Mistake 1: Tying unit economics too heavily to the revenue team
When companies talk about fully-loaded CAC, they almost always mean the sales and marketing teams and what they spend. What this view misses is that the primary driver of unit economics is the product experience.
Revenue is a lagging indicator of product value. If you aren’t releasing significant new product value into the world, you can continue to spend to get growth by hiring more salespeople or investing in demand generation. But eventually, a tipping point will come when this approach, if decoupled from new product value, will get too expensive and skew your unit economics. This is typically when companies invest more in sales reps to drive growth when they should probably be investing in product development.
Not scaling the product in line with revenue growth targets is something I regularly see in organisations moving from Series A to Series B. Always keep this front of mind.
Mistake 2: Making hiring too complex
We all know how critical it is to make the right hires, but often, organisations over-engineer their hiring processes.
I see companies that run multiple rounds of interviews with big hiring panels, complex weighted scorecards, take-home tasks that everyone has to evaluate etc. Rather than being a guarantee that you’ll land some unicorn hire, it actually elongates their hiring cycles to a harmful degree, and can act as a deterrent to some candidates too, reducing the talent pool.
There’s a balance between shooting for the perfect hire, and what you need as a growing business to get the job done. You could miss an entire quarter holding out for the salesperson that’s a 99% match to your requirements. Instead, hire someone that is clearly competent, with the right attitude, and then optimise your onboarding and internal training programmes to close any gap you have between your requirements and their experience.
Companies going from Series A to B should have more confidence (and investment more) in their processes and ability to upskill new hires, rather than harming themselves by being too risk-averse during hiring.
Mistake 3: Not testing or certifying new reps during onboarding
This is a mistake that I actually made myself!
I had a really comprehensive onboarding programme for new hires because I knew it was important. Everything was documented; we had coaching, training, 1-to-1s – I thought I had all bases covered. However, I kept getting feedback that the new reps didn’t know enough of the basics, sometimes from the reps themselves!
I was confident that my onboarding content was good. Everything the reps needed to know was in the documentation. So, I didn’t change any of the content. What I did do was add some comprehension questions to the end of each module to test whether they had absorbed the information.
It was absolutely transformative. Suddenly, if a rep didn’t know the answers, they’d have to go back and find them out again. And when they did, there was clear and transparent evidence that was the case. This simple change eliminated all the crossed wires and made a huge difference.
Next, here are my three pieces of tactical advice for companies looking to raise a strong Series B in the future.
Tip 1: Investors want to see more than growth
When you’re looking to raise Series B, investors will be inspecting more than simply your top-line growth numbers. Growth is the most critical metric, of course – and growth can mask a lot of ills. However, if you focus solely on growth at the expense of other critical metrics, investors will start asking some difficult questions.
Here are some metrics I recommend you concentrate on:
- Net and gross retention – Are you building a business with a sustainable and sticky product? Investors want to see a minimum of 100% net £/$ retention, preferably something up around 120% and beyond.
- Sales team performance – Are your SDRs consistently hitting their SQL number? Do your account execs consistently hit their quota? These are good signs that you’ve created a scalable growth engine.
- CAC payback – Currently, investors are more interested in this metric than CAC:LTV ratio because it demonstrates how quickly you can get a payback on your sales & marketing costs. They want to know how their investment will generate growth and how deep in the red you’ll have to go in terms of burn rate to sustain that growth. The ideal payback period should be no more than 12 months (with some exceptions, such as multi-year enterprise deals where a higher CAC could still work).
Tip 2: Love your customers
Whatever outputs you focus on, the most significant input from a technical perspective is loving – and looking after – your customers.
When you’re looking to raise Series B, your investors will call some of your customers. You won’t know which ones, so treat them all like they hold the keys to your success!
Make sure your client services and account management teams are aligned and communicating as one. Whoever owns client relationships should have a management objective to run Quarterly Business Reviews. You should be talking to your clients once per quarter at a minimum (and ideally, much more!). During these QBRs, try to understand at a granular level what they are getting from your product. Are they missing some value? You may show them a new feature that could help them, which is almost like giving them free stuff!
And if a client contacts you, respond quickly. Even if you don’t know the answer, acknowledge the question and let them know you’ll get back to them ASAP with a proper response.
Tip 3: Get in on RevOps as early as you can
You should start to build a revenue operations function while you are still in Series A. Don’t wait, as it gets harder to retrofit one further down the line.
RevOps will help to guide you on all the key data points and metrics I talked about earlier. They will let you know whether you are on or off track. As you add people to the business, RevOps can help minimise a lot of the complexity.
Find out more from Scalewise
I hope you found value in my three mistakes to avoid and three tips for Series B success. To find out more about Scalewise and read the other articles in this series, visit www.scalewise.com today.