Is Your Revenue Real? How to Set Up, Hire, and Scale a Growth Strategy and Team

Is Your Revenue Real? How to Set Up, Hire, and Scale a Growth Strategy and Team

When it comes to making investment decisions, the best investors, especially at the Seed and Series A stages, focus on growth potential. They want to see early evidence of product-market fit and an understanding of customer needs from founders. However, many first-time founders, and even some investors, have the misconception that reaching a certain revenue level will automatically unlock the next round of funding. They believe that success in fundraising is akin to getting the right answers on a test.

While revenue is important, what really matters is the number of customers it represents. Investors are interested in how many people or businesses truly need your product and are willing to pay for it. They want to see evidence of product-market fit and understand how fast your revenue is growing. This growth rate serves as objective evidence that you are solving a problem that matters to many people.

One proxy for the quality of a product and its ability to solve customers' problems is the churn rate. A decreasing churn rate indicates that you understand why customers are leaving and are actively addressing those issues. Additionally, the net revenue retention rate measures how "leaky" your revenue bucket is.

To better understand your customers, it's helpful to think about three distinct cohorts. The first cohort consists of new customers who fail to onboard or quickly realize that the product isn't for them. The second cohort includes customers who stay for more than one renewal period but eventually churn. The third cohort comprises customers who haven't churned yet. By analyzing these cohorts, you can determine the average revenue per user or customer and assess if the market is big enough to sustain your business.

Now, let's shift our focus to setting up, hiring, and scaling a growth strategy and team. While the growth team alone cannot guarantee success, having one in place early on can accelerate the overall growth trajectory of the company. Facebook, for example, launched its growth team when it had around 50 million monthly active users. This team played a crucial role in Facebook's rapid expansion to 2 billion monthly active users today.

Before hiring a full-fledged growth team, it's important to ensure that you don't have a "leaky bucket" problem. Focus on stabilizing long-term retention and benchmark it against companies in your vertical. If your newer cohorts are performing better than older ones, it indicates product improvement and a stronger value proposition.

When building your growth team, prioritize hiring someone with prior growth experience as the team lead. Former founders make up a significant portion of growth experts, highlighting the value of their firsthand experience. It's also important to set clear goals for the team, striking a balance between being achievable and motivating. The growth team should work towards specific milestones that drive the company's overall growth.

Identifying the right channels for growth is crucial. Look at existing user behavior and ask two key questions: where do users already spend their time, and how can you tap into those channels? Referrals tend to be a top channel within the first year for many companies. As your company scales, aim to run one growth experiment per growth engineer per week. Start early with a solid growth experiment dashboard to track and analyze your experiments effectively.

Finally, remember that growth should be ingrained in your company's DNA. It's not just about reaching a certain revenue number; it's about continuously improving your product, achieving product-market fit, and ensuring long-term profitability.

In conclusion, when it comes to revenue, focus on the number of customers and their needs. Understand the importance of product-market fit and revenue growth rate. Keep an eye on your churn rate and net revenue retention to assess product quality. When setting up a growth strategy and team, prioritize stabilization of long-term retention, hire experienced growth leaders, and set realistic yet challenging goals. Identify relevant channels based on user behavior and run regular growth experiments. Ultimately, make growth a fundamental part of your company's culture and mindset.