The Top 6 Mistakes Founders Make As They Are Scaling Revenues

The Top 6 Mistakes You Don't Need to Make As You Begin to Scale

You'll make mistakes every day, of course. But some matter more than others.

Let me list some of the ones I see most often going from say $1m to $10m in ARR:

• Chasing the Shiny Penny. One of the biggest mistakes I see after $1m in trying to enter new market segments, new verticals, where you have zero traction. It’s one thing to invest in an area where only 10% of your business is today. But 0%? I see folks doing this way too often, too early. Leave the pipedreams for $100m in ARR. Or at least until after $8m-$10m in ARR or so.
• The “I Give Up” VP Hire. Hiring is >hard<. And at some point, you definitely have to compromise. But hiring a VP you don’t really believe in, to get the hire done after X months … never works. He will spend all your money, fail, and derail your growth.
• Micromanaging Your First (and Second) Management Team. I know you can do it all. But there’s a reason you hired managers. To manage. If you don’t let them do that … you’ll frustrate the heck out of the best ones. And stymie all of them.
• Bad operational model / misunderstanding the burn rate. Often, you can sort of intuit the business model up to $1m or $2m or so in ARR. After that, it all starts to change. It’s a ton of reps, higher absolute marketing spend, more CSMs, etc. If you don’t model it properly (and often for the first time) — your burn can creep up on you, no matter how carefully you think you are managing expenses.
• Getting comfortable with yourself because of your High Win Rates. As you scale, your win rate — the % of deals you close vs. the competition — should go down. Because as you start to develop a mini-brand, you should start being considered for deals you never would have even been part of the selection process before. If your win rates stay extremely high, that means your are doing a pretty terrible job of getting into more and new deals. More on that here: Beware of the Confidence of High Win Rates
• Not being 100% laser-focused on NPS and CSAT. Your happy customers beget more happy customers in SaaS. Measure your NPS, and then have the whole company align on raising it every quarter. If you don’t … you’ll stall out somewhere around $5m, or $10m, or maybe even $20m ARR. But you’ll stall out if your customers don’t recommend you to others, and if they only reluctantly buy more from you. More on that here: I Was Wrong. NPS is A Great Core Metric.

If Your CAC is High ... It's The Product

"CAC" is an important but also misleading metric in SaaS. What it costs to acquire is so, so important. And if your CAC is low -- say you have a 6 month or less payback time -- most investors will tell you to step on the gas.

But here's the thing. In SaaS, if you are doing it right, your CAC should be low.

Why?

• First, because as you scale, you should start to build a brand, at least a mini-brand in your space. And as you do, prospects will start to seek you out. If you are the #1 brand in your niche, or the #1-#3 in your overall space, prospects will find you. The CAC here for marketing is low. More on mini-brands here.
• Second, if your NPS is high, customers will refer other customers to you. Of course they will. Either directly or indirectly. The CAC here is $0 for marketing. It's basically free.
• Third, if you have positive revenue retention and account growth -- that's cheap, too. It does cost money to sell and close more seats from existing accounts. But it should be a lot cheaper than finding brand-new customers from scratch.

So think about it ... if your customers are happy, your net revenue retention is positive, and you've established at least a mini-brand ... why is your CAC so high?

It shouldn't be. But if your upsell is low, if your net retention is low, if word-of-mouth isn't kicking in ... then it's probably the product. It's not good enough or rich enough yet.

So before you blame sales and blame marketing for everything, first make absolutely sure your customers are happy. Because in the end, beloved products create beloved brands. And beloved brands have low CACs.

An Incredible Podcast with the Head of Shopify Plus!!

This week we did an incredible podcast with Shopify Plus GM Loren Padelford. Shopify is a $35m eCommerce juggernaut today, but they are still relatively new to the enterprise and going upmarket.

Learning how they did it, the trade-offs they make, when they win deals and when they don't, and why and when logos matter.

And how they focus on customers for 100 years.

Listen here.

Jason+Team SaaStr