As you grow, you learn the hard way that your best customers have something your worst customers don’t have.
It’s not about demographics like company size, industry, or location.
Your ICP is more about what your best customers value that your worst customers don’t value. Their values, not demographics.
It’s what they believe, care about, and how they act, which you can’t see in prospect data or in your CRM.
The same thing applies to savvy growth equity investors who can’t afford losses in their portfolios. All their investments need to do well, so they all have to be great fits.
Stephen Wolfe co-founded Growth Street Partners in San Francisco about ten years ago with his partner Nate Grossman, after a career in software-focused private equity.
The firm’s name is the point: they don’t invest on Sand Hill Road, Wall Street, or even Main Street, but a street or two behind it, where the rent is lower and practical founders put their earnings back into the business.
Growth Street has now raised three funds — $70 million, $130 million, and a little over $200 million — with the same strategy since day one.
They write $5 to $15 million checks for 20 to 50 percent of vertical B2B SaaS and tech-enabled services companies doing $1 to $5 million in revenue, always as a minority partner.
Unlike VC firms and big PE firms, they invest small and only work with a certain type of founder at a certain stage.
Steve describes the reason behind their laser focus on a certain type of founder:
“We call it founder market fit. We’re not buying control of the businesses, which is really a critical component of our strategy. Founders are willing to talk to us because we’re a minority investor. That means our founders will make thousands of decisions without us. So they need to have the same values that we have, because God forbid they don’t, we’re in big trouble.
“When we think about diligencing a new opportunity, when a business has got $1-5 million of annual recurring revenue, and it’s growing nicely, and everything seems good. But the clay on that business is still really wet, so we can help them mold the business.”
“But the founder that we’re partnering with, the market that we’re entering into, that clay is usually pretty dry. You can’t change the founder, and you can’t change the market. And so that founder better be aligned with you, better have the values that you have. Otherwise, you’re in big trouble.”
Does that sound a lot like your hard-earned ICP definition —the one that helps you find and serve best-fit customers and scare away bad-fit customers?
It’s the same thing for Steve and Nate at GSP, but with the founders they work with. And they don’t have any “bad investments that churn.”
Check out this practical interview with Steve Wolfe on the Practical Founders Podcast.
