Demystifying Revenue Leadership: The Role of a CRO in Differing Stages of a Startup
The role of an early-stage revenue leader, or CRO varies drastically depending on what stage of life a company is in.
What a head of revenue does day-to-day at a large, public company with thousands of customers is very different from what a first sales hire would do at an early, or growth-stage company with no, or very few customers.
Before I describe the role of a CRO or revenue leader, I want to more precisely define what a startup is, how it is different from a larger, more established company, and then provide some definitions of the various stages of business growth.
What is a Startup?
Startups are not smaller versions of big companies.
They are temporary organizations set up in search of a sustainable business model.
The founding team has a limited amount of time to figure out if they can turn hypotheses (guesses about what might work) into known variables. In the beginning, there are many unknowns:
- What will the product or service be?
- Who will we sell it to?
- How should we price it?
- How will we make money?
- How should we market and sell the product or service to the market?
…and many more.
The job of the start-up team is to talk to customers and develop best guess answers to these hypotheses. Their first attempt at “the answer” is referred to as the intended strategy. The team should conduct experiments in a deliberate way (called the deliberate strategy) and determine what proves true. Along the way, they allow new insights (the emergent strategy) to shape their approach until they develop their realized strategy.
The Paradox of Growth
Many startups will operate as small businesses that rely solely on the work output of the founder (for example, consulting businesses). However, most of the startups that we see popularized in the press require the work output of additional, specialized team members to execute on larger opportunities eg. A technical skillset to build, sales specialists to sell, support experts to service customers, etc.
For the purposes of this series, I will assume that the company has ambitions of growing into a larger company (scaling up) and will therefore aim to grow revenue by adding more customers, and staff to support that growth.
With each additional team member comes added complexity and overhead that must be funded either by the cash generated from sales (paying customers), or from outside investment.
Outside investment typically comes with an expectation that invested capital will deliver outsized returns at some point in the future. Most venture investments will goto $0, which means that the winners must win big to make up for the losses.
Entrepreneurs who take on investment capital encounter a paradox: they face pressure to grow, and yet need to exercise patience in order to find product market fit, and a sustainable business model (customer retention + favourable unit economics).
This paradox leads to an intense, uncertain, and constantly changing, and turbulent work environment aka “the startup grind”.
Not All Startups Are the Same
We tend to label any pre-IPO company as a’ start-up’, but the reality is that start-ups have unique phases, and the demands on the team are different based on the phase that the company is in.
I did some homework to uncover how credible experts label the various stages of company growth and summarized them in the image below.
Using a race analogy, I applied some labels to each of the phases:
A start-up company doing less than $1M in annual revenue is considered “early-stage”. At this stage, companies are making the transition from 0 customers to their first few paying customers and starting to answer questions around product-market fit (PMF) to decide if there’s a real business opportunity.
Beyond $1M in revenue, and your first few paying customers, the startups has likely proven some of its initial hypothesis and the team is laying the groundwork for a more repeatable, predictable business model and go-to-market motion. Founders may consider bringing on a first salesperson, and building out a more standardized, scalable product.
Things start to accelerate here, and often big cheques get written based on proven early hypotheses. Whatever systems and processes were used to get to this stage need to get completely overhauled, and the go-to-market (GTM) motion needs to get nailed down before adding fuel to the fire.
With a GTM motion, and PMF nailed down, it’s time to make sure the laces are done up tight and sprint. Unit economics are well understood, retention and usage numbers are proving out, roles become more specialized, and if you were running before ,it’s time to sprint now.
At this stage, it’s difficult to recognize the company from the crawl or walk stage. Often the team has changed over, processes are overhauled, new systems and technology are implemented, and a more experienced and specialized management and operating team has been supplanted.
With these phases defined, my next article will transition into a discussion about the role of a sales or revenue leader at each.