Growing Beyond $1M ARR: Mistakes to Avoid in the Valley of Death
Growing Beyond $1M ARR: Mistakes to Avoid in the Valley of Death RevOps 10 min 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% make 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 dissolve. As revenue numbers increase, that number shrinks even more. What is the Valley of Death? The valley of death is that period in the life of a start-up where it has begun operations, but hasn’t started generating revenue. From a start-up receiving its initial capital contribution until it finally starts to generate revenue is what this period covers. The valley of death is a challenging period for start-ups. This period marks a heightened risk of failure. The longer the time spent in the valley of death, the higher the chances of the company fizzling out. Surviving this death valley is considered a significant milestone for a start-up. It signals better chances of the company reaching maturity. https://www.youtube.com/watch?v=oPwF4TeXSQ4&t=5s Carving the Journey from $0-$50 Million According to Abhijeet Vijayvergiya, CEO at Nektar.ai, all start-ups go through similar challenges and they have to navigate through them. The challenges a startup will face at $0-$1m journey will be very different from the challenges at $10-$25m, or $25-$50m. Each stage requires a different approach. Let’s deep dive. 1. Getting to $1 million – Find your Product Market Fit In the 0-1 journey, focusing on the core mission of why a startup was formulated is key. This is the stage where founders try to validate their product’s value proposition. They answer questions like: Is there a market for my product? Is there a product fit to that market? Focus is key in this stage. Trying to do a bunch of different things and picking up on what works can be a recipe for disaster. $0-1m is more about taking calibrated steps that help a founder validate their value proposition. A lot of startups fail to go beyond this stage is because of a lack of focus. It’s very easy to get distracted. I think a lot of startups die because they lose focus and they get distracted from their core mission. This does not mean that you can’t pivot. You definitely should pivot when you evolve as a company, you achieve product market fit or you see traction. But at the same time, you should not be doing too many things. That’s a very common mistake I have seen that a lot of start-ups make. Figure out what you’re solving for. Every start-up starts with a vision. You have a problem that you feel is unsolved and something that you can uniquely solve in a way nobody is solving it today. And you can do it X times better in case it’s already sold by somebody. Abhijeet Vijayvergiya Trying to force growth is what makes several startups fail to go beyond this stage. Abhijeet says that an initial team member will always see whether there is a product market fit or not. He advises founders to not force the scale of motion till the time they hit that product market fit. In the 0-1 million journey, it’s important for any startup to stay focused, get to that product market fit, iterate fast, evolve to solve the problem that was intended for, and do all of it in a way that there is a commercial value attached to it. 2. $1m – $10m – Double Down on what Has Worked This is where the valley of death begins. A stage where you are with a million dollars in revenue with a core value proposition that is validated. But you have this looming danger of scaling to $10 million, where a very minuscule number of startups are able to successfully achieve. So how do you do that? According to Abhijeet, if a startup has achieved product market fit, they will be in a great position to start scaling. He warns against startups starting to open new markets, launch new products, or start talking to different sectors of customers, all in a haste to reach 10 million ARR. What’s important is to constantly look at the problem that the company has solved and how they have solved it. Learn from that and templatize all those learnings into a playbook. https://www.youtube.com/watch?v=OSI_OSEpot8 Do more of what has worked for you. Just doing this makes the $1-$10m journey quite easy. In my past experience, we figured out how the founders sold to the first 5, 10, 20 and 50 people. We could really onboard sales teams in a way that they started delivering their first deal within the first 6 months of joining in a new market. Abhijeet Vijayvergiya Abhijeet also emphasizes on the importance of customer retention while talking of his experience at Capillary Technologies. He says, “We did a great job at retaining our customers. We still have the lowest churn rate in the industry. We’ve always focused on delivering that delight to our users and customers so that they become our evangelists.” Surviving the valley of death requires founders to understand the pain their company is solving for. They need to be really looking at why the company or the product exists in the first place. Founders also need to find a way to covert the tribal knowledge floating in their minds into a working playbook that can be executed. “The first and foremost thing that you should do once you hit a product market fit & you’re looking to scale and ramp up is to articulate that knowledge that is in your head into a playbook and templatize it. That gives you a solid foundation and a scalable model,” advises Abhijeet. 3. The Journey from $10m to