$100M ARR doesn’t happen overnight. Founders are responsible for ensuring a startup always has enough money, setting the vision for the company, and driving things forward.
It seems simple enough, but it’s not always easy, as founding CEO and co-founder of LaunchDarkly, Edith Harbaugh, learned firsthand as she took the company from zero to over $100M.
Harbaugh shares the top 10 lessons she learned going from $1M to $100M (0-$1M is an entirely different phase) in the hopes that founders will be able to recognize pitfalls they’re about to make or for those who have already made them to know they aren’t alone.
Lesson #1: If You Aren’t Making Mistakes, You Aren’t In A Startup
If you do things that always work and maintain the status quo, you’re likely at a major company like Microsoft. Startups experiment and make mistakes.
After LaunchDarkly got their series A, things took a turn. They hired their first VP of Sales with a wonderful pedigree and experience at some of the hottest startups.
But as you can guess, it didn’t work out.
After three months, this talented guy came to Harbaugh with the recognition that LaunchDarkly’s customers were developers. He didn’t like to sell to developers, so he quit.
Harbaugh had to sheepishly go to their new board member and tell them that instead of achieving their forecasts to go from $1M-$5, they’d be lucky to eke out $1.5M because they needed to rebuild the sales team.
The best piece of wisdom Harbaugh received during this time was, “Everything is up and to the right if you zoom out.”
And it was true.
They rebuilt the sales team and closed some big deals.
The lesson — Don’t hire someone just because they have a great pedigree. Dig deeper and ensure you have alignment on what you want and that they are clear about what they’re walking into.
Lesson #2: If You’re In A Fast Growing Company, Expect Big Changes Every Single Year
If you’re going from $1M to $100M, you’re doubling and tripling in size every year. A lot of people are uncomfortable with that.
A mistake LaunchDarkly made in its early days during the transition from seed to A was hiring a lot more people, and some of those seed days people didn’t like the new company.
A 25-person team is a lot different than a tight-knit 8-person team, and the changes resulted in a lot of turnover.
Harbough received a frantic call questioning the high turnover rates as they were trying to get their B together. She immediately turned her attention toward culture to minimize turnover.
The lesson — Your company is growing rapidly, and if you aren’t prepared for it, you could experience a high turnover. Pay attention to culture as you grow. If you don’t, it will run away from you.
Lesson #3: Revenue Is Funding
It’s harder and harder to raise money, and startups need to have more revenue. VCs can be fickle about what they fund, but if you have revenue, you have more leeway for when you take an investment.
For example, Harbaugh was invited to a meeting with a VC and was told it was just an informal meeting to learn about the company.
Well, it was actually a partner meeting, and she was completely unprepared. They were expecting a polished pitch, and all Harbaugh had were rough slides and expectations for workshopping and feedback.
Unsurprisingly, she received a call that they weren’t going to fund. She vowed to do 10x better next time.
The lesson — Always pursue the path of having revenue. It might just save you once or twice.
An extra lesson — If you take a meeting with a VC, always be prepared. Have a deck, numbers, and a polished pitch, even if they say it’s an informal meetup.
Lesson #4: You’ll Hire Different People At Every Phase Of Growth
People at $1M want to build the machine. People at $50M want the machine running already.
At $1M, $5M, $10M, $20M, and $50M, you’ll hire completely different people.
Be clear and careful when interviewing people about what they actually want. Startup gets thrown around a lot, but its needs change at every phase.
Some people might want free massages and bikes, and they’re actually looking for companies like Google, not a team of 15 with a refrigerator that makes a ton of noise.
The lesson — Be careful about the expectations of the people you’re hiring and the infrastructure they expect.
Lesson #5: Executive Recruiting Is Worth It… Sometimes
You have a role to fill and hired an executive recruiter to help. A good executive recruiter is like a real estate agent or matchmaker.
A good one knows who’s in the market and available; even if they aren’t advertising they’re available.
A bad one can torpedo you.
At LaunchDarkly, they found a good candidate for a position but found out later that the candidate almost didn’t join because of high-pressure tactics from the recruiter.
Another common pitfall to watch out for is executive recruiters sending along candidates who are out of your price range.
A good recruiter is worth it. A bad one is not.
The lesson — As you seek out recruiters, ensure they’re aligned on how you close with candidates.
Lesson #6: Delegate Time-Consuming Tasks As Soon As You Can
Harbaugh was guilty of holding onto responsiblities for too long. For example, she was running models and spreadsheets up until B round. In her mind, it wasn’t a huge overhead and took a couple of hours a week.
But she later realized it was a big drag on the org. Those two hours could have been spent doing other things, and a full-time finance person can do a lot more work to move the needle.
Founders waste time doing administrative tasks when they could be on the phone with customers.
The lesson — As soon as you start growing, look at where you’re spending time and decide if you’re the best person to keep doing it. Try to get leverage wherever you can in your own tasks, and don’t hang on to things for too long.
Lesson #7: Pricing Has No Right Answer
“Pricing can be a total time suck because there’s no right answer,” Harbaugh says.
LaunchDarkly attempted a cheap and cheerful pricing model through a click-through agreement initially, and it didn’t go over well for two reasons.
- Once you anchor someone to a price, say $15 or $50, it’s tough to move them from that price. You have anchored them for life to that product being worth $15 regardless of what other customers are paying.
- Signing up with a credit card seemed like the path of least resistance, but everyone still wanted a salesperson and a custom contract. Cheap and cheerful meant underselling themselves.
If you’re in an enterprise sales cycle, people expect to pay for a premium service at a higher cost. They expect it to go to procurement and get knocked down by 10%.
So always ask for more money right out of the gate.
The lesson — Underselling can be just as bad as overselling. There’s no right answer when it comes to pricing, so think about what value you are providing to customers and what the perceived value is.
Lesson #8: Always Keep Creating Category
When LaunchDarkly started in 2014, there was no such thing as feature management. Harbaugh knows because she created the term.
Back then, it was a different world. People compared them to Optimizely, a company that did on-the-fly experimentation with A/B testing.
When competing head-to-head with Optimizely, it flopped. They sold to marketers, and LaunchDarkly sold to developers.
At a time when they thought experimentation was popular, it actually wasn’t.
People weren’t experimenting. They were struggling with basic releases. So LaunchDarkly pivoted to feature management.
Now, in 2023, there’s enough experimentation in the market to make it more viable.
The lesson — Keep creating category because the world is constantly changing. It might not be ready for what you’re offering at this exact moment, but it might be a year or two from now.
Lesson #9: Don’t Be Afraid To Change Your Values
One thing LaunchDarkly did when moving from seed to A was write down their values. With just eight people, everyone knows what’s happening. But as you hire more people, writing things down is important.
Some of LaunchDarkly’s values included:
- Learn and grow. If you aren’t making mistakes, you aren’t learning.
- Respect for community and customers.
- And finally, work is not life.
That last one felt clunky to Harbaugh, but they kept it.
Over the next 3-5 years, that “work is not life” value became problematic.
They intended to have a company where people aren’t working 80 hours per week to have a life and children outside of work. Unfortunately, people started weaponizing it as a reason not to perform optimally.
After five years, they finally refreshed their values and hired a consultant (see Lesson 6).
The lesson — Don’t be afraid to change values. If something isn’t sitting right, change it. Your values can inform and influence your company culture.
Lesson #10: There’s No Right Playbook, Only Play Pages
All of these insights are play pages out of a bigger playbook. Every company will have a different playbook because every startup is different.
Many tactics that didn’t work in the past might work now, and vice versa.
If you’re interviewing or thinking about your company, it’s tempting to say, “I want to run the Box or LaunchDarkly playbook.” But in reality, the right playbook is just a bunch of pages you’re tearing out of other startup playbooks.
The lesson — You have to gather what has worked for other companies and reassemble them into something that works for yours.
The path to $100M ARR for LaunchDarkly had a lot of ups and downs. For founders looking to assemble their own playbooks, the takeaways include:
- Everything is up and to the right if you zoom out.
- Big changes happen every 6-18 months.
- Revenue is its own funding.
- Hiring changes over time.
- Value your time and get leverage.
- Good executive recruiters are worth it.
- There is no right answer to pricing.
- Creating category takes constant effort.
- Refresh your values as needed.
- There’s no playbook. Just play pages.
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- Source: https://www.saastr.com/top-10-mistakes-getting-to-100m-arr-with-launchdarklys-co-founder-edith-harbaugh-pod-668-video/
