Pain-Based Segmentation: The $135M Opportunity for DISCO

How focusing on existential pain beats demographic targeting every time, especially when facing challenging acquisition economics.

Here's a riddle for you: What do you call a SaaS company that spends $56.7M to acquire 36 new customers in a year?

Answer: DISCO. And their finance team probably isn't dancing (sorry for the cringe joke).

Despite having one of the best-rated e-discovery solutions in the legal tech market (seriously, their product receives rave reviews), and a slick new AI capability, DISCO (NYSE: LAW) has seen its stock price decline by 90% since its IPO, while customer growth has plateaued. We've all been there: great product, challenging growth metrics, and a market that's hard to crack.

The challenge? Their customer acquisition cost is $1.575M with a payback period of over 21 years. That's a tough position for any SaaS company. We know from experience that when your CAC payback exceeds your average customer lifetime, it's time for a strategic reset.

But we see a $135M opportunity hiding in plain sight that could transform their business. It starts with something we at Cannonball GTM have been refining for years: pain-based segmentation.

What the Hell is an Existential Data Point?

Before we dive into DISCO's missed opportunity, let's discuss what separates good market segmentation from the ineffective strategies most companies use.

Traditional segmentation is built on demographics and firmographics; law firms with 100+ attorneys in the Northeast, corporate legal departments with 5+ litigators, blah blah blah. Boring, ineffective, and worse, it treats pain as an afterthought.

Pain-based segmentation flips the script. It starts by identifying the existential data points, metrics so critical to a business that they create genuine urgency, transforming a nice-to-have solution into a must-have requirement.

An existential data point is the business equivalent of chest pain—you don't ignore it, you don't comparison shop, and you don't wait six months to address it. You act now.

For equipment rental companies (as shown in our Texada case study), the key data point is the equipment utilization rate, which is below 60% and indicates trouble. For law firms and legal departments dealing with e-discovery? It's the ratio between the time remaining before court-mandated discovery deadlines and the estimated number of days required to complete the review manually.

When that ratio drops below 1.2× (meaning you have barely enough time or are already behind), you're in deep trouble. Courts don't accept "we couldn't process the documents fast enough" as an excuse, and sanctions for missed discovery deadlines can often be fatal to a case.

That's existential pain.

The Five Pain Segments DISCO Can Leverage for Growth

Our analysis revealed five distinct pain-based segments that together represent a $135M ARR opportunity—almost equivalent to their entire current revenue. Shifting to this approach would take significant retooling of their go-to-market strategy, but the potential is substantial:

1. Review Efficiency Collapse Law Firms (~4,750 organizations)

Pain Point: Manual document review finding less than 1% relevance after 50,000+ documents

Why It's Existential: At this abysmal hit rate, firms burn through $100,000+ just to find 1,000 relevant documents. With manual reviewers processing only 40-50 docs per hour at $50-100/hour, the economics collapse completely. Result? Budget overruns, missed deadlines, and furious clients who won't pay the bills.

Pain-Based Forecast: 4,750 × 0.8 (Pain Intensity) × 0.12 (Conversion Rate) × $100,000 (ACV) × 1.3 (Sales Efficiency) = $59.3M ARR

2. Legal Hold Compliance Risk Law Firms (~3,000 organizations)

Pain Point: 10 %+ of custodians not acknowledging legal holds 30+ days after issuance

Why It's Existential: When evidence custodians don't acknowledge legal holds, companies risk severe court sanctions. If just one executive deletes relevant emails because they missed a hold notice, a company can lose a nine-figure case instantly. At 10%+ non-acknowledgment rates, firms are sitting on a litigation time bomb.

Pain-Based Forecast: 3,000 × 0.9 (Pain Intensity) × 0.15 (Conversion Rate) × $100,000 (ACV) × 1.4 (Sales Efficiency) = $56.7M ARR

3. Cloud Infrastructure Overwhelm Law Firms (~1,350 organizations)

Pain Point: Discovery dataset size exceeds environment capacity by 30 %+

Why It's Existential: When infrastructure can't handle data volume, everything crashes. Firms resort to emergency measures like shipping hard drives or paying 5-10x premium rates for rush vendor processing. Beyond the immediate crisis, attorneys can't analyze evidence strategically, leading to case-losing mistakes.

Pain-Based Forecast: 1,350 × 0.7 (Pain Intensity) × 0.10 (Conversion Rate) × $100,000 (ACV) × 1.1 (Sales Efficiency) = $10.4M ARR

4. Trial Prep Paralysis Law Firms (~1,000 organizations)

Pain Point: 15+ days to extract the first deposition exhibits after document production

Why It's Existential: Slow exhibit preparation forces attorneys to take depositions without complete evidence, missing critical impeachment opportunities. This cascading delay transforms winnable cases into losses and forces unfavorable settlements when trial prep falls apart.

Pain-Based Forecast: 1,000 × 0.6 (Pain Intensity) × 0.08 (Conversion Rate) × $100,000 (ACV) × 0.9 (Sales Efficiency) = $4.3M ARR

5. Cross-Border Data Exposure Firms (~650 organizations)

Pain Point: 25 %+ of active litigation involving cross-border data with no compliance protocols

Why It's Existential: International data regulations impose penalties up to 4% of global revenue. Without proper data agreements, firms face regulatory fines, injunctions halting discovery entirely, inadmissible evidence, and reputational damage. Most don't realize they're in violation until the regulator's letter arrives.

Pain-Based Forecast: 650 × 0.75 (Pain Intensity) × 0.09 (Conversion Rate) × $100,000 (ACV) × 1.2 (Sales Efficiency) = $5.3M ARR

What makes these segments powerful is that common pain, rather than arbitrary demographics, unites them. A small boutique litigation firm and an Am Law 100 giant can both experience the same "Review Efficiency Collapse" pain if they are overwhelmed by documents with tight deadlines.

From $1.575M to $250K per Customer

The most challenging part of DISCO's current position is its acquisition economics. Spending $1.575M to acquire a customer with a $100K annual contract value (ACV) creates a customer acquisition cost (CAC) payback period of 15.75 years, a challenging position we've seen many SaaS companies struggle with.

By targeting pain-based segments instead of broad demographics, our model suggests DISCO could potentially reduce CAC by 84 %+ and bring payback periods down to a more manageable 3-5 years.

Why? Because when you message to acute pain, you:

1. Eliminate wasted marketing spend on prospects who don't have urgent needs

2. Accelerate sales cycles since pain creates urgency

3. Reduce competitive pressure by positioning as a solution to a specific problem rather than a generic tool

4. Improve conversion rates by speaking directly to what keeps buyers up at night

We've seen companies successfully make this transition, though it requires refocusing marketing and sales efforts around pain identification and messaging.

The Pain-Based Forecast Formula

For the formula nerds reading this (we see you, and we love you), here's how we modeled the ARR potential for each segment:

Segment ARR Forecast = TAM × Pain Intensity Factor × Conversion Rate × ACV × Sales Efficiency Factor

Where:

• TAM = Estimated number of organizations experiencing the pain point

• Pain Intensity Factor = Severity score (1-10) reflecting urgency

• Conversion Rate = Estimated % of pain-experiencing organizations that would adopt a solution

• ACV = Average Contract Value ($100K for CS Disco)

• Sales Efficiency Factor = Adjustment based on expected efficiency (0.5-1.5)

This formula allows us to differentiate conversion rates based on the urgency and intensity of the pain point. For the "Review Efficiency Collapse" segment, we'd expect higher sales efficiency because these customers already recognize their pain and are actively seeking solutions.

What DISCO Could Do Next

A Note from Fellow SaaS Veterans: We've been there. When Doug was a publicly traded SaaS CRO, he chewed antacids like they were the bubble yum value packs he’d hidden from his parents when he was a 12.. This stuff isn't easy, and we have the stress-induced gray hairs to prove it.

If we were collaborating with Erik Friedrichsen and the DISCO team, here's what we'd recommend:

1. Focus on high-pain segments first - The Review Efficiency and Legal Hold Compliance segments represent the best opportunities due to their size and pain intensity.

2. Develop Permissionless Value Propositions that address these existential data points rather than generic "we make e-discovery better" claims.

3. Create diagnostic tools that help prospects self-identify their level of pain (e.g., "Discovery Deadline Risk Calculator").

4. Adjust sales qualification to probe for specific pain indicators rather than firmographic qualification.

5. Align pricing with pain resolution rather than traditional SaaS metrics.

This approach could help create a more efficient go-to-market engine with significantly improved acquisition economics and higher conversion rates.

And a final thought for the DISCO e-team: we may be geeky marketing nerds but we’ve dug so deep into your brand that we can’t help but root for you. If this analysis helps, yay! If not, we’ll be in the corner doing nerd stuff.

Beyond Legal Tech: Pain-Based Segmentation for Any SaaS

While we've used DISCO as our example, the principles of pain-based segmentation apply to any B2B SaaS company:

1. Identify the existential data points in your customer's business

2. Map pain intensity and frequency across your market

3. Build segments based on common pain rather than firmographics

4. Message directly to the pain points with specific, data-driven insights

5. Adjust your sales process to validate pain quickly

Companies that master this approach can achieve significantly better sales efficiency metrics and growth trajectories compared to those still using the traditional demographic segmentation model.

In a market where capital efficiency matters more than ever (especially for public companies like DISCO), pain-based segmentation isn't just a targeting strategy - it's a matter of survival.

What's Your Pain-Based Segment?

If you're struggling with a high customer acquisition cost (CAC), lengthy sales cycles, or stalled growth, you might be missing out on pain-based segments in your market.

The first step is to identify the key existential data points for your customers. What metrics or conditions create genuine urgency? What problems, if left unsolved, threaten their business goals or professional standing?

Once you've identified those points, you can begin building your pain-based segments and transforming your go-to-market approach.

Because in B2B sales, pain isn't just a qualifying question—it's the foundation of your entire market strategy.