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Here’s a common conversation I have with entrepreneurs:

Entrepreneur: I want to raise a $2 million Series A.

Me: Great. How much recurring revenue do you have now?

Entrepreneur: We’re just getting started and have a few pilot projects.

Me: Cool. What’s your annual revenue run-rate?

Entrepreneur: Well, we don’t have any revenue yet.

Me: Unfortunately, the chance of you raising a Series A is slim-to-none.

Of course, investors want a great management team, market, traction, growth-rate, and, naturally, revenue. So, what’s a good target run-rate to raise a modest Series A (e.g. $2 million – $3 million)? From my experience outside Silicon Valley, I’ve found entrepreneurs usually need to have $250,000 – $500,000 in recurring revenue (annual run-rate) to raise a couple million dollars from investors.

Now, investors typically want to buy 20-35% of the company with each round of investment, so that means a $2 million investment for 25% of the company results in a pre-money valuation of $6 million and a post-money valuation of $8 million. Is a company with $500,000 in recurring revenue worth $6 million? That’s for the market to decide.

What else? What are some more thoughts on revenue run-rate to raise a Series A?

Whenever I give a talk and tell the Pardot story, one of the 10 most popular questions I get is “did you have a plan to sell the company?” My response is always that our goal was to build the best company possible and to make sure that it met the two following conditions:

• Be the best place to work and the best place to be a customer
• Follow the core values of positive, self-starting, and supportive

If a potential acquirer comes along and makes an offer we can’t refuse, we’ll look at and consider it (which is what happened). Put another way, the business isn’t for sale, but tell me what you’re offering.

Yes, it’s common for entrepreneurs to have a financial goal and to sell the company when the financial goal is met. Based on how much luck and timing is involved in a successful exit, I think the best approach is to build a company to last, not to sell.

What else? What are some more thoughts on build to last or build to sell?

Recently, I read a post about how entrepreneurs like to think that growth is readily planned and predictable. Then, an employee that had been in a hyper growth startup, said “no”, it’s not the planned growth that everyone thinks. Rather, it’s like striking oil and the resulting mad dash to take advantage of it as quickly as possible.

Here are a few thoughts on planned growth and striking oil:

• Consumer-oriented startups are more likely to strike oil and achieve hyper growth, but more entrepreneurs will be struck by lightning than achieve this level of growth (read about the Beanie Babies story)
• Software-as-a-Service (SaaS) startups that have a human-lead sales process are going to be limited by the number of sales people, and thus growth can be much more planned
• SaaS startups with a self-service sales process that don’t require sales people can grow faster, but are more rare
• Growth planning is more realistic once a repeatable customer acquisition process is in place (read the four stages of a B2B startup)

Planning and thinking through different areas of the business is important regardless of growth rate (use the Simplified One Page Strategic Plan). Entrepreneurs would do to plan for growth and know that it’s much more complicated than it seems.

What else? What are some more thoughts on planned growth and striking oil?

We’re going through a small pivot right now and it helped me realize that pivots result in an awkward transition period. Internally, we know the direction to go, yet we still have a number of responsibilities and relationships that we need to continue to honor, making progress more difficult. Balancing new and old is a challenge.

Here are a few thoughts on the awkward transition during a pivot:

• Start selling the new vision right away even if the product isn’t going to be ready for some period of time
• Set internal expectations that it will be extra difficult for a period of time before results materialize
• Transition the marketing collateral to the new messaging as quickly as possible
• Make a plan to transition the customers that are no longer a good fit
• Educate partners on the new direction and set the appropriate guidance

Pivots are painful, especially when there’s the start of a real business already in place. When the new direction is clear, it’s much more costly to cling to the past compared to pushing forward.

What else? What are some additional thoughts on the awkward transition period during a pivot?

In sports, there’s this concept of “big momentum”, or “Big Mo”, as it is fondly called. Similar to the idea of being in the zone, Big Mo happens when the last few shots turned out well and now there’s more confidence for the next shots. Just like with sports, Big Mo has a presence in the startup world. A few big sales wins come in, engineering makes a major breakthrough, and suddenly it feels like the whole organization is executing at a higher level.

Here are a few thoughts on Big Mo:

• Look for Big Mo patterns and find ways to keep it going
• When Big Mo comes, acknowledge it companywide and celebrate
• When Big Mo goes, recognize the new normal and keep pushing forward
• Use Big Mo as a talking point when recruiting, selling, etc

Recognize Big Mo the next time it comes along and reflect on how it impacts the organization. Big Mo is real and powerful.

What else? What are some more thoughts on Big Mo in startups?