All posts by James Ker-Reid

Growth or profit? For B2B tech startups, it’s the million-dollar question. 

Both of these outcomes are highly valuable for businesses. And most founders strive to position their businesses for both maximum growth and sustained profitability. Unfortunately, we know that it is incredibly difficult to attain both at the same time. In the end, it comes down to understanding the difference between the two and making an educated decision on when to shift your attention and resources to each one. 

So, what is the optimal ratio between the two?

Exploring the rules of growth and profitability 

Completing some online research will highlight that there are numerous rules of thumb out there for assessing whether your B2B tech startup has the right growth-profit balance. The now famous “Rule of 40” suggests that a successful SaaS startup’s growth rate plus profit should add up to 40%. Which means if you’re growing at 60% per quarter, you can afford to lose 20%. 

The basic idea is that early stage startups should aim for high growth, prioritising unit or cohort profitability, not overall company profitability as the company invests in product and service development and scalability.

Growth 

There’s organic growth and growth by acquisition or partnership. Usually for a B2B tech startup, organic growth will be the priority. That can include increasing the workforce, increasing the customer base and increasing the volume of sales. 

However, with this comes increased risks with additional obligations, and with fast growth and rapid expansion, businesses can run into problems with maintaining quality.

Research shows that 93% of B2B tech companies fail to reach Series A funding.

If you want to run a successful startup that will last, you have to learn how to measure startup growth. 

In light of recent economic and market conditions, most notably the implosion of WeWork, growth isn’t enough to attract investors anymore. 

Profitability 

Profits are important to every business, and it’s no surprise that most entrepreneurs seek to become profitable quickly. Unfortunately, only two in five startups are profitable, and other startups will either break even (1 in 3) or continue to lose money.

Sometimes, achieving true profitability comes at the expense of growth. Instead of reinvesting profits into sales, marketing and employees, founders use profits to build the bottom line and net cash. 

For a new startup, one of the greatest advantages to focusing on profitability is the ability to maintain financial stability without relying on outside investment. 

Finding the right strategy to balance growth and profitability 

Startup founders need to strike a balance between growth and profitability in order to secure investment and sustainably grow their business. 

Some of the key ways to strike the right balance include: 

Cash flow – as a general rule of thumb, it is recommended that you should have enough cash saved up to cover a minimum of 6 months’ worth of expenses.

Cash conversion cycle – analyse the time (days) it takes from e-signature to invoice sent and to the invoice being paid, decreasing this time will bring new much needed cash into your business and fuel your growth.

Establish targets – set a minimum profit level and allow for growth-focused investments with any profits that exceed that target.

Market fit – it’s important to generate revenue during the early stages, in order to verify that customers will pay for your product.

Cost-to-serve equation – this analysis will pinpoint exactly how profitable a particular customer will be and which ones may actually generate losses for the business. Then you can establish the value of that customer and weigh that against the risks. 

Customer referrals – asking your existing customer base for recommendations, means new customers can be secured with minimal investment, even if referral fees are due, it’s when you receive the revenue. A strategy like this will help to grow the business and generate profits simultaneously. 

All sized companies need to be agile and learn when to shift their focus between growth and profitability at different stages of the life cycle. At Sales for Startups we work with Pre-Seed to Series A startups to create comprehensive agile strategies to support overall goals. 

To find out more download our Winning Sales Strategy or book a consultation call with our CEO & Founder James Ker-Reid. 

 

There’s a lot to consider when founding a B2B SaaS tech business.

First and foremost will be product development; to ensure a unique SaaS product can create an impact in a competitive B2B market.

With a strong value proposition in place, it’s time to optimise sales and marketing operations, and take into consideration the core components of strategy, infrastructure, team and clients/community.

Strategy

As a conceptual activity, strategic planning is not always given the time and attention it deserves. A gung ho attitude will only serve a startup so well without a plan backed by real research rather than internal theory.

Having a strategic plan to align sales and marketing activity gives direction to activity in the early stages, and continues to provide focus as a startup grows.

A strategy will take into consideration brand messaging, competitors and positioning, customer pipeline, and of course in depth research of prospects, to name a few components.

Infrastructure

A solid strategy is nothing without the infrastructure to execute it. SaaS startups can practice what they preach and benefit from a multitude of SaaS providers to support day-to-day operations.

A sales tech stack can make or break a business. Consolidate services where possible, or integrate. There are many ways to do this and an API call can be all a startup needs to significantly reduce administrative burdens on sales and marketing teams. Saving a small amount of time each day can accrue into days and weeks of saved time throughout the year.

A quality CRM is invaluable, especially to support startup growth as several teams work across accounts. A CRM that can integrate with other software services ensures better control over data and an efficient sales cycle.

There exists a lot of power in automation. Utilising automation services wisely allows startups to engage more prospects and accelerate pipelines. Easing pressures on the workforce can also reduce the risk of employee burnout as engagement demands increase with growth. Different automation options will suit different businesses, and workflows should be built around unique customers for the best results. While there are many benefits to automation, businesses need to be careful however, that they do not not become robotic in their engagement.

Team

While infrastructure and automation is valuable, nothing can replace the value of real team members.

Recruitment should not be carried out in haste, and the value of diversity should be recognised. Once talent is on board, due time should be made available for teams to come together, including across departments to share insights and align activity. This extends beyond uniting sales and marketing teams to product development and finance etc, building relationships and understanding across all departments.

With a talented team in place and working cohesively, it can be tempting to try to motivate staff with targets and commissions, and while there can be a place for this, businesses should be mindful that increased sales through overpromising will lead to disillusioned customers. Short term wins do not necessarily lead to long term gains.

Providing training programmes for all staff, will not only enable the business but also empower the individual. A talented team member happy in their role on day one, will likely value the challenge and opportunity to evolve their role as the company grows.

Clients and Community

Businesses succeed when they enable their customers to be their marketers, generating new leads from word of mouth and referrals. In addition to offering referral rewards, businesses can enable customers to promote them by creating content that they can share, and celebrating their successes, for example through case studies.

For a SaaS B2B startup, the value proposition will shift in time to keep pace with new technologies. This offers a great opportunity to build trusted relationships with clients and provide feedback channels through access to beta versions.

There is a wide community out there for startups, and leads can be generated from leveraging network connections, this includes peers, suppliers and clients. Build relationships and support each other.

How can you optimise sales and marketing to close more deals?

Optimising your sales and marketing operations is not a quick one-time fix.

Successful startups constantly evaluate and refine their processes to adapt to changing times and achieve sustainable growth.

At Sales for Startups we can help you gain clarity in your strategy, gain confidence in your execution and get traction through your sales operations.