Being first isn’t necessarily the most important attribute of success, says Ashu Garg of Foundation Capital
General Partner at Foundation Capital, Ashu Garg was once the General Manager for Microsoft’s online advertising business, where he also led the field marketing for its software business. Earlier, he was at McKinsey and Company, consulting for technology companies and helping them scale their go-to-market strategies.
Early on in his career, he founded one of the very first search engines in Asia, set up the country operations for Unilever in Nepal, and also led the marketing and pre-sales teams at Cadence. With a Bachelor’s degree from IIT Delhi, Ashu also has an MBA from IIM Bangalore, where he received the gold medal from the President.
In the recent episode of Prime Venture Partners Podcasts, a series that features the makers and doers of the startup ecosystem, Ashu Garg discusses with Shripati Acharya, Managing Partner at Prime Venture Partners, the trends in enterprise software, and how GTM strategies are an evolving process in the industry.
From Microsoft to venture capitalist
Considering the VC transition an accident, Ashu says, “I left Microsoft with the idea that I would build a startup around the thesis that video would move from traditional TV to the internet.”
While exploring a variety of startup ideas, he used to pitch them to almost any VC he met. He even met one of the partners at Foundation Capital in a parking lot.
“Our cars happen to be parked next to each other. And we were getting into the car and I was like, I pitched him for three minutes. And he was impressed enough to sort of give me his business card. And that started a relationship and eventually led to Foundation making me an offer to join the firm,” he recalls.
General Partner at Foundation Capital, Ashu Garg
Building a SaaS company
When it comes to the growth of a SaaS company, Ashu Garg details three phases.
The first phase of any SaaS company is about finding the right product-market fit. This is where the ARR goes from zero to the first $2 million. “It is about demonstrating that the startup has a set of customers who value the product and has found a value proposition that resonates with their needs. The packaging for pricing points can also be figured out in this phase,” he says.
In the second phase of growth, SaaS companies have to scale from $2 million to $10 million in ARR. There are going to be tens or hundreds of customers. Depending on the pricing point at this time, it is all about how the startup can scale.
“At the same time, there is no one single playbook to generate the right demand strategy, there are multiple ways to generate demand. Figuring out the right demand engine, the right sales processes, the role of PoCs, customer service and the contracting process, all come into the picture during this second phase,” explains Ashu.
The third phase, where the startup goes on to the hockey-stick growth with a turning point followed by a stable growth, is about stabilising and optimising the processes, market expansion, and consolidating itself in the market – all while managing the scale and complexity of the systems after they cross $10 million in ARR.
Evolution of GTM strategy in enterprise software
According to Ashu, the subject of go-to-market (GTM) strategies has evolved a lot over the last 10 years. A decade ago, these strategies were carried out in multiple ways in SaaS companies.
During his stint at Microsoft, where he was running field marketing, he sold MS Office and Windows OS with a top-down approach. While the top-down strategy could be a departmental level sale or even an enterprise-level sale, plenty of thinking and effort went behind reducing the process complexity in sales.
However, over the last decade, there has been a significant transformation in GTM strategies with the rise of the bottom-up approach, compelling the users to try out the product first.
“Though there was an option of purchasing the necessary software products over the internet with a credit card, there has always been the practical reality of how much people can buy with credit. As a result, a typical GTM strategy is a direct function of the pricing points of the product,” says Ashu.
In context, if a startup has to generate demand in the first place, the bottom-up approach was found ideal to tap into user interest and usage. The transaction model also had to be based on the credit card.
However, it is imperative for companies to have a sales force – either telephonic or online – to chip in and close the deal. Enterprises do not pay $50,000 on a credit card generally and human intervention is always needed to close deals ranging within $10,000 - $50,000. The moment the transaction goes beyond $50,000, the complexity rises exponentially, he explains.
Identifying the right pricing
On a very fundamental and practical level, all you are attempting to do at a startup is to try and figure out what your users can pay in the shortest time frame possible. However, there is no scientific or prescribed way to figure out the right pricing.
However, in reality, the early price points revolve around the budget the users can allocate and how much more room they can create. It is also critical that the founders have the necessary courage to hold off on accepting a particular deal.
“At the end of the day, the entrepreneurs should try to push the envelope and ask themselves what is the value they are creating and what is the cost of sale,” he notes.
Many businesses coming from overseas geographies, including India, are massively underpriced. This is attributed to the fact that both the cost resources and the short-term cost of sale are relatively low in India.
But, the truth is that a large software company is built only with the best possible talent, and low-cost resources do not lead to building bigger businesses. So, it is important to keep the cost of talent global, and not Indian, mentions Ashu.
The process of arriving at a pricing point is not continuous but evolving. When a startup gets to its first $25 million ARR, all it now can hope for is a pricing model that evolves on an incremental basis.
Ashu recommends that entrepreneurs carry out these critical changes in the pricing, well before they hit the first $10 million. It’s suggested that to do incremental changes on one hand and get sophisticated enough to start adding new modules and product areas on the other. In this process, there is scope to find a new user persona.
You can listen to the podcast here.