EP. 16: The 3 stages of growth
Is your growth strategy working? There are few questions as important. In this episode of InDemand, Asia Orangio, founder of DemandMaven, walks through the three stages of growth, and the key actions for assessing and planning for improvement from each stage.
Understanding where we are at when it comes to growth will help you know where to focus and what next steps make the most sense on your growth journey.
- 2:30 – The three stages of growth – These are distinct stages, but they’re not mutually exclusive. You can have one foot in one and another in the other
- Going from zero growth to some growth
- Going from some growth to fast growth
- Going from inefficient growth to efficient growth
- 4:00 – Going from zero growth to some growth
- This stage is likely the easiest to measure. Simply your M.R.R. (monthly recurring revenue) is not growing or it is growing very slowly
- This usually means that something in your funnel isn’t working. We can assume that either the top of the funnel or the bottom of the funnel is off and that something isn’t aligned strategically. This is a signal to go back and look at if the product, the market, or the positioning within the market.
- 8:50 – Going from some growth to fast growth
- In this stage you have some growth (2-10%) but are looking at how to improve that growth to get to exponential growth (100% or more)
- At this stage it’s about a tight sales and marketing funnel that is working well, having low churn, and expanding to scale. Looking at what you are doing at the top of the funnel and looking at the activities you can do to expand the top of the funnel quickly
- Usually, to make this jump to very fast growth, there is some type of growth loop involved. Some way for clients to recommend, invite, or refer others so that one client can turn into 3,4,5 other clients
- 16:35 – Going from inefficient to efficient growth
- This stage is usually associated with having relatively strong growth, but it is costing a lot. The cost of acquiring customers is high relative to the lifetime value of the customer
- When you think you’re here, the first step is to really get solid on your KPI’s so you can identify what is and isn’t efficient.
- There are obvious places to look, like churn, and there are also less obvious places, like your pricing and plans.
- 2:30 – The three stages of growth – These are distinct stages, but they’re not mutually exclusive. You can have one foot in one and another in the other
What’s up founders! And welcome back to the In Demand podcast where we talk all about how to reach your first $1m ARR. I’m your host Asia Orangio and I’m the founder of DemandMaven where we work with early-stage SaaS companies on reaching their very first growth milestones.
Today, we are going to talk about the three stages of growth. The reason why I wanted to chat about this is because more often than not, whenever I have a conversation with a founder, who’s in those earlier stages of growth, we inevitably talk about where exactly they are in their growth journey. And so much of that growth journey has everything to do with what kinds of results you can expect from marketing, from sales, from any growth effort and at the same exact time. So much of where you are also impacts what you’re reasonably going to be able to accomplish, to measure so on and so forth, and really acknowledging and understanding where you’re at in that journey and what those stages of growth are and where you might be more mature in some areas and maybe less mature in others. This is going to be incredibly helpful for really establishing what needs to happen from a strategic perspective.
And then also what needs to be established from an execution perspective in order for you to meet the goals that you’re hoping to achieve. So whenever we’re thinking about early stage SAS companies, and when I say early stage, I’m going to put early stage in the general category of less than 1 million in ARR and purely because it just really depends on of course, how big of a company you expect to get. Um, but I’m assuming that at some point, the business will be worth much more than that. If your total adjustable market is much smaller than that, then the, I mean, to be honest, the rules don’t really change, or at least the structures don’t really change. It changes far more when you get into the 10 plus million, the hundred plus million and so on and so forth. So that’s where things really start to expand to get even more complex, but it will, but less than that, I would say these stages of growth are still very applicable.
So first I’m going to break down the three different stages of growth, and then I’m going to get into what to actually do in each of these stages. The first stage is going from zero growth to some growth. The second is going from slow growth to fast growth. And then the third is going from inefficient growth to efficient growth. What’s interesting about each of these stages is that a business can technically be in one or two of these at any given time. These are not necessarily mutually exclusive. And you’ll also find that while these are really distinct stages, it is still possible to be in between one or two of these and to have your one foot in one of these. And then another foot in a previous stage from a demand may have been perspective. So from, from my perspective, and from a consulting perspective, it’s pretty critical for us to know which stage the businesses in at any given time.
That way it helps us not only set the right expectations for what’s possible in let’s say a three-month strategic engagement, but it also really helps us focus in on what business functions need to actually be adjusted in order to reach these goals. And also just to complete the full growth picture because each of these stages have their implications on what needs to happen. That’s something from a consulting perspective that we’ve got to be prepared for. So part of our job is really identifying what stage of growth is this business, and let’s start with going from zero growth to some growth. Okay? So this stage is probably the easiest to measure because you can actively see that the MRR is not going in the direction that you want it to go. It’s not growing at all, or it’s increasing by barely a percentage or two.
It feels very much like a flat line when it comes to growth. What’s interesting about this stage though, is that it does imply that you’re still acquiring just enough customers where you are still offsetting any churn that you might be experiencing, but overall it’s a flat line. It’s not growing at all. And if it’s not growing at all, it could also just be extremely, just snail pace growth. We can, we almost can hardly call it that because it’s probably not even a percent, maybe 2%. So here’s what we do in this stage. The flat line is pretty easily measurable, but it usually means that something in the funnel just actively isn’t growing and part of the magical equation of SAAS, especially if you’re a much more genomic hit stage traditional SAS. But if you’re a pure SAS and you have a monthly recurring revenue model of some kind or something, subscription-based, then we know that we have to continuously add more customers to the top and also continuously retain more and more customers, and also continue to convert them at a really efficient rate.
We can assume that either the top or the bottom is probably not operating as well as it could. It’s not expanding in some kind of way, whether we’re not adding enough, you know, net new free trials or demos, or what have you, or it could also be that we’re just not retaining enough. It really depends on the different ends of the spectrum, but something in the funnel overall is relatively broken and the keyword or mantra here, if we were to add something to really focus on, if you’re in this boat is to plan. Typically when we see really like extremely slow minute growth or absolutely zero growth, even down to decline, it means that something is amiss strategically. It usually means that we haven’t been making the right bets from a strategic perspective, and we need to realign. If we find that we need to realign, it’s, it’s likely in a really big area of the business nine times out of 10, probably it has to do with product.
Sometimes it has to do with the market. And then also sometimes it has to do with the positioning in that market. It could be a combination of all of the above, but these are all really big strategic bets to understand, and then to therefore make. And so when we see zero growth decline, even this is when we really need to take a step back and really look at the bigger picture. And I use the word plan here because there is something that we missed. There’s something that wasn’t aligned and it could actually be many different things. And I, and usually it’s several different things that are kind of all impacting growth at the same exact time. Usually that means that we’ve got probably a big, a few very big tasks to take care of or to do, and to really think about what the strategy is going to be moving forward.
And it’s a lot of heavy lifting for sure. And then on top of that, we have to actually execute against whatever it is that we decide in the end. And again, if you’re here, I would very much challenge you to take a step back and look at the overall business vision from product all the way down to how are we tactically executing across all of the different departments in the business functions of the business, whether you’re just a solo founder or whether you’ve got, you know, 50 people on the team, whichever one, this is where something has to shift. And nine times out of 10 usually is very strategic. And then from there we have to figure out, okay, are we executing against this strategy as best as we possibly can? And if not, what needs to actually change for us to do that? So if you’re in this stage, there’s again a really good chance that we need to do a lot more strategic work and then therefore plan to execute against that.
I definitely advise and recommend just taking a step back and looking at the business or the product, whichever one with as fresh of eyes as you possibly can, and also to not be afraid to really start to measure things and to really start to understand both qualitatively and quantitatively where things might be missing the Mark, where things might be broken, or if it’s not broken, it’s not happening or expanding enough. The next stage is going from really slow growth, too fast growth. This is where we might actually be growing, okay, but we want to get to the fast growth. So maybe we’re only doing 2% or 5%, 10%, but we would like to be in the 2X. So this is where we jumped to the 100% growth or the 500% growth. In some cases, this is where we start telling the 2X, 3X, 10 X story, which might honestly make you groan.
If that is not the way that you like to think about growth. And that is something that’s exciting for you. The next section is going to be for you, especially if you are actually in this stage, this is where MRR goes from percentage growth to multiplier growth. And this is where we start telling that story about 2X and 4X and ect. The keyword, our mantra here is to really focus on expanding as much as possible. So before we talked about how do we plan this one is expansion by definition, what are the activities and things that are going to bring us scale and scale in acquisition scale and retention. I mean, wherever we can really put our efforts and focus, imagine doing that, but, but even bigger than maybe what it is that we’re currently doing, slow growth itself is obvious. So it’s, you know, it was probably not super hard to measure this.
Here’s what we’re going to do. If we want to go from this slow growth that we’re experiencing. And again, this could be that 10%, 20% that might actually be really fast for some of you. But if you are VC funded, for example, a 10% growth or 20% growth, probably isn’t going to cut it at the end of the year. My guess is especially depending on the type of funding that you’ve taken on, you’ve got to look at like, you know, what is 2X and 10X growth look like? What is, what does that look like based off of you know, just what we’re currently doing in the market that we have so on and so forth. So what we’re going to do is if we’re experiencing this, if we’re kind of in this camp, it usually means that something in the funnel, again, just isn’t expanding enough.
It’s very possible that top of the funnel is really struggling. We’re not getting enough people, either booking demos, starting a trial, creating an account, whatever that activity or conversion point is. And it’s also not happening at a scale that we need in order to accomplish our goals. And so this is really where it becomes about not just strategic alignment, but execution really becomes important if you are in this stage, the ability to execute on many different strategies and channels, and in particular ones that actually align with your business vision and the product in the market, these can’t be willy-nilly strategies like obviously have to be aligned. But the goal here is to really focus on, okay, what is it that we are not growing enough? And then what needs to happen to grow the crap out of that? And not just like small beans, but like big beans. We want this to be as expansive. And we want to take advantage of as many of the opportunities that are available to us. There are absolutely channels and practices and things that do scale. But one caution I will throw to this particular group is to not forget about churn here, churn retention, there it’s actually possible to run a business where you experienced net negative churn. I’ve experienced it previously in roles where I served as head of marketing. I’m not saying it’s going to be something that is destined for everyone. However, there are ways to experience exponential growth, and it usually has to do with a combination of having an extremely efficient bottom of the funnel, including churn. We likely don’t have super high churn. We have just enough churn for it to be as efficient as possible and even potentially net negative. The other thing I think that really impacts the amount of growth that happens here is be looking for the growth loops that are available to you in your business and the product.
What I mean by that is how do you take one customer and turn them into five customers usually that has to do with referrals or people inviting others to their accounts. We see, I mean, Dropbox, I think is the example that is used a billion. And one times with the same thing can be applied, um, across many different businesses and products. It’s very possible to identify a growth loop that you might have that gets a customer to recommend or refer automatically naturally. And it could also be not necessarily recommending a referring, but inviting. So where are the opportunities for people to collaborate and then therefore invite others to what it is that you are currently, whatever the experience of the product is. And then therefore the value that’s associated with that, this isn’t something that is easily done by every single kind of product. But whenever we see extremely high growth that exponential growth, sometimes not always, usually however, there is a growth loop involved in some kind of way.
There’s something about the inherent nature of the product that makes it really easy to share with other people to expose publicly in some kind of way. I think a great example of this is if you were to think of like a mural board, for example, every time I share a strategic roadmap in mural with a client and they invite others to leverage that they have gotten exposure now to the product itself, they’ve gotten exposure to mural. So in a way I’m a customer of mural. I am part of murals functionality is to collaborate with others and to share boards. So in a way, a very natural inherent growth loop just within the product itself, again, not always possible for everything. There are some products and subscription-based software companies that that’s actually really hard, maybe even impossible to do, but I would encourage at least some kind of referral program or something’s out effect on the backend as well.
That’s where we start to see exponential growth. There’s a few other ways that you can think about exponential growth, whether that’s really scalable sales practices and then really scalable marketing practices as well. And then of course, business development and partnerships. So this is where we start again, getting into that higher level strategic planning and also decision-making and what are the opportunities, just identifying the opportunities that are in the market today that bring you that sense of scale. That’s also something too to be thinking about, but again, if you are in that bucket of the slow growth to exponential growth or the fast growth, you want us to be fast, we need to be thinking scale, but then also what are some of, what are some of the things on the bottom of the funnel that impact the growth in the customer experience overall? How do we ensure that customers are actively recommending and referring it to others?
The product has to be great. That’s probably, um, something that is already known, like it’s obvious, but is it so great that people recommend it to others? And this is something too that you can start to grow on the opposite end of the funnel as well, where customers B get more customers. And that’s a really powerful growth engine as well. And when both are operating on all cylinders, then it’s pretty natural to see that no, the 10% growth become the two X growth and that’s also incredibly powerful. Okay. So finally, the last stage or phase going from inefficient growth to efficient growth, okay, this one is one where I find the business is probably growing fairly well already. They’re doing a great job actually. And they might be in that, you know, two X, 10 X growth camp. They might also be in the 30% growth camp.
And that’s honestly perfect for them, especially if they are a very big business and they are far more mature, it’s possible. However, that the growth that they’re experiencing isn’t as efficient and inefficiency to efficiency. This is something where we can certainly measure this in some ways, but some indicators of this for example, are the CAC to LTV ratios could be really low, meaning we’re not, we could be under spending when it comes to customer acquisition. We could also be overspending when it comes to customer acquisition, when directly compared to the lifetime value of those customers, we might actually have really low activation rates. Our churn might be high, but at the same exact time, however, we seem to be acquiring new users and customers just at a breakneck pace. And that’s awesome. But sometimes there are some core KPIs in the business that might not be as efficient as they could be the businesses growing again, but it might not be again as effective or efficient as what, at least from a SAAS perspective, we’ve identified to be relatively well-performing.
I’m going to put that in a finger quotes because there are some businesses that perform extremely well. And it’s actually really hard to compare one businesses, KPIs and metrics to another’s and you come away with the same exact conclusions. I think the reality is that we’ve got benchmarks when it comes to the SAAS world and they serve a great purpose, but they aren’t always necessarily the only truth. Okay. So here’s what to do in this scenario first. It absolutely completely depends on what we would consider efficient, putting out a finger quotes versus what is not efficient. And honestly, one of the only ways to really identify that is to work with, let’s say, a chief revenue officer or someone who can really start to measure and define based on your own businesses terms, what is truly efficient, everything from what, what is the overall cost of the software?
What is the dollar value that you get back from that? And how do we maximize that as much as possible? This is where we get to the nitty gritty details of everything from how much has it even cost to sell the software versus how much we’re at, or actually gaining back, like, what is the actual ROI value on every dollar that we’ve gained versus what we spend? I mean, it can get pretty nebulous here. And even this is where I would say working with, like a CFO or a CRO would be highly recommended if you have that available to you. But typically if you’re in this stage, you’re looking for how to maximize revenue potential and decrease any potential losses that you might have. And that can sound really, really conservative fiscally, but it certainly implies that we’re making, we could be making really tactical decisions based off of that.
And we could also be making really strategic decisions based off of that. So if you’re looking to get more efficient, when it comes to the growth that you’re already experiencing, there’s really obvious places to look like looking at churn revenue, churn, use return, et cetera. And then there’s also may be less obvious places to look at such as the pricing plans that you have and how much of the average revenue per user you’re actually getting or average revenue per account you’re actually getting. And then of course taking look at no expenses versus the income you’re generating and it can go even further and deeper than that, if possible. And then from there you really decide, do you make decisions? Is there anything to execute or to decide that’s rooted in the product and the market itself in the model that you’re currently leveraging. And then also even potentially the channels that you’re currently investing in, especially if, for example, you find that your CAC to LTV ratio is actually really inefficient.
There’s a number of KPIs metrics, et cetera, that you can use to identify that. And then of course there are some steps that you can take to remedy that and to make it even more efficient, sometimes growth isn’t necessarily how much you can fill the funnel with sometimes growth actually happens elsewhere in the business from an operational perspective, a financial perspective, there’s all kinds of different levers that we can pull when it comes to growth and part of the CEO’s job or the founder’s job is to identify those or to work with someone or some people who can help you identify those. Okay. So we covered the three stages of growth. The first growth was, or excuse me, the first stage was going from zero growth to some growth. Then there’s going from slow growth to fast growth, and then finally inefficient to efficient growth.
As always thank you so much for spending this time with me to learn more about how to reach your growth goals for your SAAS business, head on over to demand maven.io. You’ll find all kinds of free resources, articles, and content. Don’t forget to subscribe if you haven’t already and I’ll see you at the next one. Let me know what you think. I am always available on Twitter, @AsiaMatos. Thank you so much again and have an awesome day.