WEBVTT 00:00:10.000 --> 00:00:15.920 Kia ora koutou. Hello, and welcome to episode 11 of nzangels.com, a guide to raising 00:00:15.920 --> 00:00:21.040 angel investment in Aotearoa, New Zealand. I'm Dave Moskovitz, one of New Zealand's most 00:00:21.040 --> 00:00:28.080 experienced angel investors. And this is episode 11, Go to Market. Your go to market strategy, 00:00:28.080 --> 00:00:34.080 or GTM, is one of the most important aspects of a seed stage startup. In my experience, 00:00:34.080 --> 00:00:39.120 it's usually the weakest part of an investment pitch. Founders often have a great idea of what 00:00:39.120 --> 00:00:44.239 their product should look like, a reasonable idea of what a customer looks like, but often not a 00:00:44.239 --> 00:00:49.680 clue about how they're going to sell the product to that customer. Often they're unsure of which 00:00:49.680 --> 00:00:55.040 customer segment to start out with, and some will make the frequently fatal error of trying to sell 00:00:55.040 --> 00:01:02.080 the product to the entire universe. Everyone will buy it! The product will sell itself, they say. 00:01:02.800 --> 00:01:08.560 We'll just go viral! I can't tell you how many times I've heard this from founders. It's been 00:01:08.560 --> 00:01:14.800 way too many to count, but each time a small part of me dies, and I try to be polite and not look at 00:01:14.800 --> 00:01:23.120 my watch or find excuses to leave. In my experience, no product sells itself, and going viral is tricky, 00:01:23.120 --> 00:01:29.840 risky, expensive, and very hard to pull off. I apologise for pouring cold water on your dreams 00:01:29.840 --> 00:01:35.280 here, but you'll learn much better off investing your time and effort in understanding exactly who 00:01:35.280 --> 00:01:42.240 you're targeting, how to reach them, and how to close sales. Back in episode 8, we talked about 00:01:42.240 --> 00:01:47.360 customers and markets, so if you haven't watched, listened to, or read that episode, I suggest you 00:01:47.360 --> 00:01:52.320 having a look. We'll assume that you have a reasonable idea of who your customers are and 00:01:52.320 --> 00:01:58.320 how to aggregate them into markets. Investors will be very interested in the size of your 00:01:58.320 --> 00:02:05.839 target market. This is typically expressed as TAM, SAM, and SOM, that is, your total addressable 00:02:05.839 --> 00:02:13.680 market, your serviceable addressable market, and your serviceable obtainable market. As an example, 00:02:13.680 --> 00:02:17.920 let's say that you've developed a scheduling system targeting dental clinics in New Zealand, 00:02:17.920 --> 00:02:23.839 and that your product will sell for $99 a month. Your total addressable market size, or TAM, 00:02:23.839 --> 00:02:29.040 assumes that every single potential customer, that is, every dental clinic, would buy your product. 00:02:30.239 --> 00:02:36.399 RENTEC Digital's Smart Scraper estimates that there are 533 dental clinics in New Zealand, 00:02:36.399 --> 00:02:40.160 based on data that they scraped from the NZ Dental Association's website. 00:02:40.960 --> 00:02:45.440 So if those numbers are accurate, your TAM would be 533 clinics, 00:02:45.440 --> 00:02:53.440 times $99 a month, times 12 months per year, or $633,204 per year. 00:02:55.519 --> 00:02:59.760 Now your product has the most value for clinics with more than one dentist that don't already have 00:02:59.760 --> 00:03:05.519 a scheduling system they like. There are no good stats for New Zealand on how many of those 533 00:03:05.600 --> 00:03:10.880 clinics have more than one dentist, but overseas it's roughly half. Your initial market research 00:03:10.880 --> 00:03:15.040 tells you that about half of those multi-dentist clinics don't already have a scheduling system 00:03:15.040 --> 00:03:21.280 they're happy with, and these are the ones you can realistically sell to. So, using optimistic round 00:03:21.280 --> 00:03:29.040 numbers, we'll say 300 clinics with more than one dentist, half of which are up for grabs, $99 a month 00:03:29.040 --> 00:03:37.760 over 12 months. Our serviceable addressable market, or SAM, is 300 times 0.5 times 99 times 12, or 00:03:37.760 --> 00:03:45.920 $178,200. How many of those do you think you'll realistically be able to sell your software to in 00:03:45.920 --> 00:03:52.320 the next few years? Again, let's be optimistic, and based on various factors, the number of sales 00:03:52.320 --> 00:03:57.120 people you have, the number of dentists that are about to retire, the ones who have dubbed listings 00:03:57.200 --> 00:04:02.400 in your data, and so on, let's say that you think you'll be able to sell to a quarter of them, 25%, 00:04:03.120 --> 00:04:10.560 in that time frame. That 25% number is a top-down guess. You'd be much better off working out this 00:04:10.560 --> 00:04:15.840 number as a bottom-up calculation based on the number of sales people you have, their documented 00:04:15.840 --> 00:04:22.079 conversion rate, and so on. But assuming that the 25% guess limit is accurate, our serviceable 00:04:22.079 --> 00:04:33.200 obtainable market, or SOM, would be $44,500 a year. And now you can see why doing business 00:04:33.200 --> 00:04:37.599 focused in New Zealand is super hard. You're hardly going to be able to do anything for 00:04:37.599 --> 00:04:43.200 $45,000 per year, much less build a business. And hopefully you can see why most investors 00:04:43.200 --> 00:04:47.520 aren't interested in businesses with TAMs less than the many millions of dollars. 00:04:47.599 --> 00:04:54.240 In a much larger market, things might be different. Let's target the USA with 200,000 dental clinics, 00:04:54.240 --> 00:04:59.200 100,000 multi-dentists, again, half of them already have scheduling systems they like, 00:04:59.200 --> 00:05:05.359 which you would need to re-verify in this new market. And let's raise our price to $1,000 a month, 00:05:05.359 --> 00:05:11.919 which again, you'll need to validate would be acceptable in that market. So now our TAM is 2.4 00:05:12.880 --> 00:05:18.240 billion, our SAM is 600 million, and our SAM, assuming we're still gunning for 25%, 00:05:19.120 --> 00:05:24.720 is 150 million. Now we're talking about numbers that could support a viable business. 00:05:26.960 --> 00:05:32.640 You'll need to be able to defend these numbers. As an example, you'll need to ground truth your TAM 00:05:32.640 --> 00:05:37.840 against industry stats like total software spent by dental clinics, along with research on what your 00:05:38.000 --> 00:05:44.560 prospective customers will pay for your service. Is it closer to $99 a month or $1,000 a month? 00:05:44.560 --> 00:05:51.840 That's a big difference. The trickiest bit is the final bit. How are you actually going to obtain 00:05:51.840 --> 00:05:57.919 those customers? This is where you go to market strategy comes in. You can't just say, oh, if we 00:05:57.919 --> 00:06:03.919 only had 10% of the market, we'd be rolling in cash. Mind you, I've heard that line many times 00:06:04.000 --> 00:06:10.720 in pitches and just shake my head. 10% seems like a modest aspiration, but it says absolutely nothing 00:06:10.720 --> 00:06:16.160 about how you're going to achieve it. Investors are going to want to know these details and are 00:06:16.160 --> 00:06:23.120 certain to grill you on them. There are many ways to acquire customers. As we discussed in episode 10, 00:06:23.120 --> 00:06:28.560 word of mouth is attractive as it's free, but it just doesn't scale. The equation that investors 00:06:28.640 --> 00:06:36.800 are looking for is $1 of investment in, significant multiple of revenue out. How can you build a 00:06:36.800 --> 00:06:44.400 predictable, scalable, repeatable sales machine? For B2C businesses, this might be social marketing 00:06:44.400 --> 00:06:51.440 or ads. Can you show a strong lifetime value to customer acquisition cost ratio? As we said in 00:06:51.440 --> 00:06:56.880 episode 10, investors will be looking for a ratio of at least three to one. If you're in a large 00:06:56.880 --> 00:07:02.400 market, can you break it down into smaller markets? This could be by geography, demographics, 00:07:02.400 --> 00:07:07.760 or some other dimension where you have an advantage. Go after the low-hanging fruit first 00:07:07.760 --> 00:07:13.200 and set up a beachhead market where you're most likely to find success and learn the most about 00:07:13.200 --> 00:07:19.840 how to acquire customers. Can you get the product itself to do some of the sales work with product- 00:07:19.840 --> 00:07:24.000 led growth, where the product itself generates referrals for new customers? 00:07:24.000 --> 00:07:30.960 If you're B2B, there's a whole science around lead generation and closing is fairly well 00:07:30.960 --> 00:07:36.960 understood by investors too. HubSpot have a great guide to developing a B2B GTM strategy. 00:07:37.520 --> 00:07:47.120 Read it. You need to move your prospects through the AARRR funnel and maximize your conversion 00:07:47.120 --> 00:07:53.360 rates at each stage. You also need to worry about customer success and support and figure churn, 00:07:54.000 --> 00:07:57.680 or what percentage of customers don't resubscribe, into your calculations. 00:07:59.600 --> 00:08:05.520 Now, New Zealand is so small and our hierarchy is so flat that Kiwis don't normally worry about 00:08:05.520 --> 00:08:10.960 distribution or indirect ways of reaching your prospective customers. But distribution is often 00:08:10.960 --> 00:08:16.880 critical in larger markets. That might mean setting up channel partners. Going back to our dental 00:08:16.880 --> 00:08:21.440 clinic example, are there other companies that sell stuff to dental clinics for whom you could be 00:08:21.440 --> 00:08:26.000 another string to their bow? It could be the people who sell them X-Ray machines or dental 00:08:26.000 --> 00:08:31.760 chairs. Next time they have contact with one of their existing customers, they can just ask, 00:08:31.760 --> 00:08:36.400 would you like some scheduling software with that? That saves you the effort of establishing 00:08:36.400 --> 00:08:41.120 a direct relationship with every dental clinic, which you'll pay for by giving the distributor 00:08:41.120 --> 00:08:47.760 some commission. Running channel partners is a very different game from either B2B or B2C. 00:08:48.720 --> 00:08:52.000 You need to figure out how to motivate your channel and keep them motivated. 00:08:52.560 --> 00:08:56.800 You want to make sure they ask their customers to supersize to include your product. 00:08:57.680 --> 00:09:01.680 If their sales team members are earning $10 a pop in commission for selling your thing 00:09:02.240 --> 00:09:08.480 and $1,000 a pop for somebody else's thing, it doesn't take much imagination to figure out where 00:09:08.480 --> 00:09:14.800 they're going to put their energy. If you're selling overseas, are you planning on establishing 00:09:14.800 --> 00:09:20.959 subsidiaries and or in-country offices? How will those sales teams operate? How does that affect 00:09:20.959 --> 00:09:27.120 your CAC? Will you use the same pricing in each jurisdiction? Are there any regulatory compliance 00:09:27.120 --> 00:09:33.040 issues that you might face in your new location or localization costs like languages, currencies, 00:09:33.040 --> 00:09:38.719 postcodes, that kind of thing? There are lots of details to consider, but investors are likely to 00:09:38.719 --> 00:09:42.719 ask you about these things, so it's a good idea to front foot this to whatever extent possible. 00:09:42.720 --> 00:09:48.640 It's best to have some real-world data to tell your prospective investors about, 00:09:48.640 --> 00:09:53.440 rather than just theorise about how things might work out. Get out of the building. 00:09:54.000 --> 00:09:58.160 Hop out a plane and investigate overseas markets firsthand, if that's in your future plan. 00:09:59.120 --> 00:10:03.120 Try out several different ways of getting your product in front of customers before you invest 00:10:03.120 --> 00:10:09.840 in scaling. Be creative and don't be deterred. Selling is hard and a critical problem to solve, 00:10:09.840 --> 00:10:17.360 but once you start getting real traction, you'll be on your way. You could, and possibly should, 00:10:17.360 --> 00:10:22.480 spend significant time and effort on your GTM strategy. As I said, it's typically the weakest 00:10:22.480 --> 00:10:28.400 part of a pre-seed or seed stage pitch. The last thing you want is a potential investor to think, 00:10:28.400 --> 00:10:34.960 oh God, not another entrepreneur who thinks their product will sell itself. The more relevant data 00:10:34.960 --> 00:10:41.200 you have, the more convincing your pitch will be. So, part one of your homework is to work out your 00:10:41.200 --> 00:10:47.840 TAM, SAM, and SOM for your product as it stands, and see if you can't work it into the many millions 00:10:47.840 --> 00:10:54.320 of dollars. Part two is to devise some GTM strategy options and figure out how to validate them. 00:10:56.000 --> 00:11:02.560 Today's pithy quote is, the equation that investors are looking for is: $1 of investment in, 00:11:03.280 --> 00:11:10.640 significant multiple of revenue out. If everything goes your way, what will your business look like 00:11:10.640 --> 00:11:18.479 at scale? Our next episode will focus on what great looks like. So until then, ka kite!