While every entrepreneur dreams of scaling their startup into a multi-million dollar company, many do not understand all that goes into that dream.
Getting past the first stage of revenue growth and building an initial customer base is the easy part, but what happens when you hit a revenue plateau and can’t seem to take that next step?
Strict sales volume does go a long way in achieving long-term revenue growth, but processes and cross-department alignment are what allow sales volumes to scale in the first place.
Related: Using Sales Conversations to Find Product-Market-Fit
Combatting missed revenue growth for second-stage startups
Working with plenty of second-stage startups at House of Revenue™, we see common missed revenue growth opportunities limit success time and time again. Let’s dive into these mistakes and how you can avoid them to continue scaling revenue.
What is a second-stage startup?
Second-stage startups are companies that have already established proof of concept, product-market fit, pricing strategy, and initial clientele to achieve their beginning growth goals. In terms of revenue growth, second-stage startups have eclipsed $1 million in revenue and are ready for the next step.
For the most part, second-stage startups have established repeatable processes and are beginning to incorporate different pieces of the revenue engine: sales, marketing, and customer success, all supported by RevOps.
However, at some point, almost every second-stage startup hits a revenue plateau. In other words, they experienced revenue growth throughout their first year to eclipse the seven figures in revenue before finding themselves stuck on that number with no real growth in sight.
5 revenue growth mistakes second-stage startups make
So much needs to happen for second-stage startups to scale, and many founders miss these necessary steps, leading to missed revenue opportunities. Scaling the second stage of a company is a completely different animal than the first stage, and we’re here to help identify the biggest missed revenue growth opportunities that second-stage startups should focus on.
1. Maintaining the same processes
Revenue growth cannot happen without realizing this vital fact: what got a company to this point will rarely be sufficient in achieving the next goal.
All too often, CEOs fall under the false belief that the strategies which allowed them to reach $1 million in revenue will also allow them to eclipse $5 million, $10 million, and so on. And why blame them? After all, something has to work for a business to make $1 million, right?
Because of this, many second-stage startups maintain the same strategies, people, tech stack, and processes that helped them achieve their initial success. What they fail to realize is that scaling becomes so much more difficult at this stage.
Simply put, second-stage startups must figure out a way to rebuild their model to be able to scale. The playbook used to make $1 million is not the same playbook that will help them reach $10 million.
More often than not, first-stage growth was accomplished on the back of a lean management team, potentially just the CEO. This is not sustainable in second-stage growth, yet most companies fail to invest in mid-level management because they think current management will do. The same can be said about technology, CRM usage, and the overall process.
Recognizing the need to adapt rather than becoming complacent is the first step that second-stage startups must follow.
2. Attacking revenue growth through siloed strategies
Companies that make it through the first stage of revenue growth have begun to establish bits and pieces of the revenue engine. However, the actual construction of the engine is far from complete.
In a traditional business framework, marketing, sales, and customer success are siloed. Meaning, they work independently of one another, often failing to think about how their actions will impact another department. Here’s how this might look for sales and marketing:
- Sales. Under the belief that sales is the only way to increase revenue, many companies seek out the imaginary sales unicorn: a high-performing salesperson from an established company brought in to handle everything related to sales, manually.
- The problem? This person doesn’t exist. The reason they were such a good salesperson in the past is because they had the automation, infrastructure, and internal alignment in place to sell at a high rate. Picking them from an established company and bringing them to a place without automation or infrastructure ruins their chances of success, and ultimately costs companies thousands of dollars.
- Marketing. After achieving initial success, a company comes under the impression that they need a brand refresh and a new marketing campaign that will take their company to the next level.
- The problem? Companies spend thousands of dollars with a marketing agency to create a new brand for what? Sure, they might get a fancy new look, but the fact of the matter is that marketing should make money. If a marketing campaign is not sending qualified prospects to sales teams, it’s worthless.
Sales alone won’t scale revenue. Marketing alone won’t scale revenue. A new tech stack alone won’t scale revenue. All of these must work together in order for second-stage startups to defeat the revenue plateau in front of them.
RevOps and new technology implementation should improve automation, making it easier for marketing departments to attract ideal customers using inbound tactics, engage with them throughout their journey, and send them to a qualified sales department that is equipped with processes to close more deals.
Breaking down preexisting siloes is a must for second-stage startups looking to scale.
3. Failing to develop talent
What I see so often with second-stage companies is their inability to manage and develop talent, both from an internal, existing perspective and a recruiting perspective.
CEOs and executives are emotionally attached to their people, as they should be. These are the people that helped them build something from the ground up, and they often let that emotional attachment get in the way of success.
Now, we’re not telling you to kick them to the curb and find something new and shiny. However, there are tactics second-stage companies can follow to ensure they are getting the most out of their team.
- Skills. Take the time to map out each team member’s greatest strengths and compare them to their current job responsibility. Are you leveraging their skill set to put them in a position to succeed? Is it time to create a new position that better adheres to a person’s skills?
- Heart. As the old adage goes, “Hard work beats talent when talent doesn’t work hard.” Success is just as much about passion, enthusiasm, and conviction as it is about raw talent. When someone is eager and consistent in their work, they are more successful than an unmotivated, talented person. To scale in the second stage, CEOs must assess their team members’ hearts and whether or not they are actually fit for the job.
- Capacity. Too often, teams are spread too thin with multiple people wearing too many hats that they were never meant to wear. It’s the CEO’s responsibility to ensure their team members have the capacity to do the work on their plate. This may mean expanding some departments and shrinking others.
Everyone should be doing work that they’re empowered to do, excited to do, and capable of doing without draining their energy or being a constant pull on management. When entering the second stage of revenue growth, CEOs must prioritize talent development and be willing to change things around to better fit the needs of their employees and ensure they are empowered and heard.
4. Trusting opinion more than data
Opinions are valuable, but data is priceless. Too many CEOs let their opinions get in the way of undisputable data, even if their opinions may be valuable.
Second-stage startups must be able to capture data in a clean manner, interpret and report on that data, and use those reports to optimize workflows. CEOs are exceptionally smart and have great intuition, but the raw data won’t lie. Making informed business decisions off data is a must for companies facing a revenue plateau.
There are hundreds of data points that businesses can track depending on their specific needs, including. After the correct metrics are identified and tracked, the next step is setting tangible KPIs, not just broad goals.
Having a goal of selling more is great, but what will actually allow you to sell more? Setting KPIs on product-suite penetration, average revenue per sale, average time of sales cycle, and closing rate provide a more in-depth snapshot of the tactics that lead to more sales.
Tip: One of the most important ways to improve the quality of people coming through the funnel is through concise messaging. Frame your messaging and branding concisely to give contacts the opportunity to self-identify and remove themselves from the funnel. When salespeople don’t have to engage with the wrong buyer, they have more time to sell to the right people, win more deals, and scale revenue.
5. Trying to scale without process
You can’t scale chaos, and without process, that’s exactly what most second-stage startups are. While I’m a huge advocate for letting salespeople sell the way they know how to sell (when they are hitting their quotas, of course), standardizing processes along the way is crucial for revenue growth.
Sales is just as artistic as it is scientific, and the combination of that results in the most success. When you think about making a car, everyone’s specific job on the assembly line works together. They have their unique skills, and the person to the left or right of them relies on those skills to do their job better.
Scaling revenue is no different. When an organization has standardized processes in place, the revenue engine is able to function more efficiently. These processes should be repeatable for two reasons:
- If it’s repeatable, it’s scaleable. Standardizing processes makes it easy to see what works so well so you can scale it in the future.
- If it’s repeatable, it’s preventable. At the same time, if a process fails, you know exactly what not to do next time.
Standardizing processes is especially important for onboarding new talent. If every new team member learns the same process, they are able to add their unique intricacies to proven methodologies that set them, and the company as a whole, up for success.
Capitalize on revenue growth opportunities
Making the leap from the first stage of revenue growth into the second stage is a challenging yet rewarding task for startups. Without realizing it, you may be letting revenue growth opportunities pass you by on a daily basis.
You didn’t get into business just to experience moderate success, so take the time to assess yourself in terms of these common revenue growth mistakes. What’s on the other side could be more than you ever imagined.
If you need help understanding holistic revenue growth, this guide is a great place to start.
