How to Reaccelerate Revenue Growth

With insights from Doug Adamic (CRO of Brex and previous CRO of Concur)

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There are two related parts that I will cover in this post:

1. Thoughts on the current state of venture-backed startups and importance of revenue growth.

2. Insights from Doug Adamic (CRO of Brex & previous CRO of Concur) about revenue growth and efficiency at venture-backed companies.

2024 is a critical year for a TON of companies. We should all by now hopefully recognize that 2021 was insane in terms of fundraising, IPOs, growth, etc. The year 2022 was the start of a big change to more normalcy and then 2023 saw lots of companies (startups especially) really adjust to the magnitude of the situation. But now many of these companies are in trouble and face an important year in 2024.

VC-backed software companies only make economic sense if they are growing fast, otherwise the potential returns break the VC math. Jason Lemkin wrote a recent blog post where he highlighted what mediocre growth looked like at various stages where VCs are likely not interested:

Source: Jason Lemkin

Assuming these ranges are directionally correct, there are A LOT of companies in the unfundable bucket based on 2023 results. This is why 2024 is so important. A lot of companies have been flush with cash after their 2021 fundraising, but we are coming to the point where many have 12-24 months left of cash runway. 2024 is their last shot to show reacceleration. Even the companies with ~2+ years of runway, 2024 may be the last full year results before they need to start the fundraising process.

Lots of companies are realizing this and are pushing hard for revenue growth reacceleration in 2024 by increasing hiring and spend in GTM. There are a few potential outcomes that may result by the end of 2024 for these companies:

1. Everyone celebrates because the bets pay off and the company secures another round of financing.

2. The bets don’t pay off and the company just slashed their cash runway because they added a lot of expenses but the revenue did not come. Now it’s time for a fire sale or shutdown.

3. Get incredibly lean (get to breakeven) and take your time to figure stuff out and not be reliant on VC money.

Two recent high-profile (at least in my world) stories came out this week about companies who already faced this situation. There are important lessons to learn from both:

• Airplane (a developer platform tool) likely had multiple years of cash runway, but actual results fell so much lower than expectations that they were acquired by Airtable. All companies that still have huge amounts, but have mediocre traction should at least consider this outcome — give the cash back to investors and sell what you can. (See my post Airtable “Acquires” and Kills Airplane)

• Pitch (a PowerPoint replacement) had raised $130M at a $600M valuation and announced this week that they are laying off 2/3 of their team and recapping the company.

  The below quote about the change should resonate with many.
  
  "As many of you know, being a venture-backed company in 2023 was insanely challenging. We created sky-high expectations for our business, our employees, and ourselves as founders…those expectations were simply too high."
  
  "Instead of pushing harder and harder to turn Pitch into a hyper-growth company with venture funding, we concluded it was better to build a profitable company and grow Pitch organically from here."
  
  "We had conversations with our investors about resetting our company and cap table, so there’s potential for meaningful impact for everyone involved. Despite having more than 4 years of runway, we know that a sustainable path has a much higher chance of success than the path we were on."

In both Airplane and Pitch’s cases, one of the major issues was expectations. They both raised a lot of money relative to revenue at super high valuations. Both of these companies had plenty of cash but realized traction still hadn’t come. They made the incredibly hard, but likely right decision to stop their current path and return what capital that could.

I am not saying every company should do what Airplane or Pitch did. Startups are risky and VCs know that. But many companies should at least have the honest conversation.

Conversation with Doug Adamic (CRO of Brex & previous CRO of Concur)

Companies need to be big dreamers but also be realistic about their current situation and what revenue growth is reasonably possible. The CFO and CRO relationship is more important than ever right now. Given the focus on revenue growth in 2024 that I mentioned above, I wanted to get an experienced CRO’s perspective on how they think about growth and efficiency.

Doug Adamic has a ton of experience, from growing Concur into the huge company it is today, to joining Brex (a venture-backed company) a couple of years ago.

The rest of this post is Doug’s insights and learnings from his career that could be helpful for companies and leaders facing a pivotal year in their growth.

Creating the Optimal Revenue Growth Plan

To create the optimal revenue growth plan, you need to start with the tops-down aspirational plan of what you want/need to be able to do. This conversation starts with the CFO and CRO and is then shared with the broader executive team for alignment and iteration.

After the initial tops-down model is completed and a revenue target is defined, the CRO must complete a bottoms-up model to determine what they think is reasonably possible given all of the potential drivers - number of sales reps, estimated attrition, ramp times, rep productivity, etc. This helps the CFO and CRO to triangulate the company target.

In typical scenarios, the CFO will always want to get more revenue for less spend while the CRO will always want more budget to put towards their bottoms-up model. This tension is healthy. There is a problem if the CRO and CFO don’t have this tension because it is how companies get to the optimal balance.

Sales reps can count on two things changing almost every year at successful companies:

1. Territories shrinking

2. Quotas going up

The only way to make that possible is to make the sales teams more effective. CFOs can get caught up in their Excel models and what the business needs to do but when there is a strong relationship between the CFO and CRO, the optimal plan can be created.

When there isn’t that relationship or trust is weak, then inefficiencies can happen. The best CFOs don’t just live in their Excel models but also understand the business context and relationships.

Improving Efficiency While Maximizing Growth

As mentioned above, having a thorough and iterative planning process is key. Below are a few other things I have seen throughout my career:

• Tightly define the ideal customer profile (ICP) and clearly understand the value you bring to customers. The better a company can understand what their value proposition is, the more efficiently the company can find prospects with those business problems and better show those prospects how they can benefit from the company’s solution. This focuses the spend, reduces time to close, and increases average customer life. And when full value is seen it also maximizes contract value (via reduced discounting).

• A successful multi-product strategy can increase efficiency and growth. Brex has recently added more products to solve typical business problems (spend management use cases like automating bill pay and improving corporate travel booking.) With the trend of vendor consolidation, it has been significantly easier to sell one product at a smaller land and gradually bring customers on to other Brex products as time progresses and trust is built.

Sales Comp Planning Tips

1. Sales comp plans need to align with strategic objectives to drive the right behaviors.

   When Brex launched our spend management platform, comp plans included software attach to our existing Brex card offering. The unintended consequence was that the comp plan structure could elongate the sales cycles on the card offering when expensive software was attached to those deals.
   
   If this happens, revenue leaders need to rethink the comp plan structure so that reps are incentivized to first close any solution quickly while pursuing the larger, consolidated deal later. Again, getting “in the door” can allow for expansion and additional revenue at a later time.
   

2. Comp plans need to be really motivating to ambitious reps.

   Sales reps need to be able see a path to blow the doors off of a comp plan, hit accelerators, and make A LOT of money. Not everyone should succeed at that (otherwise quotas are too low), but they should all see a path to be able to do that.

Learnings from leaving an incumbent (Concur) to a venture-backed company (Brex)

Concur was a 25-year-old business when Doug left. Brex’s spend management platform was just launched one year ago so everything at Brex around that particular product was happening for the first time. Concur was at the maturity of “this is what we have always done so this is what we should do.”

With a new, innovative, and fast-growing company like Brex, there are a lot of “firsts” happening, which is exciting but also leads to a lot of learnings. New metrics and data need to be consistently monitored and adjustments need to be quickly made. Flexibility, agility and trust are absolute requirements in this type of environment.

In short, while mature products offer stability and consistency, the speed of innovation at Brex is remarkable, allowing Brex to be a leader in providing modern solutions in response to customers’ growing and changing needs. This is evident by their continual release of new features and products.

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*This post was sponsored by my friends at Brex.