THE DIFFERENCE IN SCALING AFTER RAISING SERIES A AND SERIES B FUNDING

There is not much by way of strategic content advising founders and founding teams on how to scale their startups through Series A and B funding rounds. When you think about scaling, you really need to be thinking of operational readiness.

It’s not for nothing that the tech ecosystem can resemble an extreme sport at times.

Take scaling, for example.

There is plenty of advice out there on how to launch a startup. Equally, it’s not difficult to find extensive commentary on huge, successful exits.

On the other hand, there is not much by way of strategic content advising founders and founding teams on how to scale their startups through Series A and B funding rounds.

The truth is that launching a startup is sexy. And making a big exit is the stuff heady dreams are made of.

The middle bit, which is where Series A and B come in, can feel a lot more like hard work. Here’s where the gloss wears off somewhat and the challenges come thick and fast.

Without careful nurturing of your startup during these phases, the famed T2D3 path is in serious jeopardy. This acronym stands for ‘triple triple double double double’. A mouthful, yes. But one that describes the revenue growth patterns of startups that go on to achieve unicorn status.

These triples and doubles don’t happen by accident.

However, investing in truly understanding how to scale after your Series A and then Series B round is how you’ll make that big exit. (A study by Dealroom shows that only 7% go on to raise Series C.)

So, when you think about scaling, you really need to be thinking of operational readiness.

THE DIFFERENCE BETWEEN GROWTH AND SCALING

It can feel like a milestone to establish product/market fit. And it is. It’s at this point that a startup can begin showing growth.

This is exciting, but it’s not the same as scaling.

Growth is a concept best understood in linear terms.

As your startup adds new capital, people or technology, your revenue will increase. (Well, it should increase if you’re strategic about it.)

Scaling, on the other hand, is when your revenue increases without a similar increase in revenue. This is where processes come into play in a big way.

HOW TO IDENTIFY THE RIGHT SCALING NEEDS FOR WHERE YOU’RE AT

Although revenue is not the only marker to understand where your startup is in terms of scaling, it’s a helpful one.

A startup making £1 million in revenue is in a different place and has different scaling needs than one making £5 million in revenue.

This is where operational readiness comes in.

Many founders can get their startups off the ground with ad hoc activities and processes. This ad hoc phase can be an incubator for a lot of worthwhile creativity and testing.

However, ad hoc does not scale.

It’s helpful to think of scaling through a maturity lens.

Your startup might have been a newborn, but your scaleup is a teenager. Therefore, your scaling strategy needs to grow up too.

A broad overview of operational readiness maturity stages for scaling looks like:

  • Ad hoc
  • Basic process
  • Repeatable process
  • Predictable process
  • Everything in your business running at scale

Founders should seek to move on from the ad hoc phase as soon as possible.

In a Series A funding round, you are in the space of basic processes to repeatable processes.

In Series B, you are still a little in the space of repeatable processes and moving strategically towards predictable ones.

THE METRICS TO FOCUS ON

Without data, you are not going to make informed decisions to drive your successful scaling journey.

The first thing to do is identify with crystal clarity where you are in your scale path. Then identify the right metrics to focus on.

Y Combinator has a Series A guide that breaks down the metrics to focus on based on the type of startup you are.

Broadly speaking, your Series A metrics are:

  • Annual recurring revenue (ARR)
  • Growth rate
  • Net Revenue Retention (NRR)
  • Customer Acquisition Cost (CAC)
  • Customer Lifetime Value (LTV)

There’s a postscript here with regards to CAC and LTV.

These metrics are important, but they don’t influence investors’ decisions when it comes to raising Series A.

However, both CAC and LTV are vitally important to raising Series B, alongside the following metrics too:

  • Customer acquisition cost (CAC)
  • Customer Lifetime Value (LTV)
  • Annual recurring revenue (ARR)
  • Growth rate
  • Net Revenue Retention (NRR)
  • Gross margin
  • CAC payback period
  • Market sentiment

HOW TO POSITION YOUR SCALING STRATEGY TO ATTRACT FURTHER FUNDING

Communication is key here.

As you’re building the strategies and processes, and investing in your software framework and team, to deliver on your vision, you need to be actively sharing your story.

This is not only good marketing, though it’ll certainly help in that department.

It will also signify what your startup stands for and how you operate to attract top talent. And you’ll need to attract the best of the best to scale well.

Secondly, sharing your story is how you get further investors to hear about you.

Jason Lemkin of SaaStr has widely published views on the pros and cons of PR for SaaS companies. However, he’s clear that great PR can help you reach investors.

To quote Jason Lemkin further, “If you are doing your job as CEO, you already have 1 or 2 investors that want to invest in the next round. No matter what that round is.” (Jason Lemkin tweet, 29 April 2021.)

He’s talking about visibility here.

You need to be sharing your story in public.

You can’t communicate at scale any other way.

HOW YOUR LEADERSHIP HAS TO CHANGE AS YOU SCALE

Finally, your leadership style needs to reflect maturity stages too as you scale.

As a newborn founder with a newborn startup, your own leadership style may have been ad hoc. And that may have worked well as you got your product/market fit off the ground.

But an ad hoc leadership style will only go so far. In fact, as far as seed and no further.

Yes, you’re still a founder but you need to step into the shoes of a CEO.

Because that’s what you are the moment you raise Series A.

There are many differences between founder leadership styles and CEO ones. Brian Halligan, co-founder and Executive Chairperson of HubSpot, writes about scaleup leadership lessons here.

As a billion-dollar unicorn, taking some lessons from HubSpot and implementing them in your own scale up will enhance your Series A and B funding rounds.

And after that the sky’s the limit!

This article was originally published in Startups Magazine UK

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