Heads up startup founders: success breeds more… challenges. Ironically, the more successful you are as a founder, the quicker you face new and even more daunting challenges. Whether bootstrapped or VC-backed, startup founders face different challenges as they grow. And while most founders are a resilient, problem-solving scrappy bunch, some find that their happy place is at a certain point in the journey, and they are willing to pivot to take on a role most suited to their favorite part of the process.
What makes each growth phase so different for startup founders?
Pre-Revenue to $1
Bringing your big idea to life is the order of the day. But where do you start?
Does that market want what you’ve got?
But does the market want what you’ve got? Determining your audience and the product market fit is critical at this phase. Successful founders acknowledge that they’ve built a solution to an existing problem that an audience is having and that it’s important enough for them to invest in a solution. Many unsuccessful efforts result from a founder being in love with an idea and building it out without considering market conditions or who would buy it.
Startup founders: Create a scalable MVP
Most startups consist of at least two founders. Why? Because it allows each person to focus specifically on their area of expertise. Melissa Kwan of eWebinar discovered firsthand the pain of not having a founder focused on product development. “I learned that you need a person who thinks about the product daily. It was like having a restaurant without a chef,” she explained to the Get Latka team. She invested over $350,000 in coding with a dev shop before negotiating a deal to bring a CTO onboard as a co-founder. He immediately recognized the challenges in her code and together they hired a new team to get the product back on track.
Stay lean
Startups that last are cash efficient from the beginning. They know their numbers at every step of the journey, even pre-revenue.
Find your first paying customer
Even if your early customers aren’t paying full price, the pre-revenue stage is all about confirming the viability of your MVP. If the tech team did their job, then another founder must identify and convert prospects. Before you add any sales reps with quota to your team, you’ve got to get your product into the hands of actual users. Their feedback is critical for building testimonials, finding bugs, and identifying features to add to the roadmap.
Will you join Product Hunt or AppSumo, or another marketplace for launch? Will there be a freemium model with a paywall? These are the questions that founders must answer as they consider options for getting their products into the hands of prospective buyers.
Getting to $1m ARR as startup founders
To hit $1m ARR, your company must hit at least $83,333 in MRR. How you scale to that point depends entirely on the type of SaaS business you’re building.
Nail the pricing structure
Many businesses struggle to get pricing right, either by overestimating the amount a prospect is willing to spend on a solution or by being afraid to increase subscription fees out of beta for fear of losing existing customers. In most scenarios, successful SaaS startups find a sweet spot through trial and error and testing. Oftentimes best customers help drive high-value or enterprise revenue while helping guide the SaaS on needed features to build on the roadmap.
No matter the pricing, generally accepted best practices suggest that companies offer 3 levels of subscription. Behavioral marketing strategies can help founders determine how to build packages.
Build a (lean) team and culture
Successful founders know how to attract quality talent by sharing their vision and creating a culture of balance and support. Some founders course-correct after realizing they expanded too quickly in the wrong direction. Co-founder James O’Neill of Wildjar, a bootstrapped call tracking and analytics platform, grew from 5 to 10 people, then realized their sales approach wasn’t working. They pivoted and now employ a team of 6, doing an impressive $50,000 in revenue per employee per month for an ARR of $4m.
Create processes
From marketing and sales to product development and customer support, growing companies need processes to succeed and grow. Founders who are used to having their hands on everything must step back and learn to trust and manage their internal leaders.
Build a repeatable, affordable system for customer acquisition
Acquiring customers at scale comes with a cost. SaaS startups must create a repeatable, affordable, and ultimately scalable system. Keeping a close eye on CAC (which should start high and decrease as the company scales) and its corresponding ROI payback period is critical for success to $1m and beyond.
Build a customer value ladder to increase net dollar retention
Net dollar retention combines churn with customer upsells to determine the health of a growing company. Besides a high burn rate or CAC, nothing kills momentum (and a company) faster than a high churn rate. A custom value ladder is a series of products or services companies offer to increase ACV. A founder can build the value ladder to include additional features, accelerated processes, done-for-you services, or small group access, for example. The more services you can connect, the more likely a customer will remain. In the banking industry, for example, connecting a customer to 3 accounts or services is the number that prevents customers from quickly moving to another institution. Some SaaS businesses today are attempting to build an entire ecosystem of solutions out of the gate to retain customers and mitigate churn.
Getting to $10m ARR
Complexities grow as companies push toward $10m. Systems that worked at $1m may not be as effective at $10m. As CEO Adam Sandman of B2B SaaS Inflectra (who recently hit $10m ARR) described the journey, “The first million is the hardest. You must change everything you do then. As a founder, you go from the brains and builder to manager and coach.”
Process reliance
From setting management priorities and professional development to product roadmaps and employee engagement, the $1-10m Startup needs to rely on processes to continue growing and thriving. The challenge for many companies is that growth comes quickly. Even if sales are there, companies can falter without solid processes. Often, the founder who nailed it in the early startup phase is less equipped to be the one who scales the company and may need to find management resources to assist with the process. Co-founder David Okuniev of Unicorn Typeform recognized that his most passionate part of the process is early-stage product development. So, as Typeform scaled, he stepped down as CEO and now spends his time at Typeform building products with a small R&D team.
Recruiting talent
It’s typically time to rely on recruiters to help you add the right talent to the team. Part of the benefit of a recruiter is that they are experts at helping you home in on exactly what you need to succeed. They will also help you attract the right level of expertise since companies at this stage are still actively growing.
Land and Expand
Scaling startups must adjust their sales efforts, as CAC can explode once a market is tapped out. Often, to scale, companies must “land and expand” through expansion into additional spaces, such as:
- geographies served
- industry verticals
- buyer personas
- company size
- product solutions
By identifying and prioritizing these opportunities in advance, startup companies can develop sales and marketing strategies to tackle them as they scale.
Hiring a quota-carrying sales team
At the $1m mark, many founders are also the primary salespeople. As you scale to $10m, it’s time to seriously transition to a sales-led model with quota-carrying sales reps to drive new customer acquisition.
Fulfill product vision of ICP
Product development is a never-ending process. While it can be tempting to move on to other priorities, the best move is to stay focused on fulfilling the product vision you delivered to your first ICP before adding additional features and iterations.
Stay balanced
Co-founders must continue to balance key financial metrics like cash flow with sales, growth, and delivery to ensure that the company maintains the infrastructure needed to support the influx of new customers or risk churn. However, spending too much too soon can increase burn rate to an unsustainable level.
Founders should celebrate every significant milestone, from the first customer to crossing the $1m ARR mark. After the party, it’ll be time to prepare for a new phase different from the last. By recognizing that building a SaaS is a journey and not a destination, founders can prepare for the changes to come, and continue to enjoy celebrations along the way.
