One of my coaching sessions recently started with the following.
"We were supposed to grow 10% MRR the last 12 months. We are at 5%. We have runway for 9 months. Should I go out and raise money now? Or should I continue to grind away and think about this in 4-6 months when we are hopefully in a better place? If we don't grow, we need to let go of some of our staff. Do I start thinking about the cost side already now? If I have to let go of people, I need to do it within the next 2 months since we have 3-6 months termination periods or pay up lots of severance"
The above was from a founder of a SaaS company turning over 1,8M€, with MRR growing 5%. This dilemma got me thinking. These are the kind of phases that make or break a scale up. That make or break founding teams and the trust they have with their investors.
Here are my 5 tips on how to manage this crunch.
While there is no silver bullet here and each company needs to be analysed thoroughly before applying these recommendations, the principles would hold water in most contexts than not.
#1. Understand how behind you really are
The human brain is good at a lot of things but one of them is not understanding the compounding effect.
So in this case, if they would have had a 10% MRR growth, their sales would be 70%+ better than their previous period. Since they grew at half the projected rate, their growth is only 27% better. The probability of this company reaching their year goal and bridging the gap within the remaining period of time is almost slim to none, unless a tech miracle besets them.
To truly understand where you are, you need to think about how behind you really are not just in terms of absolute numbers but in terms of the numbers you need to hit week on week / month on month to get to your desired state. The other side of this coin is to understand how long will this take? Is the tail to get to your desired state 6/12/18/24 months? If it is 24 months away, you need to rethink or challenge your fundamentals of your business model again.
#2 - Diagnosing root causes and not symptoms
Some of the best founders I have worked with do not clutter their mind with all the details but try to find root causes.
Why is it that we are where we are and not begin with all activities and ideas.
A technique I recommend is the 5 Why framework. Ask yourself up to 5 whys for every answer or reason you get. Sometimes you need 5 whys, but most times you get clarity by number 3 or 4.
Why is our sales slow? Because our closing times are long
Why? Because we don't get enough traction with decision makers
Why? Because they are comfortable with their existing solution
Why? Excel does the job 75% of the time
The insight for this founder was that their product was a nice to have and not a need to have. This insight hurts. To realise that you can't capture enough market share since you are nice to have or unless you take in obscene sums of money which is almost impossible at this stage kills morale.
In essence, the product they had was not good enough to motivate their prospects to switch faster from their current behaviour.
The 2 areas we generally advise founders to look deeper are:
1. Customer Segmentation
Can we customer segment better? Is there a niche out there that would need our product more than others? What are those drivers or triggers for such a niche?
2. Market Size & Approach
Is the market size big enough? Is there enough addressable market for our product in the near term? Are you approaching prospects the right way?
#3 - Experimenting yourself out of it
As the old adage goes, you need to solve a problem only once. Once you have, you need to find ways to institutionalise it through your product or delivery.
Can you run experiments based on your root cause diagnosis? Can you run 1x / week? Then you have 20 experiments to run before you change course drastically. Can you go back to the core of your product and what got you that growth in the first place? Can you find hidden signs and patterns that you took for granted? In essence, you need to dig deeper both with your customers, your product and team.
If you intend to run experiments, set aside a clear structure with clear dedicated resources and success metrics. Don't expect experiments to happen by itself or without clear structures. A growth team generally should be working this way trying to combine product and marketing. But if you are going deeper, don't be afraid to change the constructs to get this working.
#4 - Bridge financing
Once you have diagnosed your root problems and put plans and activities in place, it is time to own up to your board, threading the balance between defensive and offensive. You want to exude confidence while being clear about why certain things have not worked as per plan.
There is no startup or venture in the world that has always reached their budgets and goals. Don't get disillusioned by Tech Crunch articles about all companies that are nailing it. It is a small subset of companies that cloud your judgement.
Asking your existing investors for a bridge also makes it clearer for you which investors are supporting you long term. At the end, investors want their money and returns, while you are in love with your product.
Keep your bridge round on easy terms. Don't get greedy or complicate it. You might have to bridge it with some externals, in which case try to take the chairman of your board or get introduced by your existing investors. This will save you time without you going through the hassle of a fund raising round for a bridge. It defeats the purpose.
#5 - Strengthen gaps in your team & leadership
Good founders use this situation to dig deep in their management and team dynamics. Do people really feel safe? Is the morale high? Is there enough collaboration between different divisions?
And inevitably you will find gaps that you need to think hard about. You might have to let go of that super star sales stud that has been bad for your culture, which might set you back 3 months or more. You might have to rethink your management team and focus areas. You might have to run your meetings differently.
Irrespective, the strain and onus on your leadership and decision making will be more severe than ever, and this is where you need to find a balance of optimism and hope, while being attentive and giving space for your team to talk honestly.
You need to keep asking yourself the following questions:
1. Am I setting the right goals?
2. Am I communicating them again and again?
3. Do I talk about our vision to the point that I am sick and tired of it?
4. Am I enforcing accountability and follow ups through structures?
5. Am I inspiring and motivating my team?
Feedback and reflections are a great tool for this. You are sincere, honest and pragmatic. You let the skeletons disappear from the closet and you remove bull shit. You create direct reporting structures, daily check ins and check outs that matter, and you enforce with accountability and dedication.
No silver bullet. Lots of fucking lead bullets. Keep firing. You wouldn't want it any other way would you? ;)
We run coaching sprints, 6 weeks at a time, 1-1 for founding teams of scale ups. Get clarity, solve growth issues and get new invaluable networks for you to scale faster. By Entrepreneurs.