Growing a company while utilizing resources efficiently is a challenge all businesses face. Consider the following two scenarios and approaches for companies with similar objectives.
Hannah and David are both actively growing successful tech companies with similar goals. However, each has decided to take a different approach to drive new revenue for their sales and marketing initiatives and optimize the resources allocated to reach their objectives. For background and context:
Hannah is responsible for driving the sales and marketing function of a successful public/listed company.
David runs a well-funded award-winning start-up and has raised considerable funding that will allow him to invest aggressively to grow and scale quickly.
Both of these business leaders know that their internal stakeholders have high expectations. Tasked with similar objectives that include:
- Growing their current customer base
- Looking for customers in adjacent industries
- Marketing their solutions to foreign markets
David decides to quickly start recruiting a sales team. He knows that employing an in-house team leaves him in control and is best for the company over the long term. He will not have to hand out sensitive information and will be able to monitor the activities and sales processes in each market. David decides to invest in a whole new team of marketing and sales specialists to organize his company’s successful growth in various European countries.
There is a running joke in business; the more funding you have, the more you have to waste. David spends the next few months hiring, onboarding, and training his new team members to set the company up for success against the race of the clock and burn rate to realize revenue goals set out by investors.
Fast forward one year, David has managed to secure some deals and attract new customers in new locations throughout Europe. He had to lay off some of the staff because he wasn’t happy with their performance. Some did not know their regions well enough to succeed; others were not selling or producing the way he hoped. It took many stressful days and nights of overspending on resources to make everything work, leaving him wondering if there could have been a more efficient way to approach his companies’ growth that he could apply to move ahead. His investors are not thrilled with the performance, but he plans to recalibrate his growth plans to ensure more ROI in the next rounds of funding if they can attract more.
Hannah took a leaner approach to expand her companies’ footprint in Europe. She knows building a team specializing in different regions in Europe will take time and reap the long-term rewards and will pay off if it is done sustainably and strategically without wasting unnecessary funds.
Rather than spending weeks and months recruiting, training, and organizing new internal teams, she quickly starts working with local experts to secure a few high-profile deals with the assistance of those who know the local business culture. She makes some strategic bets before going all in, proving local product-market-fit during the process.
Over the course of her first year, Hannah learns what kind of team she wants to build and where. She also gains a deep understanding of which part of the business she wants to keep outsourced based on the feedback and performance from a test and learn approach in-market. Hannah was smart enough to realize that the local competitive landscape and cultural implications would ultimately influence their results. Therefore, she relied on some experienced boots on the ground in each market to gauge where she should place bigger bets with her future budget allocations.
What are the key takeaways that we can learn from Hannah and David’s experiences driving growth and spending resources to expand their brands in new European regions?
Utilize Resources with a Test and Learn Approach Before Going All In New Regions
Successfully gaining access to additional funding is exciting for SaaS and tech founders looking to make their visions a reality to grow and scale their companies globally. However, utilizing the investment and achieving the forecasted goals you presented to investors and shareholders can present new challenges (and new stress) once the funds hit your account.
Funds are meant to be spent, but securing ROI is always critical.
Investors or other stakeholders are generally looking for a fast return. There is little room for mistakes that can be fatal to your company. Too much funding or misallocating funds can potentially lead to the demise of a company, whereas the purpose is to realize the true potential. Here’s what we recommend at LaKlas to address this pivotal transitional period.
High Valuations Are Good: Solving Your Customers’ Problems is Better
A high valuation is exciting but can easily flop and dissolve into the abyss if funding isn’t employed efficiently and strategically to drive growth. A high valuation comes with a higher degree of responsibility. Many successful bootstrapped companies have grown without external funds, whereas other award-winning companies may not be around anymore. How many award-winning start-ups are still around in your region today?
Market research, strategic planning, and strong financial controls need to be in place to ensure that the growth and risk are managed as efficiently as possible. Poor decision-making can vaporize funds. Banks, VCs, and shareholders all have different levels of patience waiting for results and ROI on the investments made, and it usually isn’t in your favor. Many founders do not have the financial acumen to steer the direction of cash flow planning and fundraising adequately and should bring in this support as soon as possible.
Enlist the Right Local Talent that Understands Different Markets or Brings Relevant Functional Expertise
Bringing the right talent in at the right time is critical. Whether that means leveraging the contacts and local market knowledge of local experts or growing a team in-house, founders need people with solid backgrounds in specific functions to help scale and build the necessary human capital infrastructure. Letting go of underperformers quickly while hiring CFOs and accountants early on can make or break the balance sheet performance.
You Can’t Throw Money at Underlying Problems
Raising too early before local markets have vetted the product can lead to a lack of product-market fit and unnecessary cash flow risks. Growing companies need to have business infrastructure plans to avoid that growth will be based on shaky grounds. Strategic planning prevents reactive decisions. As part of their due diligence, investors want to see that the team will have the skills required to manage the company’s funds effectively and run its resources efficiently. This requires strong internal controls and reporting for transparency.
A Sales Funnel and Process Can Facilitate Scaling the Business
There is a term in Germany called the “watering can principle.” If you spread your funding without focusing on certain key areas, you will end up with less by spending more. Similar to the law of diminishing returns, scale requires repeatable traction based on repeatable systems and processes. Like building a new home, you need to build on a solid foundation. Scaling operations should only occur once you have mastered what you know already works and can be duplicated again and again.
Employing an in-house sales team makes sense when the aggregate lifetime value exceeds what you end up paying as compensation. The financial risk increases at the rate of new people you employ. With each sales rep that fails to deliver their performance expectations, you may lose money.
Working with an agency can mitigate this risk at the earlier stages. Companies can benefit from external expertise while, at the same time, you can build your team around areas and industries that are vetted and proven to work. Your agency will represent your company and can be a great bridge during this transitional time.
Have an Emergency Fund in Place in the Event of Unforeseen Events or Crises
Knowing your monthly net and gross burn rate and how many months you have left on the runway helps to forecast unforeseen events and manage cash flow. Strong accounting practices can help to manage finances and provide snapshots of different scenarios based on performance. This allows for contingency planning for best and worst-case scenarios; there are no guarantees that you will get more funding or another chance, so make the most of it while you have it.
Don’t Get the Lights Turned Off Before Their Time
Investors can potentially turn off the lights when targets aren’t met and basically disassemble a company that doesn’t reach aggressive goals. Gaining access to funding only means that the pressure to succeed is higher. The executive team’s responsibility is to ensure that the funds are efficiently employed, so the company uses the resources for what they are intended for: Securing business growth. Revenue will never keep up with overspending. Exercising prudent financial, operational, and management control is critical!
Spending wisely from the onset will put you on the path for more support and funds to continue. If you need help scaling your business in Europe and would like the assistance of local experts that can help you win key accounts, contact LaKlas today to get started.
