Point Nine Land
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Point Nine Land

Hyper-growth is great, but don’t die while trying

How to avoid bad surprises when you’re planning for fast growth

The double-whammy of lower-than-expected growth

Even a seemingly minor underperformance of your top line can hurt your funding prospects in two ways.

From sunshine and lollipops to doom and gloom in just a few months?

Acme started out growing 3x year-over-year and having 18 months of runway. Only six months later, the company is looking at a runway of only seven months and finds itself in a situation where it has to lay off people, find a way to grow much faster very quickly, or raise a bridge round. How is that possible?

  1. Always keep a close eye on net new ARR.
  2. Keep in mind that at a low scale, seemingly minor underperformance may signal something more serious, especially if it gets bigger every month for a few months in a row. If the gap between planned and actual net new ARR keeps widening for a few months, it’s time to look at your budget and forecast.
  3. Consider flattening out your growth projections in terms of net new ARR, i.e. consider projecting a declining % growth rate over time. (This may or may not work for you, it’s just something to think about.)
  4. If you do plan to grow at a constant % growth rate m/m, be super aware that you have to add more net new ARR every single month. Otherwise, your % growth rate will deteriorate quickly.
  5. Estimate your runway based on more conservative revenue growth. If you plan to grow ARR by, say, 3x y/y, have a backup plan showing how much runway you have at a significantly lower growth rate. The trade-off here is that if you plan for too much runway, you may hinder your growth because you won’t spend enough on sales and marketing. The right balance depends on how confident you are in your ability to scale-up customer acquisition, as well as your ability to scale back costs quickly if needed.
  6. Lastly, some evergreen advice that I’ve given many times before. Be aware that until very, very late in a startup’s life, you don’t really know how your CACs will develop as you scale until you try it. You may have data points indicating the scalability of your customer acquisition channels, but there’s always uncertainty.

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Christoph Janz

Internet entrepreneur turned angel investor turned micro VC. Managing Partner at http://t.co/5WJ3Pepbcv.