The Unwritten Playbook, a podcast by Refine Labs, features guests with innovative points of view and compelling stories. It showcases new ways of thinking and breaking away from the status quo, while covering tropics from marketing and sales to personal and professional development. In many ways, the podcast reflects our mission to dig into the unwritten playbook of business growth by helping companies understand what happens when rubber meets the road.
We were excited to join Megan Bowen, Refine Labs’ Chief Customer Officer and host of the podcast, to talk about the cost of human scaling and the venture capital (VC) problem startups face today. Below you’ll find a summary of our conversation and key takeaways.
After a brief introduction, we started off by breaking down the one problem entrepreneurs struggle with and have in common.
Many founders set out to build a business based on an idea that they believe has the potential to change the world. However, with the overwhelming majority of companies failing at Series A before reaching Series B, managing business growth responsibly and turning great entrepreneurial ideas into a reality is a great challenge. In fact, founders across industries often struggle with the same difficulty— scaling a venture-backed business with stability and focus.
We talk about what it’s like being an early-stage founder with a venture-backed startup and how growth decisions can significantly affect sales leaders.
Consider a startup that raises $5 million during their first round of fundraising. It’s likely a VC will advise them to hire more employees to get things moving, leading them to hire 10 new sales representatives. Unfortunately, the VC isn’t considering the time, money, and sales leads necessary to successfully bring on these 10 new employees. It could take three weeks to set up interviews, three more to hold interviews, and another three to get an offer accepted.
The costs associated with that journey, and time spent hiring reps with sales quotas equates to lost revenue for the business. For example, if your quota is one million dollars for the year, then every day you’re late to hire costs you $4,000 in lost revenue.
Without leads to support new hires and a way to understand the costs associated with a new team structure, such as signing bonuses, time spent, and recruiting costs, the company could churn out up to 40% of its employees in a year.
One of the primary reasons for employee burn is that current business models and forecasting tools measure against KPIs, versus a plan that takes into consideration the amount of time and money it takes to hire for a new role.
A major factor at play being that 80% of companies build their business plans in Excel spreadsheets. Excel can show you averages on a monthly basis, but it can’t show you the required costs along that journey, which could make or break your business.
Next, we break down the reason for misalignment between startups and VC’s.
While raising capital is an exciting milestone in a startup’s journey, a VC’s goals don’t always align and reflect that of an early stage business. A VC only makes money by acquiring more ownership or when the business gets sold or goes public, so the VC is motivated to grow money in the portfolio before the exit.
After raising funding, founders find themselves under a tremendous amount of pressure to sell more equity to raise their company’s stock value and make the VC more money. Consequently, startups often scale too fast, leaving room for cracks in a business’s foundation that can ultimately cost a founder its business and its employees their jobs.
We hope listeners take away from our conversation the following.
Having a path to burn less and fuel sustainable growth is crucial. In order to break this cycle of startup failure, companies and VC’s need to understand that they're building businesses made up of humans for humans. Recognizing and understanding the journey associated with the hiring process is essential to ensuring growth is profitable for team members, not just for shareholders.
Being venture-backed doesn’t mean you can’t grow profitably. You just need a system that helps you identify realistic and achievable targets for growth, so you can execute against appropriate hiring plans to reach revenue goals your investors will be pleased with.
With more conversations like this and others showcased by Megan in the podcast, we hope to build greater awareness around some of the common problems and misconceptions involved with being a venture-backed startup.
Our mission at BurnRate is to build companies systematically in order to create more jobs and stability. We help founders take VC money and manage growth more responsibly by learning how to plan realistically and carefully for the future or in other words, control their burn. If you’re interested in learning more, sign up for a demo.
You can listen to our full conversation with Megan on the podcast here.