Alexander Estner on GTM myths, Ideal Customer Profiles, and the problem with Freemium

Product State Q&A

Alexander Estner is a B2B SaaS startup consultant and GTM advisor. He writes the ‘Startup Business Tips’ newsletter. Previously, he was CRO at Locaboo, Co-Founder and CEO at Strydal / Classcamp, and Head of Sales & Business Development at Eversports.
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EC: What are common GTM myths about early stage startups? 

AE: Early-stage SaaS founders face some very common GTM myths. Here are the 3 most common myths I encounter working as a GTM advisor with early-stage SaaS founders.

Myth #1: “My product sells itself, I don’t need marketing/sales”

You can have the best product in the world, but if nobody knows about it, how will it sell? I’m sorry to tell you: You will have to learn how to sell it. In the end, your success is a combination of 2 things:

1. Great GTM will attract users, and

2. Great products will keep users.

You will only see success if you do both. Even the best PLG products in the world invest a lot in product marketing, messaging etc.

Myth #2: “We don’t have any competition”

This is simply not true. Every company has competition. I like to divide competition into 3 types:

1. The DIRECT competition — Those are companies that do the same (kind of business, product, etc.).

2. The INDIRECT competition — Also referred to as alternative solutions. There are other ways you can achieve the same result / fix the problem, including Excel, manual work, hiring someone, or patching together non-purpose tools.

3. The Status Quo — Basically, NOT DOING ANYTHING. This is when prospects stick to what they do right now. Most of the time, this is your biggest competitor and the number one reason for losing deals.

Myth #3: “Our ICP is everyone, from prosumers to SMBs to enterprises”

Early-stage startups don’t have the resources to serve everyone.

So say goodbye to your FOMO, and start with your initial customers (the ‘beachhead’ segment).

It may be true that in long term, your product could be used by different types of companies — from small to enterprise. But this is not the case when you’re starting. Each segment requires a different GTM motion.

A powerful ICP is also more than the formula of Role + Company Industry + Region.

For me, a powerful ICP is the combination of

1. Ideal Personas (User + Buyer)

2. Ideal Company

By the way, check out this ICP framework with more than 40 data points — And check this out if you want to learn more about other common GTM myths. 

EC: How should startups balance the art of targeting potential investors and customers?

AE: As a startup you need to communicate with multiple stakeholders: Potential investors, future employees, and of course your (potential) customers. 

A challenge that I face frequently is: Who should we target on our main marketing materials (e.g. Homepage)? How do I balance to be very niche/narrow on my homepage messaging while talking about huge TAMs on my pitch deck?

My advice: Your messaging on your SaaS homepage should be focused/tailored to your Ideal Customer Profile. It’s fine (even better) to be very specific here. You should speak directly to your ‘champion.’ 

Your homepage is not the right asset for long-term, ‘visionary’ positioning. Your homepage is your core marketing asset. Your homepage needs to convert clients. 

For employer branding, build your ‘About Us’ and ‘Career pages.’ 

EC: What are the considerations when picking Freemium vs Free Trial vs neither?

AE: Founders that struggle to acquire paying clients often suggest to add a Free plan to grow faster. It’s very common to head early stage SaaS founders saying something along the lines of ‘We need a free plan to grow faster.’

But here’s the thing: In 95% of the cases, this will not solve your problem.

Step 1: Challenge yourself on why you think you need a free plan

• Maybe you that fear users will not pay for the product, then you’re probably not solving a sufficiently large problem. With a free plan, you may be delaying answering the question on whether you solve a meaningful enough problem (where users are willing to pay). This is not a good idea. It hurts a lot to spend months or years building something — only to realize no one wants to pay for it.

• Maybe you want users to test the product — without paying. When this is the case, you may have a better option to offer a Free Trial (for a limited period, e.g. 14 days).

Step 2: Make sure your market is big enough (most probably it’s not)

There is a good article from Jason Lemkin about how you need around 50 million active users to make Freemium work (if you want to build a $100 million ARR business).

Here’s the math behind it:

• Let’s assume a $10/month subscription (or $100 per year).

• So you need 1 million paying users (each paying $100 per year).

• With a 2% conversion rate from active to paying users, you would need 50 million active users for your product.

This is not the case for most SaaS products.

I’m not against freemium at all, but I do believe that most early-stage SaaS startups (that are not attracting millions of users like Zoom, Canvas, and Linkedin of the world) are better off with Free Trials.

“Great GTM will attract users, and great products will keep users. You will only see success if you do both.” - Alexander Estner