Scaling from Series A to C Funding

The Pursuit of T2D3: Scaling Startups to Unicorn Status

The term T2D3 – representing triple, triple, double, double, double – has gained prominence within the startup ecosystem as a benchmark for achieving unicorn valuation. While articulating this objective is straightforward, actually attaining such substantial revenue expansion presents a significant challenge.

Funding Round Success Rates

Data from Dealroom indicates that approximately 16% of companies securing seed funding subsequently progress to raise a Series B investment. Furthermore, only around 7% of those initially funded at the seed stage ultimately secure Series C funding.

This limited success rate can be attributed, in part, to a deficiency in robust organizational structures designed to facilitate scaling from seed to Series C stages.

The Gap in Scaling Knowledge

Abundant resources exist concerning the initial startup phase – specifically, achieving product-market fit – and narratives of triumphant exits and large funding rounds. However, practical guidance on navigating the growth trajectory from $1 million to $25 million in annual revenue, encompassing the Series A, B, and C stages, remains scarce.

A Framework for Organizational Scaling

Our framework is based on extensive research, including 47 interviews with leading industry experts such as Sean Ellis, Mark Roberge, Bill Macaitis, Micha Breakstone, and Brian Requarth. It also incorporates our own experiences as founders and investors in companies undergoing Series A to C growth.

We’ve identified three key insights regarding organizational scaling. These insights form the basis of a practical approach to help companies navigate this critical phase.

These insights are derived from both qualitative and quantitative data.
The framework focuses on the organizational aspects of scaling.
It aims to bridge the knowledge gap for founders and investors.

Understanding these principles is crucial for startups aiming to achieve sustainable and rapid growth.

The Progression of Scaling and Company Maturity

The requirements for a rapidly growing business generating $5 million in revenue differ significantly from those of a startup experiencing similar growth but with $15 million in revenue. Utilizing the idea of “maturity stages” when scaling a company can be a valuable approach to effectively address these varying demands.

Commonly recognized “maturity stages” in company scaling include:

Ad hoc.
Basic process.
Repeatable process.
Predictable process.
At scale.

Generally, seed-stage companies operate with largely improvised and unstructured methods. Reaching Series A funding often signals a shift towards establishing repeatable processes. Subsequent Series B and C rounds prioritize the predictability of results. Beyond Series C, the focus becomes executing operations at a large scale.

It’s important to note this represents a holistic, company-wide perspective. Individual departments may exhibit different levels of maturity. For instance, a company at the “repeatable” stage, relying on digital marketing for inbound leads and possessing an enterprise sales team, will likely have a more developed marketing function than its sales organization.

A key principle is to first assess the current maturity stage of both the company as a whole and its individual departments. Then, concentrate efforts on implementing only the strategies and processes appropriate for that specific stage.

This targeted approach ensures resources are allocated efficiently and effectively, maximizing the impact of scaling initiatives.

Understanding Each Stage in Detail

The ad hoc stage is characterized by a lack of formalized procedures. Processes are often improvised and rely heavily on individual effort.

Moving to a basic process stage involves documenting some key workflows, but consistency and standardization are still limited.

A repeatable process stage signifies the ability to consistently deliver similar outcomes. Standard operating procedures (SOPs) are established and followed.

The predictable process stage focuses on optimizing processes for efficiency and reliability. Data analysis and continuous improvement are central to this stage.

Finally, operating at scale requires robust infrastructure, automation, and a highly skilled workforce to maintain performance while handling significant volume.

Navigating the Complexities of Growth

Successfully scaling a company necessitates addressing a multitude of organizational hurdles. We posit that these challenges can be effectively categorized into five key areas:

KPIs and data
People
Documentation and enablement
Processes
Tooling

To ensure manageability, we advocate for tackling these challenges at the departmental and subdepartmental levels.

KPIs and Data-Driven Insights

Making decisions based on data is paramount throughout the growth trajectory, often referred to as the T2D3 journey. Recognizing that relevant KPIs shift with each stage of development is crucial. Prioritize the metrics that align with your current phase; for instance, LTV:CAC is less critical for a seed-stage company than customer retention rates.

Proactively identify the metrics that will become important in subsequent stages, and begin collecting the necessary data now. Without a clear understanding of which channels or markets deliver the greatest return, efficient scaling will remain elusive.

The Human Element: People Management

Our interviews consistently highlighted challenges related to human resources. Several recurring issues were identified.

Resist the urge to rapidly expand your workforce immediately following a funding round. A measured approach allows for the development of talent pipelines and facilitates the integration of new hires. We suggest a “stop-and-go” strategy, prioritizing increased efficiency per employee before further team expansion. Tracking revenue per employee can be a valuable metric in this regard.

The required skill sets evolve as the company matures. Early-stage companies benefit from individuals with “T-shaped” profiles – broad expertise with limited depth – while later stages demand “I-shaped” profiles – deep expertise in a specific area. Furthermore, employees’ risk tolerance and capacity for innovation tend to change over time.

Strive for a balance between experienced professionals and fresh talent. Seek individuals who have navigated stages 12-24 months ahead of your current position. These experienced hires can anticipate upcoming challenges and offer effective solutions.

As organizations grow, the formation of silos is almost unavoidable. While less common in smaller companies (<30 FTE), silos can emerge as headcount increases and ambitious departmental targets are set. Implementing shared metrics across departments can encourage alignment with overall company goals.

Documentation and Enablement: Building a Knowledge Base

Comprehensive documentation is essential for sustained growth.

João Graca, founder and CTO of Unbabel, shared an example of introducing a meaningless variable into the code. Over time, the original context was lost, creating hesitation among engineers to modify it. This situation could have been prevented with adequate documentation.

Enablement is equally important. Standardized documentation is vital for delivering a consistent, high-quality experience and achieving operational efficiencies. This isn’t to advocate for a purely bureaucratic approach, but rather to emphasize the importance of readily available resources to support continued scaling.

Processes: Establishing Operational Systems

While often viewed with skepticism by founders, establishing processes becomes increasingly important as complexity grows and compliance requirements arise. The goal is to transform your business into a well-oiled machine. However, timing is critical; initiating process design too early can be counterproductive. Most contributors suggested waiting until reaching approximately 20 FTE before implementing a formal organizational operating system.

We encourage founders and operators to define the necessary processes for each department at various maturity stages. This proactive approach allows the organization to anticipate future needs and prepare for the next phase of growth.

Tooling: Leveraging Technology for Efficiency

As investors in software companies, we naturally recognize the importance of this aspect. As your business expands and adopts new systems, appropriate tools are needed to optimize operations and drive efficiency.

The ideal tool stack is contingent upon the company’s current stage. For example, sales teams often begin with tools like Excel or Pipedrive, transitioning to Hubspot and eventually Salesforce as the team grows beyond five members. Given the rapid pace of change – typically every 6-12 months – expect to revisit your tech stack every 12-24 months. Adaptability is key.

Designate clear “tool owners” and initially work with individual tools before moving towards a unified stack. Avoid unnecessary complexity in the early stages. Separate marketing and sales tools are acceptable initially, but a comprehensive suite offering end-to-end control may be preferable later on.

Developing a tool roadmap is crucial to ensure you have the right tools in place to support your business’s future growth.

The Nuances of Business Scaling

The process of scaling a business is not universally applicable. Strategies effective for consumer-focused companies will differ significantly from those employed by businesses selling software to large enterprises. A standardized approach to scaling is something we actively avoid.

Furthermore, we often approach generalized "point-based" scaling advice with caution. While typically well-intentioned, such advice frequently proves difficult to implement successfully in varying business environments.

Our focus lies in identifying the fundamental factors that propel scaling. For founders, a clear understanding of these drivers is far more valuable. Defining distinct maturity levels, and establishing the specific requirements for progression to each subsequent level, is crucial.

Through extensive analysis, we’ve identified several common scaling drivers: workforce size, customer base, revenue generation, target customer segment, and the reliability of projected results.

Strategies for Accelerated Growth

A foundational element for achieving significant scale is the cultivation of a robust support system. It’s crucial to position yourself amongst peers – colleagues, founders, operators, investors, and advisors – who are approximately 12 to 24 months further along in their journeys. While emotional backing from family, friends, mentors, and coaches is undeniably important, a detailed discussion of that aspect falls outside the scope of this analysis.

Our second key recommendation centers on the appointment of a dedicated Head of Scaling, reporting directly to the Chief Operating Officer (COO). This individual’s primary focus should be on proactively preparing the organization for growth over the subsequent 6-12 months, rather than being consumed by day-to-day operational management. This is especially vital during the pre-Series B phase.

Companies often prioritize hiring highly skilled functional leaders at this stage. However, these leaders may lack the broader, strategic foresight often possessed by experienced leaders or consultants with a background similar to that of McKinsey. The ability to anticipate future needs is paramount.

This particular skillset is essential for effectively navigating the next phase of development. Furthermore, assigning clear accountability for scaling initiatives prevents a detrimental conflict between preparing for expansion and maintaining current business operations.

Our third recommendation involves the creation of a comprehensive scaling roadmap. It’s often surprising to find that companies meticulously develop product roadmaps, yet neglect to formulate a parallel plan for scaling their operations.

The following steps and visualizations can serve as a starting point for your own roadmap development:

First, pinpoint the specific (sub)departments that will be the focus of your scaling roadmap – for example, the sales department.
Next, brainstorm the various maturity levels for each (sub)department, based on the six dimensions previously discussed.
Identify the key drivers that propel each stage of maturity.
Determine the desired maturity level for each (sub)department within the next 18-24 months.
Finally, outline the specific actions each (sub)department must undertake.