Scaling Up Organization for Series B Challenges

⏱️ 40 min reading

In 2023, raising Series B and C funding rounds will be particularly challenging. Hopefully (nor not), raising a Series B round is a game of standardization. If you meet the required metrics, there is a good chance you can raise the round. However, the market is currently highly competitive, and only the best will succeed.

Beyond metrics, the growth phase of Series B funding implies significant organizational changes. As your company grows, it's crucial to onboard people who can help take your company to the next level of growth within 18-24 months.

This playbook aims to help you prepare for the challenges you will face when raising a Series B round and during the growth phase. Let's explore the specific challenges and changes you will encounter.

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This playbook has been make with love by @Pauline Paquet, @Sarah Green and all XAnge Team

What is a Series A and B companies?

There is no absolute definition of a company stage, but startups’ growth has this advantage to be pretty much normalized, especially for SAAS B2B companies.

On average, each stage is about 18 to 24 months. That’s why, on average, companies reach what’s called the “scaling phase”, or Series B, about 4 to 5 years after company’s creation.

Average headcount of XAnge portfolio companies as of February 2023.
Average headcount of XAnge portfolio companies as of February 2023.
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“Growing is not only a performance and execution play, it’s also (if not mostly) a perseverance play.” - Pauline, Head of Startup Success @ XAnge

Average stage growth indicators

We can recognize a Series A or B company using the following indicators.

YOY Revenue Growth
Min. 100% - x3 for B2B SAAS
Min. 50% - x2 for B2B SAAS
ARR/Employee
20/25k€
40/50k€
SERIES A
SERIES B
Headcount
30-75 employees
75-150 employees
ARR
1-5M€
7-10M€
Fundraising (equity)
min 5M€
min 20M€

Key stage achievements per Stage A and B

Moving from Series A to B stage is not just only a matter of key indicators. Usually, company has proven typical achievements. Here is a non-absolute list but still, Growth investors will look for these:

Established Business Model: The company has a clear business model and strategy for growth.
Average Basket and Upsell Potential: The company has optimized its pricing and make the most of its customer base in terms of revenue.
Revenue Generation: The company has started generating revenue, although it may not yet be profitable and repeatable/predictable.
Revenue Growth: The company has demonstrated significant revenue growth and may be approaching profitability if it has chosen this growth path.
SERIES A
SERIES B
Product-Market Fit: The company has developed a product or service that addresses a market need and has demonstrated traction with its target customers.
Proven Scalability/Predictability: The company has shown that its business model can scale effectively, with increasing revenues and an expanding user or customer base.
Initial Market Penetration: The company has made inroads into its target market (usually the domestic ones) and has a strategy for further expansion.
Market Expansion: The company has successfully expanded into new markets or broadened its product or service offerings.
User or Customer Base: The company has acquired a growing user or customer base that shows potential for scalability.
Customer Satisfaction and Retention: The company has shown that the user or customer base churn is under control.
Experienced Management Team: The company has built a strong team of experienced professionals, especially on Sales, Finance roles.
Strong Management Team: The company has built an even stronger management team with a track record of success in their respective fields. Especially in Finance, Sales, Product, Tech and HR.
Operational/Organizational Efficiency: The company has optimized its operations and is working to streamline costs and improve profitability, as well as improve knowledge management
Brand Recognition: The company has established a recognizable brand within its industry.

Key challenges of Series B company

Scaling is dizzying. It’s a new phase where founders have already completed a hard job: prove that the company is working. Now, they are entering in a new phase where they are asked to scale and expand the business while facing totally different challenges due to the company’s growth. As describe by Elad Gil, usually, this phase is about:

  • "The More More Moment": the pace of everything at the company accelerates. More customers, more support, more interest, more partnership offers - more more more more.
  • Complexity goes up dramatically. You need to manage an ever expanding org with many new functions, geographies, products etc. Efficiency and the startup agility you used to loved are going down.
  • Bottle-necks & breaks emerge everywhere. Things will start breaking all at once - your backend servers will melt down, your managers' capabilities will hit their limits, your customer NPS will drop, your ability to be in every meeting stops.
  • What’s expected from you (as a founder) has changed. You are now leading average 100 employees (or more). You need to stop “doing” as you used to and be able to rely on a strong leadership team.

All the coming achievements aim to transform your company as a worldwide leader. You will have 📆 18 to 24 months to set up your organisation accordingly. Let’s dig into the specific challenges and changes you will have to face.

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GROWTH CRISIS IS THE NEW NORMAL Even if startup’s growth is very normalized, it doesn’t prevent all the companies from facing and struggling with the challenges we will list below. When a company is facing such a challenge, it’s called a “Growth Crisis”. And you know what? It’s FINE and quite healthy to go through those steps. The wrong posture would be to adopt the autruche posture and not to acknowledge you’re facing them. It’s the main reason a company fails.
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We have split the Series B challenges into 3 categories. To facilitate this playbook reading, we will focus on 4 main challenges per category. Click on each challenge’s card to get challenges’ description, weak signals, KPIs and related organizational changes.

The Business Leadership Challenges

In the journey of a Series B company's growth, leadership faces several challenges. Firstly, allocating capital becomes less straightforward, as decisions need to be made regarding investments in areas such as international expansion, product development, recruitment, and potentially mergers and acquisitions.

Leaders must carefully navigate these choices to optimize the utilization of limited financial resources. Secondly, building a team from its early stages and designing an efficient organizational structure become critical. As the company scales from 100 to 300 employees, demonstrating organizational efficiency and a revenue-driven approach is essential.

Here are the common business leadership challenges Series B companies face. Click on each card to get Challenges’ description, weak signals, KPIs and related organizational changes.

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Focus: Growth VCs Expectations for Raising a Series B

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Focus: Calculating Cohorts

The Ops Challenges

Here are the common Ops challenges Series B companies face. Click on each card to get Challenges’ description, weak signals, KPIs and related organizational changes.

Ops Challenges

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Ops Challenges

Table

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Focus: Growing by acquiring

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Focus: The Pricing Strategy as a revenue growth lever

The People (or Organizational) Challenges

At this stage, it’s normal to see the first employees leaving and a high turnover rate.

Why? Because the doers from the beginning will not be enough skilled to either manage nor be specialized enough for this new chapter of growth. Beyond that, it’s also due to people’s preference concerning work environment and challenges. Some love to work in a 0 to 1 company with small teams and no real management layers, others prefers the 1 to 10, or 10 to 100 companies.

The Human factor is as powerful as complex to manage for a growing companies. While traditional businesses have years to implement HR practices, scaling companies have to do so in a very short period of time (18-24 months). As for everything else, they have to execute well & fast.

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"The People function shouldn’t be neglected, especially when your #FTEs grow fast. Series B is when you'll need to invest in your Talent Management support to strengthen retention: Career Paths, Compensation & Benefits...” - Sarah, Startup Success Associate @ XAnge

Here are the common people challenges Series B companies face. Click on each card to get Challenges’ description, weak signals, KPIs and related organizational changes.

Are you meeting Series B efficiency standards?

Raising a Series B is a standardization game. Let’s have a closer look on the KPIs and Ratios to use to drive your business toward growth and efficiency.

Click on each card to get KPIs and Ratios’ description, formulas, market practices and additional resources.

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Legend: 🟠: Good 🟡: Better 🟢: Best ⭐: Critical KPI

n/a: not applicable

On the Business Leadership Side

On the Ops Side

On the People Side

New challenges equals organization changes

If your company is growing fast, it will change significantly every 6-12 months. Each stage of startup growth requires different experts and related profiles. Let’s dig into it!

Building a new leadership: What does a series B company's executive committee look like?

When scaling, there is a need for the C-Suite to become more specialized. Why? Because, each of the Series B Key Challenges you will need specific expertise and experience. You have to recruit (or train) people with the right experience and background for the next 12-18 months.

“Eventually, your executive team will start to stabilize but the teams under them will have more frequent re-orgs as each organization ramps in size.” – Elad Gil, Author of the High Growth Handbook

First, no size fits all! Depending on your sector, founders’ background and responsibilities, experiences, business model… Your executive committee might not be looking exactly to what you are about to read.

However, we’ve listed below the usually roles you can find in a Series B executive committee and tried to connect these roles to the Series B challenges you will have to face.

These datas are coming from several benchmarks and studies we’ve conduct @ XAnge.

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You’ll find here the full database of roles:Series B Roles/function Series B Roles/function

Examples from XAnge Portfolio Companies

New roles appearing beyond executive committee

New Roles

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New Roles

Table

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Focus: The Job Title Strategy

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Focus: Executive Committee Compensation

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Focus: Hiring high executives

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Focus: Chief of Staff, CEO right hand, Office Manager and Personal Assistant: Who should support the CEO?

What are the key organization changes and teams ratios?

Beyond the executive committee, there are additional organization changes happening at different levels of the organization.

How many employees should you have in each company’s department? How much should you spend on each company’s team?

There are plenty of benchmarks on this topic (The Saas Benchmark from OpenView, or the BVP Scaling to 100 millions study, just to name a few). Even if the numbers are different, there are going in the same direction, well summarize by Tomasz Tunguz beside. Beyond benchmarks, keep in mind that #FTE and Spend per Team have to be driven by:

  • Company’s challenges
  • Company’s ambitions
  • Company’s growth profile
Here are the typical ratios concerning the mix of FTE to adopt : 10% G&A : 40% R&D : 50% S&M. - Tomasz Tunguz from Structure of the Typical SaaS Company

To help Build a Cost Effective Organization, we listed below the common new roles or teams’ changes for each company department of a Series B company, and the related market practices in terms of ratio.

Click on each card to get the team’s:

  • Key team’s changes,
  • Key ratios to have in mind to Build a Cost Effective Organization,

    • NB: Theses ratios are not definitive answers but rather guidelines to help you stear your org into the right direction. They will slightly differ from company to company based on business specificities.

  • Key Series B challenges the team helps you to face,
  • KPIs the team has to track and contribute to.

By Department

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By Department

By Team

G&A

S&M

R&D

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G&A
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R&D
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Sales & Marketing
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Focus: ESOP Plan

Internationalization impact on team organization

First, remember that International expansion is a topic for the CEO/founders' team. It's like launching a second startup, so don't delegate it too soon.

Here are the key learning on internationalization impact on team organization:

On the Business Leadership Side

  • G&A (strategy, admin & finance, hr) are mostly managed at a global level. As the company grows, the company will need to get local presence, especially for HR.
  • Regarding company management, most of the companies get either a Zone Director or a Country Manager, directly reporting to CEO or CRO or VP International. There is no country manager when the zone is gathering several countries but one country is the biggest market. There is no Zone Director when the zone is gathering too few countries to be called a Zone. Sometimes, VP International or VP Sales or VP Partnerships are acting as Country Manager or Zone Director.
  • Compliance and Legal Team: As you expand into various countries, it's important to have a legal team well-versed with international laws, local business regulations, privacy policies, etc. This is crucial to prevent any legal issues and to ensure a smooth operation in each country.
  • Tech and Operations: If your tech company has a tangible product component or needs local data servers, managing international supply chains and operations is a critical aspect. You might need local teams or partnerships to ensure timely delivery, installation, and maintenance services.

On the Operations Side

  • Sales function is almost always at every level (global, zone, country), especially when the sales cycle is including a close contact with customers. Then, local sales team needs to be aligned at zone and global levels.
  • Product can be either managed only at a global level or at a local level. It depends on if the product needs specific ajustements to fit to a country or zone. More specifically, product with strong cultural or legal aspects would have a local team in charge of localisation.
  • If Product is changing depending the countries, the Tech team may have the same configuration in order to be able to deal with country related product updates and releases.
  • Marketing function structuration depends on strategy: If inbound marketing is preferred, operations are managed at zone or global level. If outbound marketing or community management is preferred, a local op team is needed. Corporate communications are usually managed at a global level.
  • Customer Support: As a company expands internationally, a significant adjustment that must be considered is customer support. This team may need to grow not only in terms of number but also in linguistic and cultural diversity, to address local customers' needs and inquiries effectively. This can be accomplished by hiring local customer support representatives, outsourcing to a local agency, or both.

On the People Side

  • Remote Team Management: With teams spread across various regions, it's crucial to develop strategies for managing remote teams effectively. This can include processes for effective communication across different time zones, developing a shared company culture, tools for collaboration, and strategies for conflict resolution.
  • Cross-cultural Training: As the team becomes more global, it's crucial to invest in cross-cultural training. This helps ensure that everyone in the organization understands the cultural nuances of the markets they're entering, fostering a more inclusive and harmonious working environment.
  • Diversity and Inclusion: As you build more diverse teams, consider creating a Diversity and Inclusion (D&I) role, or even a team, to ensure that the company is considering and accommodating the needs of all its employees. This is important for maintaining employee satisfaction and productivity, as well as for enhancing the company's reputation and attractiveness to potential employees.

Remember, there isn't a "one size fits all" approach. The structure of your international teams can greatly depend on the nature of your product/service, your strategy for expansion, and the specific needs of the markets you're entering.

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Learn more about U.S. BridgeU.S. Bridge support package and our US Readiness Assessment

Becoming a result/revenue driven company

One of the hardest challenge founders face is to be able to lead all their team members in the direction they’ve chosen (see CEO: Stop doing, start leading). Switching from startup to scale-up is really about switching from fuzzy luck to a result driven company.

To succeed, founders have to aligned everyone of their stakeholder by:

  • having an efficient executive committee;
  • driving their teams toward performance;
  • getting the most of their board.

Having an efficient executive committee

The 2 missions of the executive committee are:

  • To contribute to the company’s strategy (bottom up)
  • To execute the company’s strategy (top down)

To be efficient, the executive committee has to be:

  • A routine: usually each week.
  • Prepared: agenda and ad hoc content send the day before.
  • Sharp and straight forward: 3 items per leader to share with others.
  • Owned by the executive committee: the CEO doesn’t need to speak so much. The CEO is here to summarize and decide.
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What should you expect from your excom members? → Proactively update the executive committee on their teams achievements ; → Bring solutions and have a positive attitude ; → Manage confidentiality ; → Be supportive in any collective decision of the executive committee.

We highly recommend collectively putting in place a code of conduct for the executive committee and revising it regularly or as needed. This will ensure that everyone on the committee is aligned with expectations.

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Learn more about executive committee management by reading our 🔝Comex Efficiency

Driving your teams toward performance

On one hand, founders have fewer opportunities to share their vision and their "way of doing things" with their teams. For teams, it's super important to get guidance, especially in a fast-growing environment with over 30% employee turnover per year (see Employee Attrition & Turnover).

On the other hand, the company is expected to meet its growth goals rapidly (see Growth Rate). Founders cannot let pitfalls dig deeper. Any operational problem has to be identified and solved even more quickly.

One way to make sure your team is aware of companies vision and goals is to have a strong management team in place (see above ).

One complementary way to improve performance is to implement a Performance Management Method that requires every team to:

  • Share the company's growth trajectory clearly and consistently;
  • Set and communicate clear goals and KPIs that align with the company's growth trajectory;
  • Be accountable for achieving goals with a strict cadence.
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Learn more about performance management by reading our 🎯Digest: Performance Management.

Getting the most of your board

Your board is a : demanding and benevolent counter power for the leader. You want to have people who are better than you on the board.

Why should you expect from your board?

  • Here to challenge on the performance and leadership
  • Having solid ground for support during crisis
  • Having diversity in the voices of the board and their experience
  • Sharing the visibility: having different ambassadors for the company

To be efficient, here are 3 commandments from the 10 Commandments for board efficiency:

  • A calendar of the Board's "red thread" themes must be established in order to structure the expected in-depth discussions and ensure the richness of the exchanges. 📅
January (Validation and post mortem of N-1 performance + Human Resources review, including C Level-Key men)
September (Risks, including Compliance)
June (Medium and long term strategy)
November (N+1 budget)
  • As the "Chairman of the Board" your role is : facilitator of exchanges, contradictions, new ideas (NB: be careful, speak little and synthesizes and makes decisions after consultation with the stakeholders). ⚖
  • Make your board evaluate itself. Never forget that your board is working for you. 👑
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Learn more about board management by reading our 📈Digest: Board Efficiency.

Sources

Iconiq Capital SaaS metrics.pdf6848.4KB