Sunday, June 9, 2024

Vectors of Growth

Every technology company wants to grow. At least, every US technology company wants to grow and companies with VC or PE money behind them must grow. The popular metric of SaaS company performance is the Rule of 40, which combines revenue growth with profit margin. While there has been a lot of focus on profitability in the last couple of years, growing the top line offers a much bigger lever than cutting costs. Growth is essential.

But where does growth come from?

The common wisdom is that to grow your revenue, you need to sell more deals, but there are many ways to skin that cat. I like to use the term "vectors of growth" because they offer companies different directions to pursue. While these vectors are not mutually exclusive, they each come with a cost, and every company needs to carefully prioritize the ones it wants to pursue. Trying to focus on everything means there is no focus at all.

Let’s examine the different strategies to achieve topline growth:

Growth from New Customers

When you want to grow from new customers, the key question to answer is where to find them, which vector to pursue. Another important question is how much you need to change your product or your GTM strategy to pursue a particular vector because such changes require money and time to implement.

- New Geographies

This is often one of the easier growth vectors to unlock. If a company is currently selling in the US, expanding to countries like the UK, Canada, and Australia is relatively simple. Still, it requires that the product works in those countries. Selling a collaboration product like Slack or Zoom solves a universal problem with minimal product changes. On the other hand, HR and payroll products like Gusto or Rippling have to support country-specific labor laws to be sellable in any particular country.

The GTM strategy also requires some changes, usually some type of local presence. But if the product works, these are relatively easy to implement.

- New Segments

Going up-market or down-market is one of the most common growth strategies. Many B2B software companies start by selling to small businesses and over time target larger and larger customers. This strategy is not without product challenges, as enterprises require various customizations, integrations, and security features that were previously irrelevant to an SMB product. Conversely, products designed for the enterprise segment are usually very difficult to adapt for the simplicity required in the SMB market.

The GTM changes can also be quite significant. The enterprise sales process using a direct sales force is significantly more complex, long, and expensive compared to selling online to small businesses. That has an impact on all other functions, including Marketing, Legal, Finance, and Services. As Bill Binch describes on his blog, going after the enterprise is a company-wide motion.

Companies that seem to have mastered selling to all segments are those with products that have been designed for use by a single user and offer value that increases with the user count, following the network effect per Metcalfe’s Law. Examples of such B2All companies include Box, Slack, and Zoom. These companies are very good at attracting individual users in an enterprise and then converting them into enterprise licenses.

- New Verticals

When a company adopts a vertical GTM strategy, it quickly learns that different verticals have different requirements based on the specific needs of the business. For example, subscription billing for media companies requires a high volume of very simple invoices compared to B2B SaaS companies with a low volume of highly complex invoices involving many line items, negotiated prices, ramp contracts, etc. Expanding from one vertical use case to another may require significant product investment.

Similarly, a vertical GTM motion requires a depth of vertical expertise that your typical horizontal sales reps might not have and that needs to be addressed by building vertical sales teams or adding overlay experts.

- New Markets

This is the most radical vector of growth where the company enters a new market, often through an acquisition. And I am not talking about a small technology acquisition that can be tucked into the existing product. I mean buying a business that adds a new product for a different market. Think Salesforce buying Slack. This is what some companies have to do after they have exhausted all the other vectors of growth (or do you still believe that there was some great product synergy between Salesforce and Slack?).

This vector of growth comes at a relatively high cost in cash or equity. Beyond the acquisition cost, there can be significant engineering costs to integrate the acquired products with the existing ones and GTM costs to enable cross-selling of the acquired products by the existing Sales teams.

Growth from Existing Customers

Now, let’s look at strategies to find growth from existing customers, commonly referred to as expansion:

- Adoption Increase

This is the most obvious and perhaps easiest to implement growth vector of them all. The customers already use the product, and the goal is to make them use it more. Whatever the metric, you want them to adopt more units. If your scaling is by users, you want them to expand the user population. If the metric is usage-based like API calls, gigabytes, or dollars, you want them to increase that usage.

This is part Customer Success and part Sales. Customer Success should monitor current adoption metrics and step in when customers don’t utilize what they are already paying for. Maxing out adoption is a great step towards revenue growth while customers who are not using what they pay for are in danger of downsizing or churning, which is the archenemy of growth.

The Sales strategies usually involve sales plays, such as expanding from Sales to Services teams, just like Salesforce has done with CRM. The appeal of this strategy is the relatively low cost. The product usually doesn’t need to be changed and the changes to the GTM motion are relatively low, mostly related to enablement (training).

- Add-On Products

Add-on products are a great way to generate growth from existing customers. The demand typically comes from the existing customers themselves. Eventually, the product is built, and the decision is made to charge for it (as opposed to including it as a feature in the existing product).

The product-related cost is obvious – the add-on has to be built and that has to be prioritized over other product requirements. The GTM cost is relatively low because sales reps have been already asking for the product (because their customers have been asking for it). Sure, there will be some enablement costs involved and some complexities related to pricing, order processing, revenue recognition, etc. But overall, this is a dependable way to add growth from existing customers.

The only caveat is that it must be an add-on – something that adds value to existing deployments. This is not to be confused with the New Markets strategy, where the company builds (or acquires) a new product that has to be sold again, even to existing customers.

- Use Case Expansion

The use case expansion strategy assumes the adoption of the product by a different part of the company, usually a different business unit with a different use case. That often introduces new product requirements because the new business unit has different needs. A good example is OpenAI, which uses its LLM engine for an end-user-facing application (ChatGPT) but also for use by developers who can access it via an API. Adapting a product to support such different use cases requires development effort.

The GTM motion also comes at a tangible cost with this strategy. It likely requires a different sales team with different expertise to pursue the new use case. It may also require different pricing and packaging. This effort is similar to expanding to a new vertical when pursuing new logos.

Growth Strategies for Both New and Existing Customers

- Pricing Optimization

This strategy looks at how to extract more money out of existing or new customers with minimal product and GTM changes while keeping an eye on churn and win rates. It doesn’t always mean just simple price increases; more sophisticated approaches involve pricing model engineering. An example could be the introduction of a usage-based price component while lowering the recurring fees. Another example might be the addition of advertising-supported revenue to paying subscribers, as done by Hulu, Prime, and HBO recently. 

- GTM Effectiveness

This is the mother of all growth strategies because it aims to improve the effectiveness of the existing GTM motion. It can include areas such as pipeline conversion, account allocation, quotas and incentive strategies, win rate improvements, etc. It applies to both new and existing customers and is the entire reason why companies have Sales Operations, Enablement, and Marketing Operations functions.


There are many vectors of growth available to most companies. Given specific circumstances, some of them are more effective than others. Companies have to choose strategically to achieve the desired outcomes. But choose they must. The worst mistake they could make is to put a half-hearted effort behind all these strategies at the same time. The result is confusion, over-extended resources, and little growth as a result.