Q: Dear SaaStr: What are Some Common Decisions SaaS Startups Make that Hurt Their Ability to Scale?
My partial list:
- Hiring “too low” to save money. A VP at $150k-$180k, especially one that wants a $50k a month budget, can sound insanely expensive. Why not just hire a manager for $80k, who can work with whatever budget you assign? The problem here is that instead of hiring an accretive resource, you hire a cost center than can’t deliver sales/leads/upsells. That means the junior $80k resource is much more expensive than the $150k VP. More here:
- Not topping resources that need to be topped. Related, but different, than the prior point. That scrappy marketing manager you hired in the early days may go the distance. But if she can’t deliver as many leads at $2m in ARR as she did at $20k in MRR, if she falls behind … don’t wait. Hire someone above your team members that can’t scale as soon as they stop scaling. But not before. More here.
- Not dealing with technical debt. There’s no perfect answer here, but the best engineering teams find a way to remove the biggest issues here before $8m – $10m ARR or so. Otherwise, you almost always hit a wall on performance, features, uptime, etc.
- Not being realistic about funding. This is less common, but when it happens, it’s really rough. Do not blindly believe you can raise another round. Do not believe it will be easy just because you see “worse” companies raising rounds on TechCrunch. Test the market. Ask your existing investors. Know your Zero Cash Date and be realistic around it. More on that here: https://www.saastr.com/knowing-a…
- Settling on a VP hire. At some point, we all get tired. We hire that VP that we know isn’t great, but the team likes. And can talk the talk. You’ll almost always end up having been better off never making the hire. A bit more here.
- Insufficient transparency. How do you scale from 5 to 50 employees, and beyond? How do you keep your investors engaged, and hunting for the next-round VCs for you? How do you keep retention high? Transparency. Send investor updates out every month, in the first week of the month. Let your team know what the goals are, and be clear. Reset the goals halfway through the year, if need be, but be clear. Don’t pretend you’ve hit goals when you haven’t. Many of us shrink back from transparency when times are tough. That’s 100% the wrong time to not be transparent. It’s transparency — with a positive spin — that gets you through the tough times. More here.
(note: an updated SaaStr Classic answer)