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?
#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.
#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.
#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.
#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.
It usually goes like this: you go off to hire a VP you absolutely need to hire. Often VP of Sales, but it can be VP of Eng, Marketing, etc. as well. And 4, 5, 6 months go by and you just aren’t finding anyone great, and you get burnt out. You feel like you can’t be that Interim VP yourself any longer, than someone “OK” has to at least be better than how you’re doing now. And you hire someone, often someone that looks decent on paper, on LinkedIn — that you know isn’t great. They’re nice and seem OK. But they didn’t really do the 60 Day Plan. They don’t really have anyone great to bring with them. But hey, they look and sounds good. The team likes them, even if no one is blown away. So you make the Desperation VP Hire. They’re just always gone in 6 months or so, and leave a mediocre team you don’t need behind with them.
#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 really understand the product or the market. I see way too many “Hands Off ” VPs of Sales and Marketing say something like this 120 days after they joined: “I should have gotten to know the product better”. And that’s the self-aware ones.
The ones not as good simply never really understand the product and just blame other factors when it all sloooows down. And so sales goes down. The competition boxes you out. Product velocity goes down. They build the wrong stuff. It all goes down when you hire a VP of Sales that doesn’t really sell themselves, a VP of Eng that doesn’t really commit code themselves, a VP of Marketing that doesn’t really do demand gen or ABM themselves.
A related post here.
#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.
In fact, most SaaS startups that start scaling need about 2x as many reps as the founders think. More on that math here.
So at first founders think you can go further with just a few reps than you really can. But they later, they fall too much into the Sales Capacity Trap. What’s that? That pure bodies will get you there. No. Mediocre VPs of Sales, and desperate VPs of Sales, often push this type of thinking. And there’s of course some mathematically truth here. But hiring 10 reps that can’t close gets you somewhere Worse Than Nowhere. Lowering the bar too much in sales to hit a capacity target just makes things worse. There are few things worse than 10-20 new reps running around, untrained, that can’t close anything, that never close anything. And more time rarely helps.
#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.
Most founders need to find a way to make their engineering team better as they cross $10 million in ARR. The world just gets more competitive as you scale and enter new segments, and get into more deals. Too many founders instead end up with a slower engineering team as they scale. Lots of valid complaints about technical debt, and the like. But net net, in the end, story points and builds and releases don’t accelerate. They have to accelerate after $10m ARR if you don’t want to .. decelerate.
A related post here.
#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 see it with Klaviyo as well, which is just going upmarket as it scales past $600m ARR. And it’s also true with folks like Toast and Bill and others, whose heart and soul is just SMBs.
But what I see pretty frequently is founders that resist the existing customer and market demand to go upmarket. As a rough rule, if 10% of your early customers are “bigger” customers, that’s a sign to go more upmarket. If it’s 20%+, that’s a sign there a ton of revenue if you just go a bit more upmarket. That means probably hiring a real sales team. That means adding SOC-2 and much more security. That means building workflows and dashboards and integrations you might otherwise not really want to build now. But the tradeoff can be $50k, $100k, $200k+ deals now.
Here’s the challenge: if your customer base is saying go upmarket but your personal DNA doesn’t want to — change your DNA. It’s you. Get with the program. Love the customers you have, and that want you. Not the ones you thought you’d have, or you wish you have. Not everyone can be a magical self-serve PLG unicorn with zero effort in sales or security or enterprise marketing.
#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.
But then you turn around, and someone new has taken over that white space. Someone new is the Hero App in the space. That empowers the next generation of developers, of marketers, of sales reps.
There’s a reason HubSpot and Mailchimp and Atlassian went back and added Free editions later. They realized how powerful that long tail was. If you have one, invest in it. Build your community. Maybe even make your Free edition — even Freer. That will take some pressure off monetizing it, and unleash an every larger army of champions to spread the great world about you.
And the bonus point:
#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 Freshworks and Samsara, layered in their second, third and fourth acts just in the right sequence. Focus matters, and you have to stay focused. But even as early as 1,000 customers, and maybe even 100 in the enterprise, you’ll start to see some market fatigue. Without a second product to sell to your existing base,
Much more here.