Perhaps the biggest difference between most first-time founders and most second-time founders is how long they try to do it all themselves.
This isn’t a criticism — the first time you usually sort of have to. You have less capital to hire a team, and less experience building teams. And second timers often over-hire early, if VCs throw a ton of money at them in the early days.
But most of us under-hire at the senior level for one reason or another as we cross $1m-$2m in ARR, and there are two key times almost all founders hit organizational walls trying to do too much themselves:
- Trying to be the VP of Multiple Functional Areas beyond the date you have to; and
- Trying to manage all the functional areas beyond the date you have to.
Both sort of sneak up on you, and slow down your growth. The first wall you tend to hit is between $3m and $5m in ARR if you don’t have “all” the VPs: VPs of Sales, Marketing, Customer Success at a minimum, Product ideally, and often, Engineering. If you don’t, you just hit a scaling wall doing it all yourself. Each functional area needs a full-time VP to scale. There is just too much going on by this point, and the complexity begins to grow an order of magnitude. And you just don’t have the time. Sales slows down. Leads plateau. NPS drops. Releases slip. Customer visits decrease. You need a seasoned owner for each of these.
The next wall you hit tends to come up around $10m ARR or so. It’s when you finally have all the VPs, and you add a few more, and you’ve sort of figured it out, finally … and you have 8+ direct reports. This is just too many.
I’ve come up with 2 rough rules here to avoid stalling out by Owning Too Much Yourself:
- Try to have a complete 1.0 management team by $4m ARR at least. If you don’t have a true VP for every role, or at least, almost all the roles here, that functional area will have grown too complex for you to be the Interim VP of. That area will begin to stall out or at least plateau.
- Try by your Ninth Direct Report to hire a COO or someone that can manage at least half of the VPs. Eight direct reports is really the max you can handle, and even that is too many. It doesn’t leave the CEO enough creative time. Once you get to 6, 7 or 8 VPs … you need a COO or President or SVP to manage half of them. Pick the areas where someone great who has done it before, can do it again. The areas where you don’t add unique value. And find a COO/President/SVP to manage those reports. Ideally, by $10m ARR or so.
The COO-By-$10m in ARR is the biggest evolution of my personal thinking. I used to think COO was a position you needed at $20m+ ARR. Once you started to think about SVPs and EVPs and all that.
But I was wrong. A COO will be highly accretive once she or he can manage a bunch of functional areas for you that are basically working pretty well. You’ll get so much creative and strategic time back. This will be an accretive hire even at $8m-$10m ARR, typically, often earlier.
Once you have a team of good VPs in place, and they are executing well … then start thinking of which of them could be managed by a great COO. And go out and find her.
And see if you can then somehow, get back to 4 direct reports or less. Then, you yourself will be able to scale again.