Missed Revenue Opportunities of 2nd Stage Scaling Startups

Meet Host, Mary Grothe

Mary Grothe is a former #1 MidMarket B2B Sales Rep who after selling millions and breaking multiple records, formed House of Revenue®, a Denver-based firm of fractional Revenue Leaders who currently lead the marketing, sales, customer success, and RevOps departments for 10 companies nationwide. In the past year, they've helped multiple 2nd stage growth companies between $5M - $20M, on average, double their MRR within 10 months, resulting in an average ROI of 1,454% and an average annual revenue growth eclipsing $3.2 million.

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Welcome to the House of Revenue. I'm Mary Grothe, Founder and CEO. I love scaling companies to their first 5 million, then 10, 15, and 20. If you've reached a revenue plateau and aren't sure how to get past it, you're in the right place. Listen in as we interview CEOs and solve their most pressing revenue challenges. If you want to be on our show or want to learn more connect with us at houseofrevenue.com. Let's talk about missed revenue opportunities of second-stage scaling startups.

First, let's define what a second stage scaling startup is. Typically a startup out of the gate is working to get proof of concept, product-market fit. They're working out their pricing strategy. They're building that first base of their customers and they grow through, typically word of mouth and referrals. And there are some variances there, depending on if they're a SAS or a technology company versus a professional services company or CPG, they all have their differences in how they get through that first startup phase. But what they all have in common is they'll hit a bit of a plateau, not in a bad way, but where they're able to get in the groove where it starts to feel like, okay, I think we kind of have this thing figured out we are reaching levels of profitability. We haven't before we seem to have a working engine for the most part. And they're ready for that second stage of scale.

Well, there's a lot that needs to happen in the second stage of scale and a lot of CEOs and founders miss these steps, which is what leads to missed revenue opportunities. First, an understanding of what got you to this point may not be what's going to get you to the next point. That could be in people that could be in your CRM or tech stack. That could be in the processes that you've established. You have to figure out a way to rebuild your model, to be able to scale for a professional services company. As an example, if you have found that level of profit in that one to 2 million in revenue range, you're doing it pretty lean. You probably have very few non-billable employees and you have a lean management team, potentially just the CEO, like just one of you, maybe a co-founder, or a CEO/ COO combo. And there's just one or two of you that aren't billable. Well, when you start to go into that second stage of scale, one, the most often missed pieces is that you now need mid-level management. And that's also common in other types of companies. But what will happen is there's a hit to your profitability because you have to redo the way that your pricing model works for you to see. Are you going to go into a growth year and take a dip in your profitability? Or are you going to figure out how to maintain that profit and be able to take on more overhead?

So there's a lot of things you have to figure out here. When you look at a technology or SAS company as a SAS company, it depends on how you built your initial model. Also, there's going to be another hit and play when it comes to building mid-level management. But we also see that the initial sales team that you have, this is common with really any company. The initial salesperson hiring strategy is typically going after that sales unicorn, the sales unicorn is the person that's expensive and they've got that great resume and should, in theory, be able to handle all of the sales manually. So this is great for startups. This sales unicorn might have an impressive resume with a big fortune company and very notable names of companies.

They've worked for very impressive stats and they come on because they're excited to work for a startup. They love all the things about startups and they come in with all the hope and faith in the world that they can be successful in your environment. Oftentimes they fail and we can. That's a whole blog and podcast in itself. I, those people often fail, but giving you the high level, unless you can find a sales VP who has scaled starters before I wouldn't like to make your first, the first opportunity for them to do that. I just wouldn't make it your opportunity with your company. It is so different pulling a sales VP, or a top sales producer from a high-performing career that has a high-performing sales department, meaning they could have 10 to 3000 salespeople.

There's a whole different energy in that they have name-brand recognition. You probably don't. They have a marketing department and automation and inbound lead engine that you probably don't. They also have comradery and mentorship and management, which you probably don't. And so there are too many risks of them succeeding or not. And so that initial sales hire is scary to make and it's expensive to the organization. So you've got to be cautious there, but as you're in that early stage, you're typically finding people that have a thrill for startups and meaning they have a risk, they have risk tolerance and they're okay saying, Hey, this may fail.

They're also wildly self-managed, they're naturally passionate about succeeding and don't need to have their hands held. They don't need extensive management or accountability. And these people are very hard to find. And so early on, as you're building out your sales force, you may find one or two good eggs that do a great job helping you scale. Initially, now CEOs and co-founders one or two people that are naturally gifted in sales.

Whew, that's honestly the way that I would go a CEO who can sell or a co-founder that can sell is going to be one of the best assets you can have. So if you're a technical founder, like a CTO or an engineer and sales is not a natural gift of yours or an activity you enjoy doing and are good at your first strategic hire or partnership should be somebody who at the executive level can sell potentially willing to work for equity, be very low, cash payout on that and really working towards future. So that's just a strategy that I would highly recommend for you to have a very sales-focused executive on your team to start just be weary about that VP of sales. Who's not an owner, even if you give them a small percentage of equity who has a super impressive resume, but they've not scaled to start it before they may not have what it takes and it's going to be an expensive point of failure. Okay? Those are things that happen in the startup phase.

Let's fast forward because this is talking about missed revenue opportunities of second-stage scaling startups. So second stage scaling startups mean you've already worked past all those hurdles and miraculously, you have a pretty decent company, but you're still in that maybe one to 3 million range. It could be a little bit bigger. It all just depends. There are their skews based on your average deal size. And if you landed a couple of big whales and whatnot, but typically we see in that one to 3 million range, some things start happening in your business. Scaling gets more difficult. The playbook that you use to get to that point starts to prove that it's no longer valid and you'll have potentially months, if not years, and waste of dollars spent trying to solve that problem piece by piece by piece and changing out a key person or to investing in new technology, potentially hiring a sales trainer. 

Maybe you partner with a new marketing agency or try doing digital advertising. Maybe you haven't done that before, but the biggest missed revenue opportunity here is that you're attacking the problem in silo phases, silo strategies, and you're not taking the opportunity to hit a giant reset button and build new infrastructure, a new foundation to take you to the next level. And you need a holistic revenue strategy, not siloed, not bringing the sales trainer, have everybody read this new bestselling sales book on whatever new methodology is popular right now. And then let's bring in a new head of marketing who specializes in digital marketing in this cool phrase. Omni-Channel I dunno, that sounds cool. Maybe that'll help us be successful. Maybe we should rebrand our company and we'll hire a firm and that's going to cost us 50 grand or let's go drop 50 grand, a hundred grand on a brand new gorgeous website.

You can't have a siloed playbook. It has to work together. And so that's the second biggest missed revenue opportunity is you have silo strategies, not good. You have to do it all at one time. And then another area that is missed is your talent. So talent development is very difficult. So we've had, we've had the privilege at the House of Revenue of overseeing dozens of revenue teams in our, in our time or three and a half years to this point. And it is extremely called common. In fact, I think it's in every single company we've been in, and rightfully so, the CEO and executives are emotionally attached to their people and they're willing to let that emotional attachment to their people come in the way of their success.

I'm not telling you to cut them and leave them out on the street. That's not how you do it, but you have to understand talent development strategies. And you have to start by identifying this person and creating a gap chart, where are their skills? Where's their heart. Do they actually want to be doing that work? And do they have the capacity to do it? So you look at, do they get it? Do they understand? Do they want to be doing that work? And do they have the capacity? And it's taking your team and mapping out all their skills against what their current job requirements are in looking at their bandwidth, the capacity to do it. And you need to shuffle things around.

So many times we go into companies and the team is so spread thin. They're so lean, they're wearing so many hats and that's not sustainable. And you also have people in roles that they're not performing, or they're good at a portion of their job, but not at another portion of their job. And that's not good. And so if you're going to enter into that second stage of growth and scale, you have to have the right people doing the right roles. And it is just a ma uh, just as much about mindset and attitude and passion as it is on skill. You have to have both. Otherwise, you're going to have people that are disengaged. They reach burnout, they have a negative attitude.

They bring others down. They're not good for your culture and your environment. So you have to have equal parts on the attitude and the passion, the heart for the work, as the ability to execute and do it. And of course, making sure they have the capacity and bandwidth to do it all. So talent development is a significant piece. That's often overlooked CEOs, founders, executives, they'll look at their team. They're like, Oh, well, John's been doing this for years. He's great. We'll just keep him in that. And you have to look at it, but how is he performing in that? And if we're going to be shifting and adjusting the playbook, is he going to be able to deliver on that role? So there's nothing wrong with talent development.

There are ways to love and honor your team and to have brilliant and warm conversations with them about everybody's success or bringing in a new playbook, we're ready for our second stage of scale. And we acknowledge that. What got us to this point, isn't necessarily, what's going to get us to the next point. We value you. We are appreciative of your contribution over the last, however long John's been there. And we'd like to sit down with you to map out really where your heart and passion are in addition to your skills, where you're able to contribute the best to the organization and get the best results. And ultimately, if it's aligned with your passions in your heart, that should mean you have the energy in the passion to continue to do this and, and to be with us for a long time.

So we need to take a look at those skills against the set of passion and your capacity. And let's just make sure that as we go into the second stage, we have everybody doing work. They feel empowered to do. They're excited to do, and they're capable of doing and can get great results without draining their energy, being a constant pool on management and a drain on management. It's just not fun having underperforming team members. And it will weigh you down as you go to scale. So the talent development strategy is absolutely key in getting right. You may find out you need to move people into completely different roles. You may find out that you've given up the person an opportunity to perform and they don't.

And so you meet with them, you meet them where they are, you work with them. And if you can't get them to that point, you need to make a decision. And if it's a decision to eliminate that role or position, if they're not willing to take on another role or separate treat them well to right by them, if it means a severance package or helping and calling your network and find them another role. But if you're having the conversation, now there are no surprises later and you can in a very loving and supportive way, give them every resource and opportunity to succeed with clear communication, agreed-upon expectations in a very supportive environment. And if they're not able to succeed with those metrics, then there's a way to separate with team members. That's actually wildly professional and shows that you do care about them as a human and making sure they're landing on their feet, that there are opportunities. 

Then they're recruiting to redefine your onboarding strategy, your recruiting strategy, getting new talent. And this is a great time as you're building infrastructure, to look at how you've onboarded employees in the past, you have to have systems and processes for onboarding, and you also have to have it wildly dialed in on your ideal candidate profile. So taking it back a step, what is your recruiting process? Do you have internal recruiters? External recruiters either is fine, but what we often see is with internal recruiters, they're really great at recruiting some types of roles, but maybe not others. And I've heard so many CEOs and a short-sighted answer.

Well, we have an internal recruiter. Yeah. But they're not good at recruiting salespeople, or they're not good at recruiting these technical roles, or they're not good at recruiting management and leaders. Yeah. But I've, I'm paying for them and they're expensive. So I've got to use them really. Okay. That makes sense. You're paying an internal recruiter, 80 or 90 grand a year. And they're not good at a certain role, but you can't make a decision because you're paying them to go invest in another recruiter who specializes in a certain field. Who's going to have a way higher chance of getting you great talent.

That's going to make you a lot more money and be better for culture. You're not willing to take on that expense because you have someone internally. It makes zero sense to me. But we have run into that so many times don't do that. You really have to weigh your options and understand what you're getting into talent development in your future. Recruiting roadmap is extremely important. Do not wait, start working on those today because if your business relies on humans doing a job that moves the needle for you, invest in your people, by the way, care about them. Start with that care about them and build an environment where they're empowered. They're appreciated acknowledged there's recognition, praise feedback loops three 60. So they're able to give you and your management team feedback as well. There are things that you can do with your people that will make a massive difference. Okay?

Let's talk about data. You've got to capture data in a clean matter. And then you need to have something, whether it's internal staff or a system that interprets the data and reports back to you on the data. I like to say that opinions are valuable, but data is priceless. And this is another missed revenue opportunity. This is a big one. Ceos, founders, executives. They trust their opinions more than they trust data. And that's not good.

Like I said, opinions are valuable. You need them. You're smart. You're talented. You have great intuition. Your gut sense is good, but the data is not going to lie. So you have to interpret both in order to make informed business decisions. Too often, we are brought into an engagement for a company that has plateaued. And what we find is that they're not trusting the data, but they're trusting their opinions again, not so bad to trust your opinions. You have to trust that intuition, but you have to prove out with data. And then you need to be willing to adjust your opinion based on what the data and science are telling you. And so we need to look at trends on where and how traffic is being driven to the website, conversion rates, how we're engaging prospective clients.

Do we even know the profile of our best prospective client? How are we attracting them to the brand? Are we engaging with them doing that reverse funnel and finding out if we're going to close to a million dollars ARR this year, how many deals do we need? Divide that by the close rate. And then at what point in the funnel, you're calculating the close rate. So is it from proposals then back out again? How many people do you need to meet with before they go to the proposal? If you've got a demo step in there, you've got to add that component as well.

Then you need to look at how many conversations are happening before anyone's willing to go into a discovery demo and then to proposals. So do this reverse funnel, and then you're going to get the data in the numbers. And you have to trust that. Now you can set goals on the data. So I see a lot of companies not set goals on their KPIs. I see them set big goals like sell more, but did you know, it's often missed to break down how you sell more?

Did you know you can sell more by increasing your average revenue per sale, increasing the penetration into your product suite on the front sale or doing a phase one, two, three approach within the first 60, 90, 180 days to grow your average revenue per sale, you could also find ways to shorten your sales cycle. So that's an impressive metric that heavily impacts your pipeline and ability to close business, shortening the sales cycle. You can also look at increasing your close rate and it's really digging in with those salespeople and identifying those key metrics and how they're working that funnel. But you can back it even further back it up further to leads the quality of your leads that are coming in.

What is the conversion rate between a qualified lead, a deemed qualified lead, whether it's in marketing qualified, lead, or marketing qualified, uh, or excuse me, a sales qualified lead or account. And you're looking at those. And is there a way through your brand, your marketing, your website, your social communication, your advertising, to change the message to increase the quality of who's coming through the funnel and allow people to self-qualify themselves and move themselves out if they are not an ideal prospect, very important?

So how do you bring them in that way and have a higher conversion? So is critical. The last component that is a missed revenue opportunity of second stage scaling startups is having a process. You can't scale chaos. You can't scale the wild West. You can't scale everybody wanting to just do things the way they've always done them, because it works for that person this way. And it works for that person that way. Now, asterisk, I'm a huge fan. When we're talking about salespeople specifically about letting salespeople your top performers sell the way they know how to sell and not try to change them. If they're doing all the right things and hitting that number.

Here's a quick story.

When I was selling B2B mid-market SAS and service payroll, HR, I got asked to join the upmarket team, 10 or 11 of the top 25 reps in the country were asked to join this team and sell larger clients. You had 10, I think it was actually 11 of the country's best salespeople. And they tried to give us a playbook and a standardized way of selling. And I have an appreciation for what they were trying to do. But you pulled five, 10, 15, 20-year veteran salespeople of this industry in this company who were quota crushers. I mean, smashing the number every year, two, three, 400% of quota. Don't try to change the way those people sell unless you're in the field with them. And you're identifying areas that they could improve, but get, get real granular into the details and help them through specific things. But don't change their entire playbook, but is not good.

So I say that with an asterisk, because I'm a former top performer, and I know there are top performers listening to me right now and thanking me for saying that. So don't pull the rug out underneath them and turn everything upside down. That's not good. But do you find ways, especially for the talent that hasn't been there for a while, or as you ramp new hires and bring people on creating standardized processes? When you think about how you make a car when you make a car, there's everybody has a job. There's a production line. There are pieces, there are parts, there's timing. It all gets put together in this production line. They know how many cars they're going to make in a certain period of time. It's very well calculated. And you look at that type of process. Can you build that type of process within your own revenue engine? And the answer is yes, but you have to acknowledge marketing and sales, there's science, and there's an art to it. And so when you're building your holistic revenue strategy, you have to acknowledge both there's process and methodology, there's science and there's art. And then you throw humans in the mix and you've got a lot of variables. And so it takes that mid-level management to be in the field.

They should be focused on coaching, mentoring, and leading before managing there should be a culture of accountability of feedback, but the processes that you build need to be repeatable. Replicatable I like to say that if it's repeatable, it's preventable or it's scalable. And so you can apply that in two ways. If it's repeatable, it's kind of preventable. So if it's a problem, so if you're seeing a trend is something happening, okay? You can figure out how to get rid of it, or if it's a good thing, then you can scale it and you can make more of it if it is built in a process, but without systems and processes. And I will say that you have to refine your tech stack. 

So many times people buy that CRM and they have three bolt-on technologies for email campaigns and automation, something else tracking analytics on their website. Maybe they've got an automated campaign tool, then they have a real basic CRM, and then marketing's doing something somewhere else. It's not the way to scale. When you get into that second stage, we're a HubSpot agency partner. We're passionate about HubSpot. The recent advancements that were released in October of 2020 are absolutely brilliant. We work in the space of two to 20 million. Uh, it was CPG companies.

We do go quite larger just because of the way their operations scale, but in the tech, SAS, and manufacturing for the most part and professional services space, we're typically in that two to 20 million. And HubSpot is an incredible tool for that. We have found, we can consolidate the majority of the technologies they're using into one database where marketing sales and customer success. Everyone lives happily with the same, very easy-to-use technology. And you can remove a lot of those bolt-ons that you had before, which really stream like streamlined your process. And it gets everybody performing at a much higher level. You should automate what can be automated. You should not have people do it manually which can be automated. That's all I have for you today. Those are the common missed revenue opportunities of second-stage scaling startups. I hope this was helpful.

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Thanks for listening to today's episode. If you're interested in being on our show or want to learn more about how we can help you scale your company, connect with us at houseofrevenue.com or with me Mary Grothe spelled G-R-O-T-H-E on LinkedIn, Twitter, or Instagram.

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