When scaling goes wrong
When scaling goes wrong
Mark Roberge on the mistakes most $10M+ companies make
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Picture this: you just left Q1 and you didn’t hit target.
Your board/CEO says: you need to catch up, so hire even faster!
That’s what Mark Roberge saw play out too many times, leading to catastrophic failures:
The number one pattern that I have seen cause unnecessary failure is choosing the wrong time to scale revenue and the pacing
- Mark Roberge
We recently had Mark on the podcast to talk about where companies go wrong with scaling. In this week’s post, I’m going to break down some of Mark’s thoughts on why so many of us get it wrong and how $10M+ companies should be scaling today.
But first, why are we dealing with this in the first place?
The simple answer here is VCs. The first question out of their mouth is about revenue growth. AKA How fast can you grow?
And if you think that the last few years of muted growth have changed that expectation you are wrong. The VC math is still the same. You need to show exciting growth.
So as founders, we include a slide in the deck:
“Triple. Triple. Double. Double. Double.”
Why? Partly because it’s what we’re all programmed to do (even though we’re living in a different age of SaaS today). So we plan for that growth anyway.
So what usually happens? Well Q1 goes by, and you miss target by 30%
What does your board say? “We have to catch up. Hire more salespeople.”
And that’s totally broken. All you’re going to do is burn more capital faster and go out of business.
So what should you do instead:
You need to pace yourself as your scale
And then, because Mark and I ended up discussing this quite a bit:
Bonus Chapter: Create Commission plans that align with your goals.
The Pacing Problem
Once you have PMF and GTM Fit, the problem here for 80-90% of businesses is pacing.
Where they’re really messing up is when they create their annual plan. And they go, “Ok, we have to go from $10M to $20M.”
“Our salespeople are averaging $1M. So we have to hire 5 more reps. That’s what the Excel math tells us.”
So they hire 5 more reps in January and cross their fingers…
And there’s no regard to:
Can we recruit good enough candidates?
Do we have enough demand gen to feed them?
Do we have enough managers to manage these people?
There are just so many things we have to look at. So when we think about scaling, it’s not just looking at the plan and doubling your sales team.
It’s about continual pacing by which you hire these salespeople. Instead of hiring 5 and praying, let’s do 2 reps per quarter. Then watch the leading indicators of are the reps busy enough? Are they closing enough deals? are they ramping as expected?
If it’s still working after 2-3 quarters, then we can go faster, maybe pacing at 3-5 new reps per Q.
But if it breaks, then we know way ahead of everyone else, and we can fix it… then get us back on track.
Simple lump sum hiring with an annual cycle plan won’t allow us to do that.
Create Commission plans that align with your goals
Past 10M ARR, expansion, and churn become a major element of your scaling strategy.
While we all know this, we sometimes forget to ensure that the rest of the organization has incentives that align with that focus.
This gets easily forgotten when the VP Sales is (really) in charge of the commission plans and wants to keep everything super focused on NewBiz.
But if your main problem shifts from NewBiz to churn and upsell, why should your reps’ incentive plans not adjust too?
Making this push as CRO or RevOps can sometimes be extremely uncomfortable.
The standard commission plan, which is present in almost all sales orgs, is really still from the 80s. A time when you sold something, got money, and likely never saw that customer again.
Which back then was totally ok.
But now we are in a different world an while the old comp plan works for the period of your GTM that you are super focused on NewBiz.
You simply HAVE to change it once that focus is fading out a little bit.
So let’s think through some examples to make this easier:
If you have a prospect that wants to pilot your software to 10 people, and if it goes well, they’ll expand after a quarter and add 500 seats, and if that goes well, they’ll expand to 5,000 seats. It’s a perfect sale from the company's perspective.
But what’s a salesperson going to say? No.
Because that’s not how they get paid. They want the whole 5000 now. So they’ll oversell it.
What happens? They try to roll it out to the 5000 seats, but it fails. Now your churn is a mess.
And also, let's go through 2 different reps as an example.
Both close 1M in revenue. But Rep A’s revenue drops to 70% after year one, while Rep B’s revenue jumps to 110%
Why on earth would you pay both of them the exact same commission?
What you need to try and achieve is to build a plan that accounts for that difference. Especially if you are in the phase of your GTM where this is starting to become key.
It’s very rarely done, but what happens when you implement it?
Consider paying a premium for upsell. Think 150% compared to the newbiz commission.
This will make reps think twice about trying to push everything into the initial deal.
But this also requires an AE that stays close to the customer over time. In enterprise set-ups, that’s easy and the norm. But in transactional teams, this is usually handled by an AM or CSM.
This is now where the details matter—and where you will need to figure out what works exactly for your set-up.
But instead of giving up at “we can’t change the comp plan,” try to push through and work hard on reaching a solution that aligns what the company wants with what the reps want.
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