Internet Explorer is not supported by our website. For a more secure experience, please use Chrome, Safari, Firefox, or Edge.
Application Software
Morad Elhafed  |  January 29, 2024
It’s Hard to Get a Software Company to $10 Million in ARR. Scaling From There Doesn’t Get Easier.

Imagine this: You’re the founder and owner of a small, B2B software company. You saw a pain point in an industry you’re deeply familiar with and built a product to solve that problem. You’ve bootstrapped your company the whole way, have 50+ employees and around $10 million in annual recurring revenue (ARR). And by the way, you have a ton of your personal equity riding on the business’s success.

But you’re waking up at midnight in a panic, worried your business could fall apart. Why?

I’ve seen a version of this happen many times. When bootstrapped companies approach $10 million in ARR, many reach an inflection point. It’s the moment founders realize that what they’re building has the potential to be more than a modest family business. The business could scale—but the founder doesn’t know exactly how to do it. Some incremental growth—with the same team, tactics and technology—is possible, but the company could easily stall out, missing a huge opportunity for creating jobs and value.

Growth from $10 million in ARR onward requires significant changes in a company’s operations. How do you think about scaling up? Here are five ideas:

1. Professionalize your management team. I’ve seen many successful companies reach $10 million in ARR as family businesses, often with a core team of people the founder has known for a long time. At $10 million, the business likely has about 50 employees, and the founder knows everyone personally. The team that got you to this point was the right team for this phase—loyal, driven and scrappy, united by a clear vision about the product. But to scale beyond this point, you will need to professionalize your management team. That doesn’t mean replacing all your friends with Harvard MBAs or McKinsey alums. It does mean taking an honest look at your leadership team and making difficult calls: rotating some people out of their current roles, hiring outsiders with proven track records of scaling businesses, and upskilling current execs for the next phase.

Last year, my firm made an investment in a founder-owned, bootstrapped business generating about $12 million in ARR. In the first year of our partnership we helped recruit three new key executives: a chief customer experience officer, chief revenue officer and a VP of product management. All were brand-new positions. These hires, coupled with other moves to professionalize operations, helped accelerate organic growth and improve customer retention rates by the end of that first year.

2. Optimize your sales and customer success strategy. An experienced CRO or VP of sales might be your first formal hire. This person will help you think about sales efficiency, go-to-market opportunities and expanding your sales pipeline. Building a team—and the processes to take care of customers at scale—will require experienced leadership and investment in customer success. In the early stages, a bootstrapped company can run customer support ad-hoc and the CEO can support the biggest accounts. But scaling means preparing for a phase where you, as the founder, won’t have a personal relationship with every customer. Acquiring customers efficiently and keeping them happy is crucial; the long-term success and durability of your business likely hinges on it.

3. Formalize your internal systems and develop your KPIs. To scale your business, you need data and insights. You need to understand your customer retention and churn rates and how to improve them. You should know instantly how this year’s sales pipeline compares with last year’s. You need to understand your working capital and make sure you don’t run out of cash based on revenue and spend projections that aren’t back-of-the-envelope guesses. All this requires investment in internal systems. If you’re still running on QuickBooks, that’s not good enough. You’re going to need an ERP system, a solid CRM and real HR software. At the $12 million ARR company I mentioned earlier, we helped management implement six new internal systems in the first year, which touched on functions including accounting, customer support, sales and marketing.

4. Build out software infrastructure and security. If you’re successful, you will have many more customers; that will increase computing loads and demand more of your IT infrastructure. Many bootstrapped companies now run their operations in the cloud, such as with big cloud-computing providers like AWS, which are perceived as more scalable. But we find many companies haven’t optimized their code and systems. Security updates need to be handled with scale in mind as well; cloud systems are generally more secure than those handled on-premise, and a breach or significant downtime can ruin your business reputation and customer goodwill.

5. Think about expanding your product offering and entering new markets early. In my experience, many companies get to $10 million with one great, core product. In order to continue to grow at a good clip, they often must develop incremental revenue streams by releasing new products or move into new industry sectors, either organically or through acquisitions. A good way to get started here is to gather information through market research and speaking with customers directly to better understand their needs and gaps relative to solutions they’re currently using and what the competition is doing. That work will help you to determine where it makes sense to expand your product offering to address those needs. But many family businesses lack the capital, expertise and time to do this kind of market research, gather unbiased customer feedback, and then initiate a robust R&D process or pursue an acquisition, which is where an investor can help. Earlier this year, for example, my team helped a 30-year-old, founder-run SaaS company optimize its payments strategy by bringing payments functionality in-house. This allowed the company to capture additional margin and drive more growth and profitability.

Are there $50 million bootstrapped companies? Of course. But continuing to bootstrap means figuring out how to professionalize a business entirely on your own. Outside, founder-friendly investors can help founders work through these issues and think bigger about their company’s potential–and make that vision a reality.


This article originally appeared in Forbes.

This material, based solely on the opinions of Morad Elhafed, is provided for informational purposes, and it is not, and may not be relied on in any manner as, legal, tax or investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any fund or investment vehicle managed by Battery Ventures or any other Battery entity.

Back To Blog
TwitterLinkedInFacebookHacker NewsRedditWhatsApp

A monthly newsletter to share new ideas, insights and introductions to help entrepreneurs grow their businesses.