
- Understanding what customers need. Assess the must-haves vs. nice-to-haves.
- Assessing what you need to do vs. what you could partner for.
Be ruthless. For many people, your instinct will be to build everything. Assume you can build just one to two things and that you want to be testing it in the market within a few months.
For example, I used to lead small business products at Intuit. When I joined, QuickBooks was a fantastic product for very small businesses to do their accounting, and it was best for companies with fewer than 20 employees.
But what happened when those companies grew, as many of them did? They outgrew QuickBooks and left. They left a product that cost $300 per year and had to go to NetSuite or others that cost at least $3,000 per year.
So what did we do? We talked with customers who had just left and were one step above our product-market fit, watched how they worked and realized that were just some basic things that we were missing.
For example, there are certain things in your accounting that you only want certain people to see. It used to be that anyone who had access to the check register could also see everyone’s paychecks. That’s not okay in a mid-market company. In other words, advanced permissions became critical for companies with more employees.
“Expectations for a $100 meal are very different than a $10 meal”
So we invested in QB Enterprise, built these new features, opened up our APIs and built partnerships with key vertical specific solutions that our mid-market customers were using. We put it on the market for $1,000 a year, which was three times the price of our other product but one-third the price of the alternative (NetSuite). Within a few years, it became a $100 million business.
Upmarket expectations are different
Don’t assume you can serve these upmarket customers in the same way you serve your other customers. Expectations for a $100 meal are very different than a $10 meal. Not only do you expect different food for $100 vs. $10, you expect a different atmosphere, level of service and so on. Similarly here, expectations for sales and support for upmarket are very different.
What does this mean for you? Hire at least one person who has served larger customers in the past and can lay out the blueprint for you.
As you move upmarket one step at a time by working with slightly larger and larger customers, investing in continuing to delight your smaller customers and solve their most critical problems, so you aren’t leaving any holes along the way. This is how you grow your business and ensure your customers always have a place with you.
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