(2023-03-21) Millard Start Build Scale from $1M to $100M

Stephen Millard: From $1 to $100m revenue: Scaling VC backed SaaS with Notion Capital. The probability of a VC backed SaaS company hitting $100m in revenue is approximately 1 in 100

The journey is discontinuous and what makes company successful at one stage will most likely undermine it at the next

Achieving $100m in revenue and doing so within ten years, is a critical milestone for VC-backed SaaS founders and companies; ten years because that is the typical term of the majority of VC funds and $100m in revenue because that has a strong correlation with enduring value.

Venture capital is built on the foundation of the power law; a small number of VC investments generate the majority of the returns, so every company we invest in must have the possibility of a credible pathway to $100m in revenue and be acquired or listed for a billion dollar plus outcome within the ten years of a fund

If we work on the basis - which I for one agree with - that the most important success criteria for any VC backed SaaS company is achieving $100m revenue (in less than ten years), as opposed to unicorn status, then it is important to focus on the centaurs, of which we identified 168.

We believe VC-backed SaaS companies fall into one of five categories, post $3m in fundraising:

• Approximately 20% never get going - they fail to find product market fit and stall and then die with less than $1m ARR
• 40% never get past $3m ARR, getting stuck moving beyond founder-led sales.
• 60% never get past $10m and stall between $3m and $10m, failing to find a functional GTM model. If they move to break even or cash flow positive they can be acquired, perhaps generating a modest return for stakeholders.
• 80% never reach $30m ARR, which is the next big hurdle. They fail to create innate repeatability
• 20% transition through these stages to $30m ARR plus. This is where real value starts to manifest.

Andy Leaver, Operating Partner at Notion believes companies invariably get stuck at common revenue milestones, which he describes as “The rule of 1’s and 3’”. Each of these revenue milestones represents profound changes and distinct challenges that founders need to understand.

Andy goes on to explain, “In particular what makes a company successful at 0-1 or 1-3m revenue will not only not make them successful at 3-10 or 10-30, it will lead directly to their failure.”

We summarise the startup journey in three words: Start, Build and Scale

There are mistakes that we see over and over which undermine success

Premature GTM acceleration - investing for growth before we are ready (and of course not investing when we are).
The wrong people, in the wrong roles, at the wrong stage - over and over this is the single biggest issue we see.
Assuming PMF (or GTMF) in one segment (or GEO) implies PMF (or GTMF) in another. We’ve all made this mistake. We need to challenge ourselves and go back to first principles every time we consider entering a new market.
A parallel approach, with multiple competing priorities. Similar to the above, but bears repeating. If I have five segments I want to target I create far more momentum by prioritising those segments and then engaging them sequentially. The same applies to projects or products. We build momentum by executing sequentially.

Start, Build, Scale: Three stages of the $1 to $100m revenue journey.

It’s tempting to think of the startup journey as a continuum; once a company raises their Series A there is a natural procession to scale. The reality is quite different. Thousands of startups are founded every year; a handful achieve scale.

START: Keywords: Starting and Starters.

Speaking for myself, if I was cautious with my capital, I wouldn’t care how long it would take to get to that first $1m ARR. I’d just want everything as close to perfect as possible: ideal customers, ideal use cases, and a massive market opportunity.

BUILD: Keywords: Building and Builders

BUILD is the hard yards. It is a massive transition from the chaotic and crazy, “whatever it takes” days, shifting gears to build repeatability across many functions, not least go-to-market.

*We think of BUILD as again one stage, with two phases:

From $3-$10m the GTM model emerges, with specialists establishing repeatability across demand creation, sales conversions and revenue realisation. From $10m to $30m the GTM playbook is developed and hardened, with increasing predictability across the customer lifecycle, backed up by robust processes, systems and data.*

SCALE: Keywords: Scaling and scalers.

There is an acceptance that revenue naturally slows year over year... ARR Growth lost between each year, we find that it decays at a fairly predictable 30%

Start, Build, Scale: 15 mistakes to avoid on the $1 to $100m revenue journey

The mistakes are often beguiling

We spend our energies planning for the things we will do, but less about what we won’t do, and in particular the mistakes and missteps that will undermine our success and that we should actively avoid.

In this the 3rd in the series we'll be diving into the most common mistakes on the journey to $100m in revenue in less than ten years.

Just before we do that it's worth revisiting why $100m in revenue and why less than ten years. Well, $100m in revenue for SaaS or Cloud companies has a far greater correlation with long-term success and enduring value than unicorn status and is in itself a manifestation of the mission: we have built a BIG company.

We believe there are very significant obstacles along the way to achieving $100m in revenue that are perhaps not as well appreciated as they should be

The five most dangerous mistakes in the Start stage.

• Burning money trying to grow before we are ready.
• Outsourcing product-market fit to salespeople.
• Acquiring non-ICP customers who simply churn. This isn’t just a START stage mistake. This is a mistake we see all along the journey.
• The founder as the sales hero with every deal a minor miracle

The most damaging mistakes in the BUILD stage

• adopting someone else’s playbook is the worst reflex
• Assuming PMF in one segment implies PMF in another segment.
• A diluted go-to-market, spread thin

The top five mistakes at the SCALE stage.

• Assuming what made you successful last year will make you successful this year.
• Running out of road
• Failing to productise onboarding

one bonus mistake, falling for the myth of growth degradation, which is basically the belief that growth naturally declines year after year - so if we grow 100% this year, next year will be 80% and the year after inevitably. We see exceptions where this is just not the case, so don’t build it into your thinking. (Note this disagrees with the end of the previous post!)