If you are a SaaS business that has crossed the $1m ARR mark, congratulations! You belong to a group of <1% of businesses that manage to reach this number. A bigger challenge lies ahead in the form of the valley of death.
Only 4% of SaaS companies reach $1 million in revenue, and only 0.4% making it to $10 million. This is the Valley of Death that has eliminated countless businesses.
Scaling to $10 million ARR and beyond is where a lot of promising startups start dissolving. As revenue numbers increase, that number shrinks even more.
There can be a number of reasons that make surviving the Valley of Death almost impossible for so many businesses.
In this article, we will explore 3 of the most common pitfalls (as shared by founders) that lead to start-ups getting crushed by the Valley of Death.
Let’s take a look.
– Trying to Do Too Many Things
Every growth stage has its own unique requirements. What worked before reaching a million dollars in revenue will not work when aiming for $10 million and beyond.
Going beyond the $1 million mark can be exciting and founders might put too much pressure on themselves and their teams to don multiple hats.
This is also the time when a base team is already built, who bring several brilliant ideas to the table that promise growth.
However, trying to focus on too many things is where things start to go wrong. Scaling beyond this point requires laser-focus on achieving the north-star that the business decides for itself.
To achieve set business goals, it is crucial to establish processes that keeps companies on track. Founders and sales leaders should be able to focus on the best idea and create a process around achieving it.
As a sales leader, you are an important part of the organization. You must create a conversation around – What creates the most impact with the least effort.~ Abhijeet Vijayvergiya, CEO, Nektar.ai
To do this effectively, it is important to create that playbook on the sales process that can help build a robust GTM machine.
Instead of making mental calculations on aspects of scaling such as hiring and revenues, the process of translating the product and sales knowledge of founders into standardized policies for everyone in the organisation is a must.
Without a process set in place, founders end up doing too much, or focusing on things that have no long term impact.
Spreading too thin at this stage with too many things can result in a lot of churn or businesses can end up focusing on the wrong efforts.
At this stage, businesses should be able to create a scalable and repeatable playbook engine that keeps them on the right track. Founders need to look at their businesses critically and really try to understand their key strengths and weaknesses.
– Failing to Evolve the Sales Process
The initial “honeymoon” period from $1-5M ARR is where things are working smoothly at a micro level. A small and efficient sales team is following a founder-led sales process and getting personally coached since Day 1. There might be a fair amount of inbound based on personal networks too. Things are mostly peachy.
However, things start going downhill as this revenue goal increases beyond $5M in ARR. Companies need to change their approach as they move upstream.
The processes that led to success before reaching the million mark will not work anymore as the initial use cases might start to show limitations or the product might start to hit failures.
A strong strategy is extremely crucial to navigate this scaling process. Founders need to do the same level of 0-1 product market fit journey they did when they started the company.
There needs to be investment in scale; the sales process should be scalable and extendable. The right tech stack will play a crucial role in achieving this.
On the GTM side, founders need to start training their team. Sales cycles are entirely different, for example, when you move from SMB to enterprise.
A lot of nuances come into play as companies scale and they need to be accounted for.
Navigating the dynamics of the buying organization and getting visibility into the buying committee becomes very important to be truly scale-ready.
Companies that go beyond this threshold are the ones which have a hyper-optimized sales and marketing engine that is repeatable and predictable.
– Hiring Without Intent
According to SaaS founder Jason Lemkin, the number 1 reason why SaaS companies stall out at $15m ARR is because they do not measure customer happiness as a core metric.
Building a solution that customers love requires an implementation plan that can help scale the product. And every company needs a stellar team that can help in constant product development, and support the product and implementation pipelines.
While operating in the wildly unpredictable world of SaaS startups, one hiring decision can literally make or break a business.
The average cost of a bad hire is up to 30% of the employee’s first-year earnings. For a SaaS startup that has just started incurring operational costs, this number can be a huge addition to its liabilities.
Poor hires can result in lost productivity and expenses in hiring, recruiting and training replacements. According to CareerBuilder, almost three-quarters of companies who made a bad hire reported an average of $14,900 in wasted money. With 74% of employers stating they hired the wrong person for the job.
Trying to scale too fast without paying attention to hiring needs can create bottlenecks to growth. Failing to distinguish the best candidates from the “average” ones in the aim of filling up hiring roles can cost companies heavily.
It is important to invest in building a brand and expanding recruitment capabilities in the valley of death. But the intention needs to be set right. Anything haphazard or unplanned can end up diluting a business.
For example, hiring a VP of Sales or a Chief Revenue Officer at the right stage will help founders to manage sales efficiency through the valley of death. The right hire can help scale the sales team and build a predictable sales engine. But rushing the hiring process and making the wrong hire can set the business back in time.
Scaling through the valley of death is certainly not going to be easy. It’s a road travelled by very few SaaS businesses. Analyzing every growth cycle and understanding its challenges and opportunities will play a crucial role in how companies will fare through the valley of death curve.