5 growth lessons we learned while scaling from $2M to $3M ARR

Every million dollars added to your annual recurring revenue (ARR) feels like another World Cup kick that lands on target. The reality is that it usually takes many on-target goals to scale through every additional million, and these do not get any easier.

I’ve worked diligently to not only keep track of all the lessons I learned while scaling my startup that I co-founded two years ago, but also to share them with you. In a previous article, I discussed what I learned during my $0 to $1 million ARR journey. This one will be no different.

While it may seem that not much changes between each successive million, you would be surprised at the mistakes one can make in this latest stage of startup growth. I’ll share why hiring earlier is frequently better, why consistently allocating 10% of revenue to marketing throughout your expansion is key, and the importance of strategic partnerships.

1. Don’t wait too long to hire experienced talent

Apart from select software startups, it is no secret that as you scale up, it becomes necessary to increase your staffing levels. I learned this lesson during my own startup experience and unfortunately made key hires too late, leading to stagnation in our growth as the team quickly became inundated with too much work.

You must keep track of everyone on your team and their bandwidth consistently during the high-growth stages, because workloads can vary dramatically month to month, and even week to week. At my startup, we weren’t doing this. Some individuals on the team were assigned tasks that should have realistically been shared by at least three employees, which inevitably led to errors and lost clients.

In addition, hiring experienced talent that has already accomplished what you’re seeking to do is vital and should occur as soon as your cash flow allows. The moment we made hires for our C-suite was the moment we had began to break through numerous plateaus of growth, as their experience pushed us forward. When possible, make these key strategic hires sooner than you might otherwise realistically think you need to.

As a gauge on hiring for your team, ask yourself the following two questions:

1. How is the weekly bandwidth of everyone on our team?
2. If we brought on X hire, how much faster would our growth be?

2. Set aside 10% of net revenue for your marketing budget

As our CMO, the budgeting for our marketing team falls directly under my domain. I am a firm believer that 10% of net revenue should be applied directly to marketing expenses. This includes paid acquisition spends, influencer deals, blog content writing and tools.

In B2B specifically, if you constantly spend the same amount while revenue is increasing and everything else stays equal, you won’t have enough volume to support the sales team. For example, we spent the same amount for six straight months, even though our revenues had increased 50%, leaving our sales team with the same lead volume.

We expected to continue driving more closed deals, but that was a huge misconception as marketing spend stayed the same.

Percentage of marketing spend should move at the same rate as revenue. Image Credits: Jonathan Martinez

Make sure that you have a clear directive within your startup on what percentage should be allocated to marketing each month to avoid stagnation.