Market Annealing


Annealing:  A process that changes the properties of a material to make it more workable. It is a best practice to anneal metals before they are joined together. That way the pieces will stay aligned during the soldering process without being affected by applied work stresses developed during fabrication. 

Market annealing: The effort a company expends to make itself and a market pliable enough for early go-to-market. It applies when the company has a better idea than the market for what the market needs, and so has to work hard to overcome the inherent shape of the market. And it can take years of struggling for relatively modest progress.


While category creation is an important topic in the long arc of a company, it just doesn’t provide useful guidance on how a startup can go from product to, say, the low tens of millions of annual recurring revenue (ARR) in an early market. 

Further, it’s become somewhat of a false narrative that if only you “do category creation,” you can flip a market from being push-based to pull-based. In reality, many markets never become pull-based, and many companies scrape their way to significant size by fighting one battle after another — uphill and with great effort — but still never quite “crossing the chasm.”

On the other hand, understanding how to build a company in the face of a new, immature, or non-existent market is a topic startups should obsess about. Finding product-market fit (PMF) is only part of the journey. Most companies don’t find a magical product that just happens to address a key pain point in the market, thus making their go-to-market (GTM) plan a straightforward one. Rather, they engage in a multi-year-long battle of hammering the shit out of the company and the market simultaneously, trying to get the two to hold together. It’s a feedback cycle that often starts with product vision, goes to sales and marketing, and then returns back to product. The cycle continues while the company morphs into something molded by the market, and the market softens to the point where it can consume the product.

We refer to this joint dance between company and market as company-market annealing — or market annealing, for short — to try and capture the insane amount of effort needed to integrate both the company and the market as a company marches toward its first $30 million in ARR. (Hell, sometimes the company and market don’t anneal until closer to $100 million). Market annealing is different from finding PMF because it focuses on the steps a company needs to do to shape both itself and an early market, rather than assuming there is some existing product-market combo that just needs to be found. And it’s different from category creation in that it considers the tactical steps a startup needs to take to muscle its vision into the market before either are ready, rather than the long arc of creating a named market with a new buyer, budget, or category — which may never happen. 

Unfortunately, our experience with market annealing is that there are few easy answers. Yet, there are a lot of things startups can do to better position themselves to be successful. There also are many common pitfalls to avoid, often the result of bad advice that is rife in this particular space.  

The point of this post is largely to introduce the notion of market annealing and to differentiate it from PMF and category creation. However, to make it concrete we’ll walk through some of the more salient GTM considerations that are particularly relevant to companies that find they need to at least experiment with outbound sales. 

Company-market annealing and sales

Learn the right GTM from the market

A key decision point in navigating early markets is figuring out the correct GTM approach. The hard truth is that figuring out the right GTM approach is often as much an exploration as finding product-market fit, because how the market buys is much more likely dictated by the market than the company. It can take many years and false starts to find the right GTM motion, and the single biggest mistake we see companies make is to lock in and scale a GTM motion too early.

It’s very tempting to try and impose a certain GTM motion on a market. Many founders, for example, default to bottom-up because they think it’s less expensive, or that it plays to the early team’s product strengths. Indeed, bottom-up companies are generally much more efficient and predictable to build when they work. But bottom-up only works with certain products in certain markets. And for very early markets, it tends to be much more difficult (although not impossible) to show value without having a conversation with the customer. Over the years we’ve seen many companies try to do bottom-up, fail, and then resort to sales.  

So take your time. It’s hard. It often takes years of grinding with very little to show. It’s important to remember that the most expensive sales model is one that doesn’t work.

Start with founder sales

In early markets, if the right GTM motion is unknown, or it’s clear that the right approach is top-down, then it’s best for companies to double down on founder sales. If a founder can’t sell it, nobody can. Founder sales can get a company a lot further than many boards realize, certainly to the first $4 million or so in ARR. Along the way, it’s good to hire a few senior sales reps to help navigate the procurement process and explore the market — but they do not replace the founders’ involvement in the process of doing evangelical selling. 

These reps (which we call renaissance reps) should have experience in early markets, and have the background to experiment with various approaches to selling. It’s best to hire two or three for the initial team, and if they have different backgrounds it will help broaden the exploration. Additionally, having several reps participate in early selling will help to mitigate successful or unsuccessful outliers.  

Renaissance reps should help provide market feedback on the buyer, use cases, pricing, GTM approaches, and other considerations. Further, a good renaissance rep should also help determine if a more bottom-up strategy really is appropriate. It’s not uncommon for a company to make two or three sales hires before finding their first renaissance rep. 

Despite their experience, do not just assume that the new sales team can operate without any guidance. Instead, hold weekly sales meetings that founders, sales reps, and marketing attend, discussing what everyone is seeing and hearing in their interactions with external prospects and stakeholders. Annealing is a full company effort. The more shared context, the better.

What AEs do in early markets

For companies with technical products, it’s very rare that an account rep — even a renaissance rep — can effectively convince a customer that a product is right for them (we call this bringing the customer to “technical close”). In the very early days, that’s the job of the founders. What AEs, or account executives, are good at is qualifying whether an opportunity is real, navigating a buyer, finding budget, figuring out how to position the commercials, and navigating the procurement process. All things that are aided by deep experience, and difficult to learn on the job. 

On the other hand, sales engineers (SEs) often can help get a buyer to technical close. So SEs are a very good way to scale out founder sales without dropping the ball on technical close. Early on, many companies choose to recruit an engineer to help with SE work and, only later, to hire an SE. This brings engineering closer to the customer, developing sympathy that is very useful to guiding internal product and engineering decisions. 

Annealing quotas

When the first sales reps show up, one of the questions they will ask is, “What’s my quota?” It’s an interesting problem given that, in a new company, there have never been sales quotas before. With company-market annealing, even quotas are annealed! That is, there will be a continual time-pressure feedback loop to get to industry-standard productivity rates (quotas set at 4-5x the loaded cost of a rep (base+commission)).  

Here are some ideas for managing this:

  1. Try to establish/rationalize a first-year quota at 1x the loaded cost of the rep. If you were doing founder-led sales before bringing on the first sales rep, there will be some understanding regarding what can be sold, at what price, and over what timeframe. Founders need to recognize that, early on, they are likely to be far more successful selling than the first reps, so factor this into the analysis. 
  2. There will be a ramp time to productivity, so pay base+commission for at least two quarters. This will allow the sales rep to get comfortable with the environment and become productive in your market segment.
  3. Pay for results; manage activities. In early markets, it’s tempting to want to fuel momentum by paying commision for leads, forecast accuracy, first meetings, POCs, new logos, or number of emails sent to customers, etc. In our experience this rarely works. Instead, keep the incentive pay focused on getting deals done and real dollars committed, and manage the other activities as part of the weekly sales meeting.  
  4. Anneal, anneal, anneal. There’s a high probability that the initial quotas will be incorrect, despite the best intentions. Adjust accordingly after six months, rather than waiting a full year.

Scaling sales

Founders should stay deeply involved in sales for as long as possible. We have worked with many companies where technical and product founders have been involved through $10 million in ARR before hiring a sales leader. Our view is that a sales leader should only be hired once the primary GTM strategy has settled

One rough way to think about it is that, assuming the company has three or four senior reps, a reasonable time to consider scaling sales is when each rep is capable of doing 70% of their quota, or 2x their loaded cost. The 70% should be the median of the group, not the average, in order to temper imbalance from outliers. 

It can take many years to get to this point. For core infrastructure companies, 4 to 5 years is not unusual. Our experience is that, for a typical enterprise company with annual contract value (ACV) at the $45,000 to $120,000 range, an appropriate time to hire a sales leader is between $2 million and $4 million in ARR.

To summarize how we think about sales in very early markets: If the founder can’t sell it, no one can. If a senior rep working directly with the founder can’t sell it, then a sales leader won’t be able to build a team that can sell it. And if a sales leader reporting to the CEO can’t build a team to sell it, then no third-party sales team outside the org can sell it. So build out sales in that order.

Company-market annealing and marketing

Hire product marketing generalists early

First marketing hires should be product marketing generalists that are equally comfortable with core product-marketing work (e.g. product, pricing, placement, promotion) as they are handling events, social, running content campaigns, and doing sales enablement. Strong early marketing hires will also be in the field with sales to understand positioning, and to help with pricing and GTM strategy. 

Pipeline rarely comes from marketing early on

It’s best to keep early marketing resources focused on these areas mentioned above because, in most early markets, pipeline comes from founders, open source communities, the founders’ network, the early investor network, events, and sales prospecting. A very common mistake we see is that companies hope marketing will solve their pipeline problems, and thus develop key performance indicators (KPIs) around marketing qualified leads (MQLs). As a result, they become spammy and, even if they do generate sufficient MQLs, few convert to actual deals and they erode their brand in the process. 

Core messaging doesn’t comes from marketing

In most market annealing situations, no marketing hire will be able to generate core content or come up with the correct positioning. That really has to come from the founders. Further, core messaging and positioning is used for much more than just GTM, it’s used for internal comms, recruiting, PR, investor relationships, analyst relationship etc.. A CEO who isn’t the source and the central nervous system for the core messaging will be far less effective running the company.  And please, for the love of all that is holy, never hire an external firm to help you with messaging, positioning, or to help “create your category.”

While marketing hires are unlikely to contribute to core messaging, they can be tasked to do things like amplifying content, creating ancillary content, managing social networks, and running search engine marketing (SEM) strategies. Early marketing can also play a big role in brand development to create a look and feel the company can use on the web page, product, pitch decks, and other collateral. This is one of the few areas where a company can get a lot of leverage from outsourcing, and an early marketing hire should know how to manage that relationship. 

Paid marketing rarely works

Paid marketing, such as buying Google Adwords, is very enticing to companies in early markets hoping to solve their pipeline issues. While this rarely works with an uneducated market, we have seen a few exceptions. Generally, paid marketing works when the market is educated enough on the problem to be looking for the solution, and when the product is simple enough to demonstrate value on first use. Companies that figure this out allocate a relatively small budget to paid marketing early on and run a number of tests to see if anything sticks. 

If you’re unsure what GTM approach will work in your market, it’s very reasonable to attempt paid marketing. Just limit the budget needed to experiment, and don’t be too discouraged if it lands with a wet thud.

Traditional comms and outsourced demand gen don’t work

A common mistake is to bias toward a comms-oriented marketing first hire. While it’s important to have PR for internal communications and crisis management, getting an article in the popular press is unlikely to do more than provide some modest confidence to early customer and recruiting prospects. Comms almost never generates useful pipeline early on. Rather than hiring comms early on, it is often better to work with a firm or advisor for crises and internal communications, and — when the time is right — have founders personally reach out to strategic press, podcasters, and other external voices that can help spread the company’s message.

In very early markets, the primary methods for generating qualified, interested customers are rich content, great products, and conversations direction from the company. Outsourcing demand gen to specialist marketing firms or partners will nearly always fail. 

Where to go from here 

This is just a small, small glimpse of the considerations when building a company for very early markets. Market annealing impacts all aspects of company building, from pricing to product to post sales (and that’s just the Ps!). We’ll go deeper on these topics, and cover other areas, in future posts.   

In the meantime, just remember: Getting to your first $10 million in ARR is not just about finding the right product for the market. Nor is it about creating a category. It’s something else. Most commonly, it’s a ground war of relentlessly beating on the company and the market — deal by deal.

For a very lucky few companies, the market will eventually open up and pull the product into it. For the rest of us, it’s a hard march from end to end. But the good news is that even in incredibly unrelenting markets, it’s possible to build large companies. You just have to be able to endure the pain. And remember, you don’t have to anneal the entire market at once. Just focus on annealing a few tens of millions of ARR at a time.

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