May 10, 2022
Originally posted here.
We’re all familiar with the hustle culture, “rise and grind” mentality. CEOs and founders maintain that the only route to success is through 18-hour workdays and pushing oneself to physical and mental limits.
Although we know this approach is unhealthy, many of us continue to do it because we think it’s the only way to secure funding and reach that rare $1B valuation. This week’s podcast guest believes otherwise.
Matt Melymuka is the Founder and Partner of PeakSpan Capital, a growth equity firm that takes a “contra-silicon valley” approach to scaling. Matt joined the Predictable Revenue podcast to discuss what’s wrong with this revenue growth at all costs model.
The Problem With Prioritizing Revenue Growth Above All Else
Most of the pressure for rapid revenue growth comes from outside the company, from venture capital investors. These investors expect a certain number of their companies to go to zero, which is why they push revenue growth at any cost.
The capital loss ratio of any given venture firm is typically 35% (meaning 3.5 out of every 10 companies will go to zero). With those odds, it’s easy to see why most venture firms choose to remain generalists and push the same revenue growth goals on every company.
Although an investor may push to scale from two to 100 reps, such rapid revenue growth isn’t necessarily the healthiest choice for your company.
The Risks of Rapid Revenue Growth
When a company experiences rapid revenue growth, that $1B valuation may come with a cost. If the company hasn’t scaled sustainably, there’s an inevitable drop-off, and founders are often left without an exit plan.
If you raise a massive amount of money at a high price, not many companies can afford to acquire you. Matt often sees founders who have backed themselves into a corner by raising so much so quickly. If you choose to go that route, understand that you may need to reach $3-4B before selling.
Another drawback of raising funding early on is that you become reliant on the capital market to fund the business; you raise one round of funding only to get to the next. Companies that have to grind in their early days learn resilience and resourcefulness, and they become very capital efficient.
What To Do Instead
Instead of aiming for the $1B unicorn, start with a more attainable target. For example, if you’re starting at $2.5 million, focus on reaching $7 million before moving on to your next revenue goal.
This slow and steady approach will help your company reach goals in a much more aligned way, and build resilience along the way. Matt and the PeakSpan team now have three companies approaching the $1B mark, all of whom have focused on this slower revenue growth approach.
How Sales Fits Into Sustainable Revenue Growth
Building consistent, repeatable sales performance is key to revenue growth–but often difficult to achieve when the company begins hiring too quickly.
Before hiring more reps, Matt recommends starting with the sales infrastructure: training and onboarding programs, enablement tools, and playbooks. Hiring more reps won’t be effective if you don’t have those foundations in place.
If you need help hiring, training, or scaling your sales team for predictable revenue growth, our coaches can help. Click here to learn more about our sales coaching!
Final Advice for Founders Looking to Raise Capital
Focus on growing sensibly and prioritizing capital efficiency. Don’t get pressured into massive revenue growth goals, thinking you need to do so to secure funding. No one knows your company better than you do–set ambitious but achievable goals, and then stay the course.