You started with a great idea, managed to put the funds and founding team together, went through weeks and months of burning midnight oil, endless iterations, deep frustrations and necessary pivots. You have reached a point where you are now part of the lucky few (less than 10%) startups that hit that elusive product market fit and potentially graduate from seed to series A stage. You are looking to move up the gear now and push the growth pedal. Perfect! Nothing seems to be in your way and you are nearing that definitive $1Mn ARR mark, that seemed “impossible” at some point in time, and can’t wait to scale your business to a 10X from there.
You see the demand for your product, you see the opportunity ahead. Boosted by the success you have had so far in building the product and your team, you want to accelerate the rocket ship, but a lot can go wrong as one pushes this growth pedal. There is a treacherous path that awaits you, what you do now can easily turn the intended blitz scale into a blitz fail.
What not to do?
Lose focus & spread yourself thin!
#1 biggest mistake founders make at this stage is chasing new shiny things that they see or get introduced to, be it new market segments, new categories, new areas where you have zero or almost no traction.
It’s easy to get swayed in trying a lot of things to grow faster and lose the focus which got you to your product-market fit.
We all want to grow faster. Almost none of the founders and their investors are happy with the monthly growth rate once they hit the $1Mn ARR mark. And that’s when mistakes happen aplenty.
Skip stages & put fire on fuel!
A lot of founders skip stages to hit the $1Mn mark faster. The number is not as important as the learning and experience in identifying the problem that resonates with the customers and users and solves them in a way that’s differentiated from other options out there.
The point to push the growth pedal will come soon but before that one needs to be able to create a scalable sales playbook and processes which are backed by a solid understanding of your customer’s needs, where and how to find your customers, how to approach them, how to engage them in a conversation, gain a deep understanding of the value offered, and the ability to help solve a customer’s problem. Scaling too soon will result in putting the fuel on the fire.
The proven route to scale from $1Mn to $10Mn efficiently!
- Double down on what is working. Period. If SMBs are your core, stay there, at least until $10m ARR. Do not chase customer segments where you have zero, or only a token, traction. It’s too late to make these segments work as you’ve already established your initial, organic customer traction and segmentation.
- Segment & analyze your customer and put proportionate effort into your customer segments that work. Break your customers into say small, medium and larger segments and calculate the revenue breakdown. If 50% of your revenue is smaller customers, 30% medium and 20% large, align your energy and efforts proportionately. Go with your solution to similar customers who have the same “Hair on Fire” problem that you originally solved to hit the product market fit.
- Optimize effort of your resources on what matters most. Align your marketing budgets, product time, development resources, sales headcount in line with the proportion of business from successful customer segment and the identified sweet spot. Don’t go after super enterprise customers if that’s not your core. Same way, don’t go for a freemium model if that didn’t work before $1Mn ARR.
- Don’t get distracted. Adding anything new that did not work before is just going to distract everyone now. Continue to do Step 1.
- Invest in customer success: Go all-in on customer success. Get your net promoter score above 60. Done well, customer success will become the second-order revenue and convert your startup into a mini-brand that drives revenue acceleration. Make your existing customers happy and they will both buy more from you, and get you more customers.
- Hire a real management team. Every startup hits a wall around $4-$5 Mn ARR and it’s needed to have your VPs join in by this time. In term of the sequence, hire a VP Marketing definitely before or by the time you hit $1Mn, followed by VP Customer Success, VP Sales, VP Product, VP Engineering, VP Finance. As a rule of thumb, get a VP for an additional $1Mn in ARR is a safe strategy. Always be looking for great candidates, spend 20% of your time on hiring.
- Raise prices, definitely for the new customers while you grandfather early adopters(get them to give you references, reviews and testimonials). Your value delivered goes up and thus should be your price. Most startups have a problem with their product being underprice until they hit $1Mn ARR. Justify the premium pricing you would want your new customers to pay by becoming a stronger brand, delivering better value and offering a wider feature set. Move to value selling model.
- Measure what works & what doesn’t. Build an operational cadence and rigour to run all initiatives and functions through data. You will get a lot of questions answered if you look at data first. Get others in the team to do the same.
- Align the team on strategy: Set ambitious goals but make sure you align the whole company behind that. It’s important to maintain the culture of transparency and support with your team while you get onto the scaleup journey.
- Build foundation pillars. Make sure you can transition to self-serve solution which is sales assisted and not get onto the debate of self serve vs sales assisted. Providing a great customer experience and support is a great way to differentiate in the crowded market.
- Continue to build: Now that you are scaling, don’t take the eye away from the product. Continue to ship new features and products to stay relevant and also be able to upsell to the growing installed base of customers.
- Create playbooks: Create winning playbooks that capture the essence of all the tribal knowledge that’s floating around in the organization. Whether it’s sales playbook, employee onboarding checklist, hiring process, customer case studies, competition battle cards or user training plans. Creating templates into scalable playbooks simplifies growth automation.
The journey from $1Mn to $10Mn is often called as the SaaS valley of death. But if you can navigate it, you come out fully baked as a team, product, brand and company that cannot be killed easily. You can then be self-sustaining or aim for the $100Mn mark but definitely, you won’t be bulldozed by anything or anyone. Good luck with your scale-up journey!
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