One of the first things I wanted to develop in building this site was a structure, or ontology, for how to think about the scaling of technology companies.   The goal is to create a basic starting point for assessing the maturity of a technology company, operationally, relative to its size.  At some level it’s a big checklist of what’s needed at varying levels of size to ensure you’ve got the organization in a solid spot.   The criteria for that should be objective meaning that we can apply a clear test to see if an organization has gotten to a certain level of scale.  That let’s us evaluate where the organization is today and prescribe what capabilities they need to build out next.

I looked around the Internet for scaling models; there’s not a lot out there.   Lots of opinions on how to scale – no real objective definitions of what that means.  I did find a compelling course at acquisition.com that breaks out the scaling roadmap and provides a free online course for scaling to different levels of size.  That model, however, is intentionally industry agnostic so wouldn’t work for our purposes.

Note – all of this is a work in progress.   I expect to constantly refine the model, sizes and gates as I talk to more entrepreneurs, investors and operating partners and get more input into it.  That noted, it is a start which is probably the most important thing.  

Technology Company Levels of Scale

Startup (0-1M)

Objective – Get initial customers and validate product market fit

Success

1. You’ve sold to multiple different customers and have them using and renewing your product
2. You’ve got a clear understanding of who is buying your product, how they are buying it and what problem they are solving with it
3. You have a basic process in place of selling, onboarding and managing your customers 

Repeatable (1M – 10M)

Objective – Predictably sell your product, onboard and retain customers

Success

1. You have a reproducible and objectively measurable sales and marketing pipeline broken out between clear stages; you can report on the same with a high degree of confidence
2. You have a standard onboarding process focused on ensuring customers achieve the things most correlated with expansion during the sales process
3. You have customers that have renewed multiple times, can measure gross and net renewal and dollar retention rates
4. You have well defined processes for inspecting and managing all the above

Specialized (10M – 25M)

Objective – Specialization of organization by components

Success

1. The organization is demonstrating positive operating leverage and is able to grow revenue without a linear increase in costs
2. The organization has well defined departments led by competent managers or senior sole contributors as size dictates

Segmented (25M – 50M)

Objective – Sales, Marketing and Product efforts are differentiated by market segments and account for different selling and usage motions in various market segments

Success

1. The organization has a demonstrated expansion of the Serviceable Addressable Market (SAM) by successfully adding market segments or solutions that weren’t present before
2. SAM expansion or new solutions are added while growing net dollar retention.  I.e. we’re adding high quality new solution or markets to our teams scope AND continuing to effectively serve our core business
3. The company has a clear, well articulated multi-year strategy inclusive of reasonable plans for KPIs, Team and ELT

Efficient (50M – 100M)

Objective – Create an optimal cost and GTM market

Success

1. CAC is stable or falling on an aggregate basis as a function of stable percentage growth of ARR
2. New product introductions and current product updates happen without issue in a highly predictable fashion
3. Customers predictably and cost effectively expand spend
4. Team geographic placement is cost optimal and remote employees are managed at the same level of efficacy as in house employees

The next level down – features of each stage

The above model is the high level model of scaling and how to break out the stages.  In addition at each stage we want to discuss some high level components:

• Role of the CEO – What’s the CEO responsible for at this level of size?  Where should their attention be directed and what are they responsible for?  What should they be handing off to other leaders and specialized areas of the business?
• Leadership Team – What does the rest of the Executive Leadership Team and second level managers look like at this stage?   What executives from the prior stage may need to be moved out of the business? What new executives do we potentially need to recruit into the business?
• Functional Teams – What set of functional teams do we need at this level and what set of responsibilities do they manage?  Functional teams are broadly divided into two categories
  • Primary Functions are the key teams that a technology company needs to be successful in its core business of creating great, sticky software.  In this we’re including Marketing, Sales, Customer Success, Product and Development inclusive of specialized groups under those functions at higher levels of scale.  These roles are highly specific to technology companies as is the structure of the organization.
  • Supporting Functions are the teams that support the overall operation of the business and the Primary Functions in being as effective as possible.  These roles are general across industries and generally not specific to B2B technology companies.  A note of caution, though, while the roles are highly consistent across industries the domain expertise to be effective in those roles IS highly industry dependent.   For example – you could hire a CFO from a consumer goods product company into an enterprise software company.  That CFO, however, would have a tough time running the Financial Planning and Analysis (FP&A) function for a technology company.

Other Stuff

• Why ARR? We chose ARR as the core method of delineating stages as its the primary method of measuring the size of B2B technology companies which is our primary focus.  There are loads of other ways you can measure scale – net profit ($,%), EBITDA (same), employee count, revenue – the list goes on.  Since B2B technology companies have a fairly standard measure that was logical we used that.   If you don’t have a recurring model in your technology company I’d simply an R and just go with Annual Revenue.
• I don’t agree with your model.  Your model sucks.  Awesome – send me an e-mail at springer@1to100.com and let me know where you think it’s lacking.  We’re candid about the fact this is a work in progress so would love feedback and ideas on it. 

Appendix – Acquisition.com Model

Ten stages organized by the headcount of the business going from 1 to 500 employees.  Why headcount?  The logic on doing this by headcount is that it applies across businesses in different industries in a similar fashion.   The structure of the business – a core question of scale – is largely dictated by the size of the organization so organizing by headcount allows the model to be maximally flexible across industries.

For each of the ten levels you then have a few points of consideration for each:

• Size – The range of employee count for the level of scale
• Your Role – Where you, the leader, are spending your time, energy and effort.  They define this as “How you translate priorities into functions”.   Roughly that means the business has to accomplish something at this stage to grow – what’s your role in ensuring the functions actually get that done.  
• Leadership Structure – What’s the structure for leading the company?  In the early stages this is just the entrepreneur wearing lots of hats.   In the late stages this is multiple levels of management deep.
• Function Specific Activities – These are broken out for each stage to include constraints or limits on the function and then what is needed to graduate from each stage
  • Primary Functions – The key functions involved in selling and delivering your solution.  These will vary widely by industry.
    • Product – The goods, services or results that thing that you’re selling
    • Marketing – How you tell people about your stuff
    • Sales – How you get people to give you money for your stuff
    • Customer Service – How you increase the likelihood of a customer rating you highly, buying again and referring other customers
  • Supporting Functions – The functions that support the operation of the company.  These vary less by industry.
    • Information Technology – How you gather, store, analyze and display information 
    • Recruiting – How you find and hire people for your company
    • Human Resources (HR) – How you decrease the likelihood employees or regulators will sue you
    • Finance – How you report on and manage your money
• Bottom Line – What’s the one thing you’ve got to accomplish at this level

One great quote from the training that I loved “Companies die by indigestion not starvation.  Companies die by trying to do too many things – not too few.”   That rings entirely true in my experience and I’m sure I’ve been guilty of that (many times over).