The Top 10 Mistakes Founders Make After $10m ARR
"Way, way too many founders never quite tame the burn rate as they scale past $10m ARR or so. "
So the other day I looked back at about 25 SaaS seed investments I’d made that had scaled well past $10m-$20m and reflected on the top themes. Including — the top mistakes founders make again and again as they cross $10m ARR. Trust me.
Here they are. They are all avoidable:
#1: Stepping Out of Sales
Ok really this is mistake #1, #2, #3, #4 and #5. I see way too many founders, in the transition from founder-led sales to their first (or second) VP of Sales, look to get that time back. This almost never works. Founders never get that time back. Instead, how they spend time in sales changes. You spend more time in the middle of deals, and less at the beginning (qualifiying) and end (closing). But you still have to do 10+ customer calls a week. Are you doing that?
More here.
#2: Not Taming the Burn Rate
I know this one may sound obvious, and yet, it’s not. Way, way too many founders never quite tame the burn rate as they scale past $10m ARR or so. The teams all get bigger. You start hiring faster. It starts to feel more like a “normal” company. And these additional costs just compound, and stack on top of each other. Pretty soon, that $300k burn has turned into $800k, and then … it never declines. It grows to $1m and beyond. Burn rates never seem to decline unless you take serious, and often radical,action. No matter what the model says. Whatever you do, at least do a rolling L4M model.
More here.
#3: Getting Less Competitive (Sneaks Up On You)
Once you really start to scale post $10m-$15m, the “internal” stuff starts taking up a ton of time. Keeping existing customers happy. Fixing long-standing product gaps and technical debt. Scaling DevOps and TechOps and FinOps and AllTheOps and HR and Recruiting and the SKO. Again, you’re finally building a real company. What can happen with all that internal focus is you lose a little focus on remaining ruthlessly competitive. Especially if your space is evolving. You might be the #1 vendor in your niche, but if that niche no longer is quite enough on its own, without more functionality, you can quietly fall behind. I’m constantly surprised how many founders are less close to the pulse of the competition once things start to scale.
More here.
#4: Too Much — or Too Little — Outside DNA
If you hire everyone from outside the company to your leadership and senior teams, you lose what makes you special. The “outsiders” often never 100% get it. They never know all the features, the nooks and crannies, how the integrations really work, the nuances to parts of the sales playbook. But you also need them to inject new thinking and new experience into your startup.
As a rough rule, once you start scaling, try to have 50% of your leadership from internal promotions (you keep the special DNA and knowledge), and 50% from outsiders you bring in to mix things up and bring in new skills. Too few outsiders, and as you scale, everyone starts to make excuses when it gets harder. And the excuses are “right”. Too many outsiders and everything is done without true deep knowledge of what makes you special. They just never have the time, nor often the inclination, to learn what the insiders learned the past 2-3 years on the battlefield.
More here.
#5: Desperation VPs
Look, we’ve all been there. I’ve made this mistake myself again and again. And all I can tell you, and every other successful startup CEO will tell you, is this — The Desperation VP Hire Never Works Out.
#6: Hands-Off VPs
Related to the prior point, but not quite the same. Another huge mistake almost every CEO makes is hiring one or more VPs that are just too hands-off as they begin to scale. Not only do they spend more — since they need bigger teams when they aren’t involved themselves. But the bigger issue is they never
#7: Misunderstanding Sales Capacity
Ok this is a slightly subtler mistake, but it’s oh so important. In the early days, founders generally underestimate how many sales reps they’ll need to hit next year’s plan. Once you have a few strong reps hitting quota, the engine gets pretty efficient in the early days. So if we got to say $5m ARR with just 3 reps, can’t we get to $10m ARR with just a few more? Well, no. To add +$5m in ARR in 1 year, at a $500k yielded attainment per rep, you’d need 10 reps. At least. Plus a VP, plus support, plus revops, etc.
#8: Getting Less Agile
This one is somewhat related to Getting Less Competitive in point 3, but different enough and important enough to call out here. Incredibly agile startups tend to find a way to stay that way even as they scale. But most SaaS startups I’d characterize as scrappy and “sort of agile”. Scrappy is great in the early days, and it forces very focused thinking. But that’s not the same as being truly agile. As pushing out that critical feature this week, not next year. As building that key integration now, and not complaining how hard it is to build. When your competitor has already built it.
#9: Resisting Going Upmarket
Ok this one is super important and applies to many SaaS startups — but not all. First, if you start in the enterprise, you’ve already gone upmarket ;). And certainly, there are categories that are very SMB, so going too upmarket too early doesn’t make sense. Because the vast majority of the revenue is in SMBs. This was the case with Shopify, which only now is truly going more upmarket. You can
#10: Ignoring The Long Tail
Ok this final point I’m not sure belongs in the Top 10 per se, only because the consequences are often a slow burn. But still, I see this mistake haunt founders later. They abandon the smallest customers, they ignore the long tail, they shut down the free edition. Everything starts being “Contact Me”. The sales team will often push for this. The rest of the company often stops caring about the tiniest customers and the free users, once you scale past $10m, $20m, $50m ARR. I get it, mathematically.
#11. Not Working on Going Multi-Product Earlier
Almost every single founder I talk to ranks this high on their list. I’m not quite sure it’s a mistake as much as a lament, but I want to call it out here as our bonus point. Aaron Levie of Box rates this as one of his top mistakes, not going multi-product earlier. Others, like
