Startup companies damage their ability to grow by doing the following 5 actions:
(We know you’re busy growing your company so we’ll cut right to the chase…)
1.Hiring “too low” to save money.
A VP at $150k, especially one that wants a $50k a month budget, can sound insanely expensive. Why not just hire a manager for $80k, who can work with whatever budget you assign? The problem here is that instead of hiring an accretive resource, you hire a cost center than can’t deliver sales/leads/upsells.
That means the junior $80k resource is much more expensive than the $150k VP.
2. Not topping resources that need to be topped.
Related, but different, than the prior point. That scrappy marketing manager you hired in the early days may go the distance. But if he can’t deliver as many leads at $2m in ARR as she did at $20k in MRR, if he falls behind … don’t wait. Hire someone above your team members that can scale as soon as they stop scaling. But not before.
3. Not dealing with technical debt.
There’s no perfect answer here, but the best engineering teams find a way to remove the biggest issues here before $8m – $10m ARR or so. Otherwise, you almost always hit a wall on performance, features, uptime, etc.
4. Not being realistic about funding.
This is less common, but when it happens, it’s really rough.
Do not blindly believe you can raise another round.
Do not believe it will be easy just because you see “worse” companies raising rounds on TechCrunch.
Test the market. Ask your existing investors. Know your Zero Cash Date and be realistic around it.
5. Insufficient transparency.
How do you scale from 5 to 50 employees, and beyond? How do you keep your investors engaged, and hunting for the next round VCs for you? How do you keep retention high?
Send investor updates out every month, in the first week of the month. Let your team know what the goals are, and be clear. Reset the goals halfway through the year, if need be, but be clear. Don’t pretend you’ve hit goals when you haven’t.
Many of us shrink back from transparency when times are tough. That’s 100% the wrong time to not be transparent. It’s transparency — with a positive spin — that gets you through the tough times.
About the Author: Jason M. Lemkin is the Founder of SaaS, and an enthusiast and investor. He specializes in founding, funding, and growing B2B start-ups, making the process a positive-sum game for everyone involved.