Good day PROs!
"Beware the snare to compare." As CEOs, we often scan the market for insights on what we should be doing in Go-to-Market. But for those of us in the lower middle market, that can be dangerous! Here's why.
Is My Company in the Lower Middle Market?
When a CEO is asked about the size of their company, you will never, ever hear them say "we are in the Lower Middle Market."
However, when you talk to the institutions that provide capital and private equity groups that invest that capital, it is fairly common for them to communicate their focus as the "Lower Middle Market."
So let's define it.
The Lower Middle Market is, in the terminology of institutional investors, an "asset class" to which they allocate a portion of their investment portfolio.
It is large in terms of number of companies and incredibly diverse in terms of industries.
For software and tech-enabled services companies, below is an example of company characteristics:
Company with $10mm, growing 15% per year
Ideally at or close to operating cash flow break-even
60 +/- employees (assuming $167K revenue/employee, see below)
6 departments (Sales, Marketing, Customer Success, Product, Engineers, Admin)
Implies ~10 people per department
Founder(s) as Execs
Single product, single segment, 1-2 channels
Startups
So if Lower Middle Market companies have $5mm - $50mm in revenue, doesn't that include Startups?
This has become a very polluted term over the years. It is common to see the media refer to a company with $500MM in revenue as a "startup" because it is a (relatively) new company.
For those of us in the trenches, however, the most common understanding is that a Startup is a VC-backed company that was founded within the last 5 (ish) years and has set out on a path of aggressive growth.
Let's contrast a (high growth) Startup with a typical Lower MIddle Market Company.
Series A - $2mm in revenue, raise $18mm
Series B - $7mm in revenue, raise $40mm
Series C - $20mm in revenue, raise $60mm
So after only a few years and $7mm in revenue, a Startup has raised close to $60MM and is investing aggressively for growth.
In fact, growth is an imperative because it is the only way these investments work.
Which is why we still see T2D3 (triple 2x, double 3x) mentality in GTM discussions. These companies have no choice but to operate on multiple horizons at the same time.
Movin' On Up
Now contrast the Lower with the Middle. As we approach $50MM in revenue, the organization changes considerably, as do the operating capabilities and requirements.
235 employees (assuming $212K revenue/employee)
~40 employees per department
Specialization within departments
“Professional” C-Suite - CEO, COO, CFO, CMO, CRO, CTO, CPO
Multiple products, multiple segments, multiple channels
Can I Borrow Your Playbook?
And herein lies the danger. The interwebs are full of Sales, Marketing, CS, Product and overall GTM advice. But if we read between the lines, we will find that it is coming from one of these two places;
Hypergrowth startups - "here's the playbook we used to go from $0 to $100mm ARR in 5 years!"
Scaleups - "here's the playbook we used to launch 5 new products in 5 months" (fine print, with our team of 40 marketers).
So what happens? Well meaning Boards and CEOs come back with their teams and say "X company did this, so we should too. How quickly can we get this up and running?"
Next thing you know, all the functions are trapped executing random acts of marketing/sales/CS etc.
Startups
The requirement to double revenue (or more) every year, Startups have no choice but to make big bets. This means they operate in multiple "horizons" at the same time.
There is focus on maximizing throughput (deals, ARR, etc.) this year, while at the same time experimenting to find the growth lever that will propel them to 2x growth next year.
There is definitely a lot we can learn from the creativity of startups, but we have to be very careful that we "right size" (and prioritize) these initiatives to match our capabilities, resources and growth objectives.
Scaleups
Scaleups are also playing a different game. They are moving beyond a single product, single segment and expanding to multi-product, multi-segment, multi-channel.
By definition, therefore, they will have multiple motions operating at once. This is possible for three primary reasons:
Professional C-Suite: Companies at $50mm and up have the resources and opportunity to attract "professional" executives for each function, each with decades of experience in that specific function.
Specialization: companies have the breadth and depth to begin to specialize within departments.
Budget: There is a minimum "price of admission" for motions and companies of this size can start to place multiple bets to support this expansion.
Done right, this expansion is efficient if using the Bowling Pin Strategy.
Slow is Smooth and Smooth is Fast
So if we can't borrow the Startup playbook and we aren't ready for the Scaleup playbook, what are the options for those of us in the Lower Middle Market?
Drive compound growth by focusing on the orchestration of buyer experiences across our GTM engine. No more swinging for the fences. No more "sprinting" from one initiative to the next.
As a result of our work with over 50 companies in the Lower Middle Market, we have refined the concept of Buyer Zones, which is a straight forward process of mapping the buyer's journey through our experiences (website, forms, auto emails, outreach, pre-call, post-call, etc.), then overlaying metrics to reveal "leakage."
Small, sequential improvements across the journey compound to drive meaningful growth.When combined with a tight ICP definition, this compounding can extend to retention and expansion, the combination of which lead to significant value creation.
What's simple is hard. These "simple" improvements require hard work. Mostly because they require our entire team to work together to engineer a cohesive, consistent experience.
We are working on a free, comprehensive guide to help you do this on your own. If you would like a copy, reply and we will put you on the list!
Until next week,
Gary & Andy
