How to get past $1M ARR

I work with a lot of SaaS founders at different revenue stages.

I’ve also been at the early stage startups many times. Often the first employee hired outside the founders.

I remember my first job at InNetwork (influencer marketing software). I walked into a boardroom on my first day where we were reviewing a PDF mock-up of what the product would be. We didn’t even have a software yet.

I’ve seen what works for getting your first few customers. What happens after you’ve landed 10 customers. What you need to do to get to 100, then 1000. I’ve been at VC-baked startups. I’ve done an IPO.

At every stage of these companies, there were clear actions we took to get it to grow.

And when growth stalled, it was because we were focused on the wrong stuff, usually 2 stages above us.

In this newsletter, I’ll walk through the different milestones to work through as you get from $0-1M ARR and beyond. I’ll walk through what to focus on from a sales perspective. And I’ll mention some of the lessons, failures, and things to avoid.

Table of Contents

• Bad advice around product-market fit

• Problem-solution fit

• Finding product-market fit

  • Segment

  • Use case

  • GTM Motion

• When do you hit product-market fit?

• Scaling product-market fit

• Scaling beyond $10M

• Summary of stages:

• Story: LevelJump

• Story: Proposify

Bad advice around product-market fit

A lot of founders I talk to, especially those who are part of accelerators like YC or Techstars, are told to go find product-market fit.

That is never your first task. It should not be your focus until much later on.

But because you get the advice of “you need to find product market fit,” it pollutes your thoughts and actions. Often leading you to get discouraged that your startup won’t work out unless you pivot or give up.

So never start with product-market fit.

Problem-solution fit

You can’t achieve product market fit without problem-solution fit first. And that’s where most early-stage startups are. But that’s not what they focus on.

Their focus is on sizing the market. Is this market big enough. Can I get 100+ customers here. Am I venture scalable? But 100 customers isn’t important if you can’t get 1. Or 10. Or 20.

So the thought process gets muddy.

Problem-solution fit looks like this:

• You’ve identified a problem or gap in a market

• You validated the problem with real prospects (not your buddies in your accelerator program)

• You’ve had a handful of these real prospects buy your product, at any price point (not your ultimate price, but something)

• They’re happy with how the solution solves their problem and renew

This stage can take a long time. Sometimes years. Often founders focus more on the solution part than the problem part, which is a bit backwards.

Once you’ve really identified the problem, and you’ve built a reasonable solution for it, you have to sell it a few times.

You will likely get churn on your first 1-5 customers. That’s OK. Because if they paid you money, it’s a good indicator that the problem fit is right. But the solution fit is off.

So you gather feedback around what you would need to win back their business and for them to stay. Then you go change your product a bit for this.

You get them back, they’re happy. You go sell a few more. Some stay, some churn. You get feedback from happy folks on how they could get more value. You get feedback from your churn on what would make them stay.

You build more product. You go sell a bit more.

Rinse and repeat.

It’s a bit of a grind, but every startup works this way. At this stage, the only thing that matters is getting happy customers who pay you money and stay.

AND avoid hiring sales people to go figure this out. They will fail. They cannot make product decisions. Only you as a founder can maket product decisions at this stage. They will fail miserably, and you will waste a lot of time, energy, and resources.

I know sales can be scary for some founders in the early days, but it’s part of launching a business. If you can’t figure it out, nobody else will.

Finding product-market fit

So you’ve worked your way through problem-solution fit. You have some customers that are happy and renewing.

You’ve likely interviewed these customers about how they’re using your product, the problem it solves, the value they get.

You can start seeing patterns in what types of companies and job functions care about the problem + solution.

You start getting more of these ideal clients. You’re likely somewhere between $100k-300k ARR now.

Now it’s time to start working on product-market fit.

Product-market fit has 3 components:

• Segment

• Use case

• GTM motion

Segment

This is the market segment that you focus on. Your ideal customer profile should have key traits and characteristics that are replicable across companies you target.

This could be SMB SaaS companies in construction tech, for example. It’s specific enough that you can recognize it as a segment. SaaS is too broad of a segment at this stage of growth.

The segment should be large enough that you can grow to $1M in it. But small enough that it’s not generic.

Use case

At this stage, you should have a single use case. This is something I see a lot of founders struggle with. They can’t break past $20-30k MRR. And it’s usually because they’re focusing on too many things.

Your product changed, and has grown. Your customers are using it in multiple ways. And because of this, you don’t want to “limit” the possibilities. But in telling folks you can do everything, it ends up in them not really understanding how they would use your tool, which leads to slow growth.

This is usually the biggest area where if you apply focus, you’ll grow much faster.

GTM Motion

A go-to-market (GTM) motion is really about the monetization model and how you attract customers.

Do folks find your website, start a trial, then convert by adding a credit card? This is called self-serve.

Are you a product-led growth motion? This is where your product does a lot of the heavy lifting and selling through virality. Slack was a good example of this.

Are you a sales-assisted motion? Where you have folks use a free trial or freemium plan, then sales helps prospects with adoption and upsells to a paid plan. Often compliments a PLG motion.

Are you a sales-led motion? This is where the initial touchpoint for your prospects starts with talking to sales.

Are you a partner-led motion? This is where partners and resellers are the ones selling and implementing your product with their customers, you don’t have direct interaction with the end user.

Often, in the very early days, you have a bit of a blend. That’s completely fine. But when you switch from problem-solution fit to finding product-market fit, you need to have a single GTM motion that scales to $1M.

When do you hit product-market fit?

Product market fit typically happens when you hit $1M from a single segment + use case + GTM motion.

NOT when your company revenue hits $1M.

And that is one of the biggest mistakes I’ve seen from founders who try to scale product-market fit too early.

Their company reached $1M ARR, so they have product-market fit, right?

Here’s a quick story - I was interviewing for a head of sales position at a supply chain SaaS startup. They were at $1.5M ARR with two sales reps, so naturally the advice they got from investors was “hire a head of sales.”

So I probed about how they got to that $1.5M ARR:

• A large enterprise customer that was an intro from an investor was about $500k ARR

• Another $800k ARR came from a handful of customers that were either direct intros from the investors or somewhere one of the co-founders had worked in the past.

• The rest came from the two sales reps over a 2 year period. Some were inbound website. One or two deals from outbound.

• Every customer used the product differently.

• No predictable lead channel or GTM motion defined.

They were well past the $1M ARR mark at the company level. But they did not have a segment + use case + motion at $1M ARR.

Naturally, having done this multiple times in my career, I told them to go back to founder-led sales to help with the performance of the two AEs and not hire a sales leader yet. And focus on problem-solution fit + finding PMF, and stop worrying about scaling to $10M.

Naturally, they didn’t listen to my advice :). They hired a head of sales.

And that head of sales was terminated 11 months later for missing targets. Happens a lot when you bring in sales ahead of product-market fit.

A year and a half later, I caught up with them again. Fired and hired a couple more sales reps. Revenue is at $1.8M from $1.5M. So $300k of ARR growth in 1.5 years. Still no clear PMF. Looking to bring on their next head of sales again to scale revenue.

Scaling product-market fit

So once you’ve hit the $1M ARR mark in 1 segment + 1 use case + 1 GTM motion, it’s time to start scaling your product-market fit towards $10M ARR.

You do this by focusing on adjacent segments or adjacent use cases. Not brand new markets (that would force you to go back to problem-solution fit).

Can you replicate the formula 10 times over? Can you expand the segment further?

Example of adjacent segments: Let’s pretend you sell a software to professional sports companies. An adjacent segment could be amateur sports or university sports.

Example use case: Let’s pretend your main use case would be onboarding new employees. An adjacent use case could be onboarding existing employees into new roles, like when they get promoted or move functions.

Your path to $10M is about adjacent.

Scaling beyond $10M

Once you’ve scaled product-market fit, then you can start thinking about adding more motions, or more products.

You might add a second product. Or might change the segment completely. Or might launch a new GTM motion.

That will force you to go back to problem-solution fit. Don’t treat your total company revenue as a signal of success for a new PMF. It NEVER works. You will be disappointed.

The most common example I’ve come across here is with PLG/self-serve motions targeting SMB, moving into more of a sales-led motion targeting up-market.

Your success through SMB will not translate automatically to going up market. Going from SMB to Mid-Market isn’t an “adjacent” segment. It’s a new segment, with a new use case, with a new GTM motion. And there will be solution gaps.

So you start this process over again. Like if you were at $0ARR. You focus on problem-solution fit until about $300k ARR. Then you focus on finding product-market fit until you have 1 segment + 1 use case + 1 GTM in the new product-market fit. Then you focus on scaling that PMF through adjacent segments and use cases. That gets you to $20M ARR. This should happen much faster this time than the first time.

Rinse and repeat.

Summary of stages:

Here’s a quick summary of different stages in your growth:

• $0-300k ARR: Focus on problem-solution fit. Use Sell>Build>Sell framework. Don’t focus on PMF or scale at this point. Resist the urge to hire any sales people. You need ability to change the product quickly, which only the founder can do.

• $300k-$1.5M ARR: Focus on finding product-market fit. Identify 1 segment + 1 use case + 1 GTM motion. Make it repeatable. Maybe hire 1-2 sales reps here if your GTM motion is sales assist/led and you’ve been able to repeat the sales cycle as a founder. You’ve achieved PMF when you’re at $1M for the segment + use case + motion, not when company ARR hits $1M. Likely time to hire a VP of Demand-Gen/Marketing (just make sure they don’t come from brand).

• $1.5M-$10M: Focus on scaling product-market fit. Replicate the process 10 times for adjacent segments and use cases. Avoid changing/adding new segments, products, or GTM motions. This is where it makes sense to hire a head of sales (make sure they have experience at your stage with your GTM motion).

• $10M+: Add another PMF, then scale that second PMF. Repeat over and over again. This is where it makes sense to get a CRO.

Story: LevelJump

I joined LevelJump as employee #3 when they were about $220k ARR.

At that point, we were starting to get traction with problem-solution fit.

We had about 15 customers. A few were coming up to renewal. We had gone through 3-4 iterations of product evolution (not pivots, but filling gaps to make happy customers). Most were SaaS companies paying us around $10-20k annually, with a couple larger cos.

We were about to start focusing on product-market fit.

We had a very clear segment:

• SaaS companies hiring 20+ sales reps a year

• Using Salesforce as their CRM

• Has a sales enablement team dedicated to sales training (not marketing materials)

• North America based

We had identified about 4000 companies in North America we could sell to.

Our GTM motion was starting to become clear at this point:

• Sales led

• Outreach and prospecting being the primary acquisition channel

• Outbound marketing (events, emails, webinars, ads, etc.) as being supplementary channels

We were struggling with isolating the use case. We were a sales enablement platform. So you could use it for onboarding, upskilling, promotions, practice, performance improvement, product launches, event prep, etc.

Growth was slow, not because we didn’t know our segment, their problems, the solution, etc. It was because we didn’t have a clear entry point for how to first use it.

So we looked through our happy customers. And we realized that every single one of our customers deployed a sales onboarding program as their first use of LevelJump.

Our CEO was adamant for years that we weren’t a sales onboarding software. But reality was, that’s how our customers used it.

So we leaned into this use case. Made the website relevant to onboarding. Created outreach campaigns about onboarding, targeting companies with growing sales headcount + open job postings. We ran a webinar series about ramping sales reps. We went to conferences and showed folks how to onboard their sales reps inside of Salesforce. We wrote blogs, SEO articles. Did a video series. All about sales onboarding.

We went from $220k ARR to $1.7M ARR in 18 months, while bootstrapping.

The product didn’t change. The segment didn’t change. The GTM motion didn’t change. We just focused on a single use case.

I caught up with the CEO a couple years after I left. They had expanded the use cases to scale PMF. Made it from $1.7M to $8M ARR in 2 years. He thought about raising capital at that stage, but decided to sell the company to Salesforce for a good sum.

Really good success story of following the stages correctly.

Story: Proposify

Before I joined Proposify as a head of sales, the company had raised a bit of money to “scale a sales motion.”

Proposify (proposal management software) had gone from $0-6M helping boutique agency and freelance marketers with their visual proposals. It took a couple years to get through problem-solution fit. And then when they nailed it, and found a scalable marketing channel for the self-serve engine, they grew from $200k-$6M ARR in a short amount of time. Super successful, great product-market fit for that segment + use case + GTM motion (self-serve).

The big mistake happened with how they approached a sales motion. The company wanted to grow average deal size and LTV. There was natural interest from larger companies coming through inbound. But that segment didn’t buy a self-serve product. They needed demos, and needed services + help implementing.

All of the projections that were made by the founders and the board were based on company success. They used those projections for the new GTM motion. And based on this, and the focus on “scale,” they hired a VP that came from Salesforce, and built a team of 15 sales people. Gave a target of $3M ARR to add in 12 months. The team added $300k.

What happened?

So I joined and I started looking at the pieces.

First, they skipped the problem-solution fit AND product-market fit stages and went straight to scaling PMF stage. They assumed because the company was successful that this success would just translate to a different GTM motion.

So the product had a lot of gaps for going up market. No API, no SSO, no permissions and roles, no SOC2-Type 2, no integrations with enterprise tools, etc. At this stage, the founders should have tried selling the first few large deals themselves, since this was a new motion. Then they could have made changes to the product quicker. But with 15 sales people, product gaps come across as excuses for not hitting quota, instead of deeply understanding the market.

Then I worked through the sales motion. There was no repeatable process. There was no predictable lead channel. So a sales team of 15 people burned through a lot of cash.

We ended up having to downsize the team to 5. Kept a handful of reps to capture inbound demand, while the CEO, CPO and I could go validate problem-solution fit and start filling the product gaps. As we filled more gaps, we could expand the market segment. While we were doing that, I was also coaching the sales team on running a repeatable process. I was also working with the CMO to find a predictable lead channel for that segment. It took us 3 years from the point of starting this rebuild to finally get to a point where PMF was being achieved and we could start thinking about scaling PMF for this new GTM motion.

With the diluted focus on multiple use cases, multiple segments, multiple GTM motions, the growth stalled for many years.

It could have gone much faster if we had followed the stages correctly.

Let me know what you think of the newsletter! Always want to cover topics that you care about.

For more practical early-stage sales tips, connect with me on LinkedIn.

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