Moving Upmarket vs Downmarket.

I set myself a goal to write and send out an email every week this year. I wish I could say I accomplished that goal but I didn’t. The kids are a handful, I was travelling for work, went to a bachelor party, celebrated my own birthday, and a endured a bank failure! I needed a break.

So I broke my goal.

But I’m back. Let’s not dwell on it. Let’s fucking go.

Fancy as F***

Everything is uncertain right now and it’s impossible to predict individual/organizational responses to the changing market moves.

Except uncertainty isn’t equally distributed. If you look at the aggregate almost every industry is hurting right now. But one shining star is luxury.

Rolex is having to increase production because demand for their dumbass watches (they were the worst client I ever worked with) is through the roof. link

Ferrari had a record-breaking year and believes they will continue to in 2023. link

LVMH is “gaining market share globally and reaching record levels of revenue and earnings.” link

Ok so what’s the point?

Well, even though “luxury” is a bit of an exaggeration, the point is that when everything is uncertain your strategy needs to go up and not down.

This is a post about moving upmarket vs downmarket. It may feel like selling out but it’s nice up here. It’s safer, less volatile, and more predictable.

The situation at Stripe

Stripe has been a real favorite of the tech scene. Their brother founders are beloved by employees and their products are beloved by the companies that use them. No startup I’ve been at hasn’t been built off of Stripe. But things aren’t great for Stripe right now.

To an extent, it’s a bad case of timing in which they were hoping to go public in a timeframe that is unfortunately recessionary.

Yesterday, Stripe announced that they are worth $50B which is a lot but only half their historical peak of nearly $100B achieved just two years ago.

The All-In podcast recently covered this exact topic and pointed out that Stripe has really been built off the momentum of startups. But now that the economy is rough - let’s pour one out for SVB - those startups are not growing as they once were.

Stripe’s top competitor Adyen took a different strategy of starting with medium to large-sized businesses and is more insulated against volatility. Mind you Adyen’s market cap is only fairing slightly better than Stripe’s and still down 30% (vs 50%) from where they were 2 years ago.

Regardless, for one it’s a race to the top. For the other, a more paced stride to the bottom.

Two strategically opposed approaches

Starting with SMBs can allow for your product and processes to be a bit rough on the edges while you build into the features and support systems needed by enterprises. You may also be able to smoothly keep up with the growth of your clients and reduce acquisition costs along the way as well. SMB services tend to have product-led growth.

Starting at the top with enterprise means that you’ll enjoy great margins as you’re able to keep headcount low after your sales and support teams reach a critical mass. Enterprise companies tend to have sales-led growth.

So, which one is better?

If you currently find yourself, especially in this economy, better positioned for the bottom of the market then now is your opportunity. Introduce new pricing and packaging differently. Add a few (monetizable) features that speak to larger organizations. Take a risk on longer sales cycles as you go after a different market segment. Move upmarket, take what’s yours, and know that you don’t need to abandon anyone to get there.

If you’re already “luxury”, this could be a painful process to rewire and rally your organization around. You’re selling in a fairly insular category and things look good right now. Why would you want to expose yourself to the risk and low margins below? Why would you cannibalize your own business?

Well, the good times won’t last forever. You’ll end up like every other industry that Clay Christensen refers to in the Innovators Dilemma… disrupted.

I’m biased. I love a good disruptive business model. I think, in the long-term, it’s better to be positioned for the bottom and sneak your way to the top.

I’ll keep up the momentum and be back next week with another newsletter. Thanks to everyone whose reached out and said that they’re enjoying Marketing Clarity, that they’re forwarding it to their friends and co-workers, and that they look forward to the next one.

Also, huge empathy for everyone who made it through the SVB nightmare of this past weekend. It was looking dicey there for a moment but there’s alot to learn and opportunity to grow from it! Could you imagine how your business would operate with absolutely zero access to capital? Now that you have it back, what will be different?