There are typically 5 main paths to building a $100mil/yr business (and IPO as a unicorn): Each come with their own pros/cons and related playbooks one should follow. (Pilotis #4, with a bit of #2 sprinkled in).
Most early stage founders I meet should consider this more thoughtfully. Hopefully this post helps a few of them!
⭐First,here are the levels: ⭐
Lvl 1: 🏢 Enterprise Sales --> Earn +$100,000s/yr from 1000 companies.
Lvl 2: 🏛️ Mid-Market Sales --> Earn $10,000s/yr from 10,000 companies or individuals
Lvl 3: 🏠 SMB Sales --> Earn $1,000s/yr from100,000 companies or individuals
Lvl 4: 🧑🦱 Consumer Services --> Earn$100s/yr from 1,000,000 individuals
Lvl 5: 👀 Consumer Social --> Earn $10s/yr from 10,000,000 individuals
Now the playbooks, and pros/cons of each:
Lvl 1: 🏢 Enterprise Sales --> Earn +$100,000s/yrfrom 1000 companies.
- E.g. Salesforce, IBM, Accenture, Boeing, Merck
- Typical Playbook: Outside sales (e.g. events, dinners, gifts, golf, etc)
- Reason: Higher customer lifetime values (LTVs) require more trust. More trust means requires more relationship building (in person). This means slow sales cycles, and higher customer acquisition costs (CACs).
- Pros: Leveraging existing networks can make you rich faster than almost any other way (see Microsoft) - amazing upsell opportunities. And, the high LTV lets you justify higher CACs, so you can truly get creative here.
- Cons: Marketing doesn't do much more than add brand trust (e.g. "Hey client I'm taking to the sports game, that's our logo on the Jumbotron!"). Sales usually has to generate most, if not all of the leads, especially through referrals. Product is expensive and slow to build, with little feedback data to justify until built (ie. risky).
Lvl 2: 🏛️ Mid-Market Sales --> Earn $10,000s/yrfrom 10,000 companies or individuals
- E.g. HubSpot, Gong, Tesla, Salesforce, Zendesk
- Typical Playbook: Inside Sales (e.g. BDR/SDRs generating/nurturing leads foran Account Executive to close)
- Reason: LTV isn't high enough to justify the CAC of paying a salesperson to spend months nurturing a relationship, though 1-to-many sales (e.g. webinars, tradeshows) work well.
- Pros: Where most SaaS should try to end up; LTV is high enough to pay salespeople commissions to give them huge upside without requiring a high base salary (risky/costly). Process can be optimized for speed & feedback data is frequent (see: Gong and tools like it). Marketing can generate leads, sometimes even customers if there's no demo gate to signup.
- Cons: Not a lot, except that while target audience is bigger than lvl 1, it's still slim, making marketing targeting hard, and outreach not-in-person is increasingly ineffective in today's marketing/sales tech stack world (too much automation leads people to not trust even the most personalized emails now = lower reply rates).
Lvl 3: 🏠 SMB Sales --> Earn $1,000s/yr from100,000 companies or individuals
- E.g. Apple, Slack, Shopify, QuickBooks, Mailchimp
- Typical playbook: Usually a combination of lvl 2 and 4. Inside sales work, but Product-led works best where customers onboard themselves, and sales plays a supporting, not leading role. Any sort of 1-to-many selling (e.g. influencers, press, etc.) works great too.
- Reason: The unit economics are tricky to get right. LTVs are smaller, so commissions have to be high to even be worth it to the seller, but then it eats into margins too much. This means paying higher base salaries for sales with lower commissions, and relying more heavily on marketing for leads and customers.
- Pros: There are usually ample potential customers for marketing to target with a wide variety of channels to try, and no shortage for salespeople to talk to. I think most B2B software should start here for the data, then use that to move up market. It's easier to build for since requires a less "fully-featured" product initially.
- Cons: SMB will keep the lights on, but mid-market/enterprise will make you rich. Higher churn rates in SMB + lower average selling prices make unit economics tougher at scale. Plan accordingly.
Lvl 4: 🧑🦱 Consumer Services --> Earn $100s/yr from 1,000,000 individuals
- E.g. Strava, Spotify, Doordash, Netflix, Pilot (we focus here)
- Typical strategy: inbound marketing & product led with a high viral k-coefficient, even if not above 1 (above 1 would make it "viral")
- Reason: LTVs are too small to justify the cost of 1-to-1 selling, so salespeople are out. Marketing has to do the selling here. The product should be built to be shared (e.g. invite friend to trip, watch netflix with them, listen to spotify together, eat together, brag to friends, etc).
- Pros: Basically unlimited marketing channels, and huge amounts of data ontight feedback loops to try basically anything. It's harder than Lvl 2 & 3, but this is my favorite.
- Cons: Can't use sales, so you better be good at marketing and not go after a niche that's too hard to target to reach without sales. Also retention is usually a problem since it's individuals' money, not someone else's being spent. So, the bar for providing value is therefore higher to keep them around.
Lvl 5: 👀 Consumer Social -->Earn $10s/yr from 10,000,000 individuals
- E.g. Facebook, Instagram, TikTok, Twitter, Snapchat
- Typical strategy: you have to go viral here, there is almost no other way
- Reasoning: The value of the platform is from other users being on it typically, meaning retention is way bigger problem as users are much more fickle.
- Pros: Go big or go home?? It's fun at least.
- Cons: Users are the product. This makes it harder to design for them when their needs are inherently different from the customer (advertisers). And, the more you monetize, the higher your churn, which can kill growth. Marketing can't really save you here either, because until you have lots of users and can monetize them enough, a user is usually not worth enough to justify acquiring with things like paid ads or even SEO. Your product needs to drive CAC to almost zero with virality for this to work. You won't know if something is going to blow up until it does, and even then it may not work (see Clubhouse). Also, because it HAS to be viral, it's usually gaming of behavior, and not something that is meant to be a meaningful contribution to society (but not always). This is the hardest and my least favorite lvl.
Also, it’s even trickier than listed here, because you need users to create value for other users, but without other users initially, this doesn’t happen. Typical chicken and the egg problem. Marketplaces (usually lvl 4, but can be 1-3 too) also have this problem, which can be solved by creating a solution for one side of the market first to capture one side, before adding the other which then gets value from the other side of the market already being there.
Airbnb did this for instance. They initially made it easy for sellers to distribute their listing easier to Craigslist, which a link back to book via Airbnb of course. This eventually built up their base of listings, which seeded the supply side, allowing them to justify investing in the demand side (traffic of people to book rooms).
Some additional commentary:
Q: Really really interesting insights. Why would you say lvl 4 is your favourite? Is this cause you can iterate quick and a sales cycle is relatively short?
A: Because I’m good at marketing- play to your strengths! The business I did before this one was lvl 3, and almost everything that worked well for the go-to-market-strategy for that works better in lvl 4 (the marketing). Also you get more data more frequently which is useful for iterating your approach and finding product market fit. You’re also super close to your end-users, instead of an indirect economic contributor like in B2B (B2B doesn’t really exist, everything is business to people at the end of the day- just depends who and when). B2B you help some other company in the value chain provide their value to an individual or other company that presumably eventually benefits an individual. B2C you just benefit the individual.
This guarantees a value add for the world if you’re building something that solves a real problem. In 2021/2022 Web3 crashed because there was this whole leveraged industry serving other web3 companies, but none of the web3 companies really created any value for individuals, it was mostly gamed and scams. When the b2c web3s failed to materialize, they failed, which caused a chain reaction of failure throughout the industry. So, b2c can be better economically fault-tolerance wise too.
Connor J. Wilson
Founder, CEO
Pilot
Originally posted on 🔗Linkedin🔗