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Scaling from $10M to $100M+ ARR: Lessons from Contentful's CEO

Scaling from $10M to $100M+ ARR: Lessons from Contentful's CEO

A conversation with Steve Sloan

I’m excited to continue the series on Growth Endurance — how to sustain high growth rates for a long time, in the face of macro headwinds. In this episode, I traded notes with Steve Sloan about our experiences scaling companies through all stages. Steve is now the CEO of Contentful — #38 on the Forbes Cloud 100 list, with over 800 employees. Steve was previously Chief Producer Officer at SendGrid, growing the company from an early stage through IPO and through its subsequent $2B acquisition by Twilio, where he became Chief Product and Marketing Officer.

Steve and I discussed how to run a company differently at $10M, $30M, and $100M in ARR. We covered topics such as:

  • How do you handle malaise on the sales team when you have to increase quotas, and reps can no longer rely exclusively on the heavy inbound pipeline from the early days?

  • What should you expect of executives as you grow larger, and how does the executive role differ from a functional leadership role?

  • Why is your pricing model so important, and what does it take to get it right?

You can listen to the podcast or else read the lightly edited transcript of the conversation below. Let's dive in!

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Allison: Steve, I am so excited to have you on the podcast today to continue this series on growth endurance. I know you're going to have a lot of really interesting perspectives to share from across your career, so thanks so much for joining us today.

Steve: Alison, thanks for having me. It's great to get to talk to you again.

A: Growth endurance is about sustaining high growth rates as you grow. Even when you get to a larger ARR base, how do you ensure that you're continuing to grow 70+% per year, 100% per year? This is especially relevant for a lot of founders who need to sustain high growth rates to justify the valuation at their last round.

Driving high growth rates at different stages of your company requires different things. It requires different people, skills, processes, mindsets. And so I'm excited to traverse the journey of a startup with you, going from early stage to mid stage to late stage, and talk about how your best practices have to change along the way in order to make sure that you continue to grow fast.

Let’s start with the early stages, say zero to 10 million in ARR. What do you think you need to do in that stage in order to grow quickly?

S: There are a few things that are essential in that early stage. Particularly zero to, say, one million, you actually need lots of what some people would call beta — lots of experiments. You're trying many different things, because while you have a hypothesis, it's still highly unproven. You’re talking to as many customers as possible, probably doing small experiments, having lots of more beta-type products in order to understand what's going to catch versus your hypothesis. In that world, it’s essential to have a team that is very, very generative in terms of ideas and not too hung up on one idea for very long.

We see this with serial entrepreneurs. They are idea machines. They come up with an idea after an idea.  And after an idea and they get very good at testing out those ideas.

As you get into later stages, that wonderful superpower actually could be a real challenge. That's one of the things that's really important early on. I think of that phase, whether that's product discovery or your go-to-market motion discovery, as the discovery phase. As opposed to later on when you get into scaling mode.

A: What about the kind of people that you need to hire, to make sure that you can innovate this way and propel your growth in these early stages? How would you describe the quintessential person that founders should be hiring from zero to 10 million in ARR?

S: Smart, scrappy generalists. And I use the term scrappy in a loving and respectful way. These are people who just know how to get it done.

The team at Twilio always loved this meme about how there are two steps to drawing the owl: draw a couple circles, and then draw the rest of the effing owl. People who just go and figure it out are the folks who you need and they need to be generalists. People who love the fact that they can wear a bunch of different hats all in a given day.

They might not be very deep. Maybe they've never even done it at all. But between being smart and scrappy, they go and get it done. That orientation in zero to one, or zero to 10, is essential. Populate your company with as many of those people as possible.

A: I talk with a lot of founders about the value of hiring generalists in the early stages. One type of generalist that I encourage them to hire is a chief-of-staff type person who can build a function from zero to one. They potentially can hand the functions off to someone who's more of a specialist.

One of the challenges is that founders say, "Well, look, I'm a generalist. I'm a founder. I may have experience in a particular function, but not all of them. And so I'm looking to complement my skillset with a more seasoned sales leader, or more seasoned marketing person." How do you balance complementing your own skillset with functional expertise, versus finding someone who's also capable of being entrepreneurial?

S: There is a continuum from the true generalist who has really no expertise at all, to the person who's incredibly deep in a particular area. Early on, as a founder, having people who know more than you do about an area is helpful and important. But on that continuum, they're still mostly going to be generalists.

Say you're looking for a product person, she really has to have a sense for what a go-to-market motion might look like. She's figuring out what the marketing materials will look like that are going to sell this feature or this product. You still end up early on the generalist end of the spectrum, even with functional executives.

I have a friend who focuses on early stage software companies as the first sales leader in. But he is very, very bright and he can think about all of the functions, not just sales. When the company gets to $100 million or $200 million in revenue and you're talking about scaling up the function, he gets very bored. He's not interested in that world. He really revels in being able to sit down with almost any function in the company and have a conversation.

Having folks who want to live side-by-side with their peers in a variety of topics is really important early on. It poses risks later on.

A: Many innovative teams might have a proliferation of initiatives in this early stage. There might be an excitement about launching multiple products, or a general excitement about testing out many different ideas and pursuing them.

How do you enable the kind of innovation that ends up driving your growth, while also keeping the team focused?

S: One of the things that works is getting everybody to agree upfront on what the hypothesis is. To agree about what we're testing.

But a component that people don't always talk about is how long we're going to run the test. As an example, if you’re Facebook and you want to test a feature for a day, you're going to have maybe literally a billion people try it.

If you're early on, you might have to run an experiment for one to two quarters in order to get 60 or 100 people to actually give you feedback. Then you can have a conversation about, if an experiment has to run 180 days, and you can only run three experiments in a year, what are our strongest hypotheses in this window of time?

A: Let’s switch gears to the 10 to 30 million in ARR stage. Some startups might very quickly grow to five or 10 million in ARR, but then they start to see their growth rate slow. What do you think allows a company to get from 10 to 30 million?

S: As incredibly hard as it is to generate your first million dollars in revenue, there are many fewer startups who get to 30 million. A couple of themes pop up.

One is, the folks who successfully traverse that 10 to 30 zone get clear about their ideal customer profile. They begin to demonstrate repeatability. You see lots of companies who are doing five, seven, eight million in revenue, but they're selling to a slightly different segment of customers each time. They're selling to a slightly different person inside of the company. Maybe they're selling to the CFO in some cases, and the head of sales in other cases.

That's really, really hard to scale up. And it frequently means that your value proposition isn't really clear. Having a stated ideal customer profile that you can go after, repeatably sell to and solve problems for, I think is one of the most essential things in crossing that ten to 30 zone.

The second thing that I've seen very consistently is the pricing model. Are you charging for an app? Are you charging for seats? If it's infrastructure, are you charging for maybe how much space they store with you? Is it by transaction? How consistent is that economic element of it? If you still see the pricing moving all over the place, where you have to do lots of custom things, it means you haven't found a repeatable pricing element yet.

The flip side of that is I've seen a lot of companies who get to maybe ten, 12, or 14 million, and then figure it out. Then they accelerate from to 30 or 50 million.

Get really clear on your ideal customer profile, what your core economic model is, and then the final piece is what your selling motion is.

In the beginning, since lots of us are founders, a few key people will be involved in every single sale and frankly, their own brilliance and charisma and ability to create excitement, sells.

One of the big questions on the go-to-market side from ten to 30 is, can you bring some other person in off the street who's a smart, scrappy generalist, and can she and seven of her friends sell when you’re not in the room?

Particularly in this ten to 30 zone, I always ask founders how often they need to be there in order for the deal to actually close. To me, that's a third litmus test for whether or not you're going to be able to cross that chasm.

A: Every founder that I talk to is thinking about pricing. They feel like they have it wrong, but it's very hard to get it right. One reason is because pricing isn't something that you do frequently at a company. Ideally, you only do it once. And then maybe as you launch new products, you have to adapt your pricing model. But maybe at most you're changing your pricing once a year or every two years. There aren't that many people that have repeated practice doing it.

This might be one reason why some folks hire consulting firms who just specialize in pricing. It's hard to hire someone internally to do it. How have you seen pricing initiatives done well?

S: I've seen them done with great pain every time. They are so darn hard because you have to both be creative and quantitative. They are different parts of our brains.

You have to figure out what the meter is — transactions, seats, et cetera. What is it that you're going to count, and what will you charge per unit? In figuring out both the meter and the amount, it's important to separate them. Too many people put them together and try and figure out both at the same time.

As an example, if I'm selling to a CFO and most of the stuff she buys is on a seat basis, I might want to find a way to give her a seat metric, because she understands it well. And then we'll worry about the amount secondarily.

To use Contentful as an example, we're a content management platform. We enable customers to store, manage, and deliver any type of content on any device anywhere in the world in milliseconds. That's the core value prop. Initially, because we store content for people and they access it via APIs, we charged people based on API calls.

That seemed like a really simple way. We serve developers, and developers totally understand API calls. But as it turned out, that was really complicated. As they started to scale up, guessing how many API calls they would have a year or two from now was really hard to do. So the team brilliantly decided to simplify our pricing model into “small, medium, large, and extra large.” Take out the transactions, and focus on how much stuff do they want to store with us instead.

In retrospect, that seems like an easy thing, but at the time it was really a wrestling match. Interestingly, once we switched from transactions to spaces, it really unlocked the momentum of selling. Then we had to figure out what the right price was. But figuring out the meter before the amount was essential there.

A: In that case, was there someone in particular who you brought onto the team that helped you figure out that change? Or was there a group of people who were influential in that?

S: It was the smart, scrappy generalists — Chris, our CMO at the time, our founders Sascha and Paolo, and a new sales leader we just brought on named Eddie who's phenomenal. They all came together, and it was a chorus of voices that helped us navigate to the right meter.

If you have the meter right, the amount you can play with, is it $799? Is it $1,199 or is it $1,000? You can play with that number quite a bit. But getting the meter right is really important and the toughest thing.

Again, it was so valuable to have that chorus of voices who could tell you that they’ve gone out and tried to pitch this, and it's just not working and they can tell you why.

I'm a big fan of using pricing consultants for the reasons you said. I see a lot of people being resistant to spending any money on pricing professionals. It is money well spent almost every time—with the right people, obviously.

A: I completely agree.

Switching gears a bit, in that 10 to 30 million ARR stage, what new rhythms do you think CEOs should be introducing to manage the cadence of their executive team collaborations?

S: It’s the switch away from organic decision-making. When the team is small — maybe it's 20, 40, 50 people — the decisions happen based on who's in the room for the meeting. As with that pricing instance, you have a chorus of voices in the room. You get the collective wisdom, and that's a wonderful thing.

The challenge as the company gets bigger is the FOMO that occurs to so many people when they feel like they're not “in the room” anymore. I've seen people leave the company as it scaled up because of the word “anymore.”

To me, that's a symptom of us not doing a good enough job of going from organic to rhythmic in terms of our process.

In an organic process, you really do mostly have to be in the room, or in the Slack, or whatever it is. In a rhythmic process, you decide that on Mondays, we talk about X topic and then we send the notes out. Or that you’re going to do product reviews every other Tuesday. So if you want to come for product reviews or come for Friday demos, that's the moment when you can plug in.

But you don't have to have FOMO about all the other moments where this mysterious set of meetings or conversations are happening.

As you scale up, get more and more intentional about the multiple modes of communication. So people know when it's going to happen and they can trust that if it's important and relevant to them, they'll be brought in with the conversation.

A: So many issues come up in particular around the changing constituents in the leadership team meeting. There's the weekly leadership team meeting that probably happens on Monday mornings, and it used to be that a couple of those scrappy generalists would be in that meeting. They’d be able to contribute all their creative ideas and the insights they've had from their customer conversations and internal conversations as well as other musings.

And then a VP of sales is hired, a VP of marketing is hired, VP of people, and you've got all these specialized VPs who are now taking up seats, which means that sometimes those scrappy generalists no longer have a place in that conversation. How do you keep those people engaged when they're no longer in that particular forum?

S: It's really hard, and it's really painful both ways. It’s really painful for people to feel like they're being excluded. That feels like a real loss.

If you're the person who has to do the excluding, because you can't just have a room full of 50 people for everything, it's also a bummer, because these people who are so amazing. But you need to evolve. You do see people leave the company, unfortunately, because of these transitions.

What they are focused on is frequently narrower than it used to be. So, you need to give them context for why that's incredibly valuable at the company.

Also, create ways for them to stay in the information flow. They might not be directly in the conversation, but they can get updated and come back with questions, or they might have thoughts to offer. It might be something that we as a company tried a year ago and there were important lessons from that.

But it's one of the biggest challenges to many people who are in early stage companies. They don't stay with the company forever, and they opt for an earlier stage company once again. And that's a great thing, because all the lessons they've learned get recycled back into the community, and another amazing company is built.

A: I agree this is a natural transition for companies as they scale up. I also think there is always a need for some generalists at the company, because there are always frontiers of the company. There are always new boundaries that you're trying to push, especially as you're trying to achieve these massive growth targets.

You might be looking to open up your first European office and have a general manager who can spearhead that and also bring in their institutional knowledge, or knowledge of your company values and culture. There might be a new product that needs to be launched, and that scrappy generalist could be particularly helpful in spearheading the thinking, planning, and execution of that.

It's always great when I think founders can think long-term about what this person's career trajectory can look like across the journey of a company from zero to 100 million ARR, and help that person see that they can continue to be valuable.

S: I love that example of somebody starting up a new office. Put a person in who you know shares your values, they understand the company mission, you know that there's going to be a continuation of the place you're trying to build when they are part of the initial DNA. That's such a powerful example of a way to use somebody who you really, really want to stay in the company and their role needs to evolve.

A: I think there is this bias within companies that the newer people are better than the earlier people. It's funny because I don't know exactly where that comes from. I don't think founders really believe that. But somehow there's this feeling of loss. As you said, that "anymore" word comes up a lot.

Maybe it's worth helping people understand that they might be incredible for stage one, they might be incredible for stage two, they might be incredible for stage three or as we said, there might be some people who can traverse all three stages, just in different roles. And they shouldn't feel less valuable or less appreciated simply because there's a particular stage where they identify.

S: It's such a great point. It's so hard to communicate that in the moment. It's just different. Some people are runners, and some people are swimmers, and some people are cyclists. A few people are triathletes, but not everybody does all three incredibly well.

A: In the 30 to 100 million in ARR stage, traversing that revenue range can sometimes take only two years or maybe less if you're growing really fast. It might seem like a big range, but actually in the span of time, if you're growing very fast, it's pretty short. What do you think are the factors that enable companies to get from 30 to 100?

S: Some companies are able to do it because of some external reason. The market dynamics are just really working. Companies can come off the rails really fast there, because all of the process that you had at 30 or 40 million isn't going to work at 80, 90, 100 million. But you haven't necessarily had the time or taken the time to adjust and change.

One thing is you have to embrace the word “process” and believe that process done well is a beautiful thing. It doesn't have to be high touch. It doesn't have to be annoying people with clipboards, walking around telling you what to do or not do. It’s about having a consistent way where more people know how to collaborate, work together, sing in harmony and move in the same direction, as opposed to moving in multiple different directions.

If people are moving in many different directions at the same time, it makes for a brutal place to work. It's chaotic. Sometimes it feels like people are working across purposes or even against each other. Process done well just creates clarity and allows us to know what we can count on and the things we need to go figure out. We actually need to slow down or have less variance, not in all areas but in many areas, in order for people to collaborate more easily.

The second thing is the shift in leaders—going from a place where the leader is the doer. So I might have the title of VP of marketing, VP of product or VP of engineering. In that case I’m probably a player/coach where I'm leading the team early on. But I'm doing a lot of the work myself, or I have my own stack of work that I do every day. So, I am a primary author, not just a coach.

As you go past 50 million in ARR, that person has to change their mentality to be a builder of teams and a builder of systems. This is a hard thing for all of us to learn as leaders, as we continue to scale. We as leaders have to keep delegating the things we used to do to the people we bring onto the team.

That offloading isn't a shirking of responsibility. You're not just becoming a bureaucrat, which I will sometimes hear people say. You’re actually bringing in amazing people, who in many cases frankly are going to do the job for this scale better than you can do it right now. They're going to be deeper and more specialized and that's a wonderful thing. We need to change our notion of what it means to in fact be a leader at that phase.

That also means you might have to have an evolution of who those most senior leaders are in order to have that set of skills, and that mindset at the table.

I also see many companies come off the rails in that 30 to 100 because, as it turns out, their total addressable market as they have defined it isn't as big as they thought it was.

Maybe it's gotten fractured by competition, or competitive intensity and density has increased. Coming back to really take another hard look at your TAM is going to be one of the most important factors to do what you said at the very beginning of the conversation—which is how do you keep growing it 70, 80, whatever percent at 100 million in ARR and above. Your TAM dynamics are going to determine that even more than your execution.

We senior leaders need to consider if we are building teams and systems who can in fact be the primary inventors and creators themselves. Or do we have this hero and minions model that isn't just about process, that's just about identity?

Moving to a place where we're okay with other people being the primary inventors is actually an identity transformation, not just a working transformation. And it's something that great founders and great leaders are amazing at doing.

A: One of the challenges that I see a number of teams encounter in this 30 to 100 million stage is on their sales team. The sales folks are accustomed to exceeding quota. If you've worked at a high-growth company through the 30 million ARR stage, you're making a ton of money. Your attainment rates might not be 60% and 80%, like they are in a lot of efficiently run companies. They might be 100% to 150%. Everyone’s used to being in the accelerator stage.

But as you develop the processes, the thoughtful systems, you're getting to be a more efficient machine as a company. It’s hard to make quota and your best reps may exceed quota by a little bit, but it can be a letdown for them making that transition. So how do you keep a sales team motivated when quota attainment changes that way?

S: You really know all the hard spots! I'm sitting here smiling because I've seen it in each company. It's really, really hard. The dynamic for the people who've successfully made the transition is a change in selling skills.

Frequently, you get through this phase where there's a massive tailwind. It’s the truth. You have to call that out. Early on, we'll pay people accelerators, and that's a beautiful thing. But as we become more mature, we do need to change.

What I've seen work is talking to people about the career opportunity to have a deeper, broader set of skills in different sales methodologies. Conversely, there are going to be some team members who are going to want to find the next company who's going to be exactly like yours. Just as a side note, most of the people I've seen do that don't get quite as lucky the second time. They frequently go through one, two, three, four jobs in the next couple of years in search of that same ride.

But having that explicit conversation about a career trajectory around a broader set of skills with the people who are up for that challenge, they're some of your best sellers. That’s because they really know the product, they really know your customers, they have a litany of use cases and stories in their own mental library, and they can then cross over to the next stage and be very successful.

A: Another thing that I've noticed coming up in this 30 to 100 million ARR stage is that you need executives who can do more than simply manage their functional area very well. You might need, for example, someone on the leadership team who is very good at having executive presence, gravitas, when they join customer meetings. You might need someone who is very skilled at being the glue across the leadership team, bringing people together and generating alignment. You might need someone else who's very good at being a cheerleader internally to motivate people, help them see the positive and get them through change. And it might be that you naturally have all these skills across your leadership team, but I think if that's true, it often happens by accident.

More frequently CEOs find themselves in a position where they feel like they have to do all of these extra things themselves. But especially if they come from a particular functional area, they may not be good at those things, and it may not make sense for them to try to force themselves to be good in that area. How do you cover for these extra skill sets that are required, but not specifically related to one function?

S: The first thing is, I love what you're talking about at the beginning there: you have functional leaders versus executives. That’s a very important distinction to make. Actually a founder and I were just talking about this two days ago. She's hiring a set of new people. In my mind a functional leader is really good at their thing. Maybe they're a demand gen marketer, and they know demand gen marketing beautifully. But an executive needs to be able to reach across multiple functions and really be effective at connecting all of the dots.

The expectation should be that they don't just do that when they're asked or when it's required, they just do it. You observe it in them on a regular basis. So, interviewing to find people who display that ahead of time, I think becomes incredibly important.

The second thing is this is a place where sitting down and maybe using a facilitator with your leadership team to use a tool like an Enneagram test or some of these tools that help us identify preferences, work styles, personality profiles. It gives the team a language for talking about the variety of skills that are at the table. If it's done well, the facilitator will bridge it to exactly what you're talking about, which is explicitly talking about the role you play on a team.

If you have a leadership team that's five to ten people, you know if someone is really great at being a spokesperson, or if someone is amazing at being a closer when it comes to recruiting people. Maybe when it comes to debates, somebody's an amazing devil's advocate. Getting to a place where you have language for the skills at the table becomes really important. It needs to become explicit.

A: I love how you framed that. Each member of the executive team has a role to play on that team. The executive team is, in fact, a team that needs its own set of skills, and the role that each person plays may be different from the role that they play within the organization that they run. Those are two parts of their role. It sounds like you think a lot of founders are maybe too narrowly focused on hiring functional leaders as opposed to senior executives. Is that right?

S: It’s because we get desperate. Gosh, we need somebody who figures out X problem, and we can hire a functional leader there. But are they also an executive? I appreciate that's a tough tension to have to manage through. And there's never enough time, obviously.

A: It's also so tough because so many founders have been burned by hiring people too senior too early. Going back to our conversation about the importance of hiring generalists early on, I think a lot of founders think, "Oh, I need that senior person who comes from the top company and has seen the later stages." They bring that person in, and there's organ rejection.

That person fails for often predictable reasons, if you've seen this pattern happen enough. But then when you get to this 30 to 100 million stage, that's actually I think the time when they need to be thinking not just in terms of someone's functional expertise, but their broader executive skillset. How do you correct for that and maybe help founders get past the anxiety that comes with hiring someone who's truly C-level?

S: All of us have had hiring failures where we hired somebody who isn't too senior, but rather whose body of knowledge is for a much, much later stage company. As an example, particularly right around 100, you're looking for people who can take you from 100 to 300 or 500. But that needs to be someone who knows how to be a builder of what has to be created, versus someone who knows how to run something that's at one billion or four billion. Those are very, very different skill sets.

Get really explicit about what you believe is your hypothesis for your ideal candidate profile is. She is going to be an executive, she's going to be the CMO, say. She's going to look across one area, but I need to know she has demonstrated that she knows how to build a digital demand gen function. She knows how to build as a developer.

There's one very large tech company and their executives have this habit of saying, "I look after... “ And every time I hear that, I think, "No, no, no. We don't look after things, we build things here." What they're revealing is that is actually what they do, that’s valuable at their company and they're great at it. I'm super respectful of them in that context, but we must get really specific about the skills we need in our context and not mistakenly traverse too many stages believing the skills will transfer down. It's a timeworn mistake.

The one caveat I would offer is there are people who are builders of $100 million things who work in big companies. Maybe they work on side projects or the labs teams or whatever it is. And they have a history of building things either from scratch or scaling them up.

Those people can be a great fit, but the person who's run a $10 billion P&L coming to $100 million company, it's just a different world with, very different requirements.

A: Steve, this has been an awesome conversation. Thank you so much for joining us today and sharing all your thoughts.

S: Thanks, Allison. Always great to catch up.

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