The Unwritten Playbook, hosted by Megan Bowen of Refine Labs, recently had a fantastic episode on the risks of scaling a company at all costs and the shortcomings of the VC startup model. In a sea of forgettable podcasts, Megan’s stand out because of her focus on the nuggets of insight you won’t find in the thousands of sales & marketing books that flood the virtual shelves. The podcast invites a guest with a unique point of view and groundbreaking ideas for the future.
This episode features Collin Cadmus. Collin is a former tech sales executive, current consultant, advisor, online trainer and podcaster with an interest in helping companies build sustainable growth. He shares with Megan his experience as a sales executive, kicking off their discussion on what it’s like to be a victim of the “growth at all costs mindset” and the VC problem.
We thought this conversation identified and uncovered some of the root issues facing startups today and wanted to share with you the following highlights below.
What is the "Growth at All Costs" Mindset?
Backing from a venture capital firm can open new doors and opportunities for a startup. To start, the VC firm provides a company with money to hire employees and build a customer base.
However, when founders raise money from investors, they often find themselves under a great amount of pressure. There’s suddenly a need to scale quickly and hire more employees to support rapid growth and meet investor expectations.
This can lead to unrealistic and unachievable goal setting. When specific benchmarks are not met, it’s often the sales leader’s job on the line, creating a negative culture that prioritizes profit over people, versus healthy, sustainable growth. Because of this the average tenure for a VP of Sales at a startup is between 12 and 18 months.
What is the VC Problem?
Most VC firms know that only a handful of the startups they support will actually succeed. Because a VC can push all of its startups to hit high growth metrics, while only needing a few of them to actually reach these, the VC model in general is the root cause of the "growth at all costs" mindset.
Raising funds is a major part of this cycle because VCs and founders can still make money on fundraising rounds even if the company isn't bringing in revenue. A VC or founder can sell a few shares as the fundraising rounds raise the value of the stock but still hold onto enough shares to stay invested. This leads startups into a cycle of unsustainable topline growth that views its employees as an expendable asset.
Problem With the Short Tenure of Head of Sales
Unrealistic goal setting, coupled with short-term thinking to achieve those goals, like hiring too many employees at once, prevents great ideas from becoming great businesses.
For example, often startups are trying to quickly push a product that isn't quite ready for the market or another aspect of the business has slipped through the cracks. The head of sales shoulders the pressure of revenue growth more than anyone else in the company even after successfully building out an entire sales team and establishing relationships with them.
Before starting a new job with a startup, it’s essential you ask the tough questions related to burn rate metrics, the company’s plan for long term growth, and how they envision your role within that plan.
Truly understanding how the VC and startup relationship works can help avoid job loss, startup failures, and better position sales leaders for success in the market.
Companies and individuals today are working to improve the relationship between startups and VC’s to better position companies for growth and people for long-term careers. Organizations, like Y Combinator and Revenue Collective, are working to improve startup success rates and create fair terms for startups and employees, so there’s a greater value in slow-growing companies.
At BurnRate we help founders build companies systematically. We support startups with the tools and processes they need to take VC money and plan realistically for the future. If you’re interested in learning more about building a plan with BurnRate, get in touch for a demo.
You can listen to the full conversation with Megan and Collin on the podcast here.