Efficient Growth: The B2B Strategy for Sustainable Success

The past two years were fairly easy for fundraising; by extension. Spending was largely unchecked — budgets expanded fast with little pressure to justify returns. Startups had the money to spend. So we saw growth inflation across the board as more and more companies benefited. What we’re seeing now is a market correction.

Business-to-business companies, especially B2B software as a service companies, have been the subject of stories about the negative effects of the “growth at all costs” growth model. This is especially true right now, as news stories about layoffs from high-growth companies are coming out every day. Crunchbase reports that, as of early October, more than 42,000 U.S. tech workers have been affected by massive layoffs in 2022.

These mass layoffs highlight an important learning opportunity for B2B leaders: Sustainable, profitable growth is the best path forward. Without this mindset, B2B tech companies could find themselves cycling through hiring and firing employees, slashing and increasing budgets, and creating more challenges for teams to meet their aggressive growth goals.

Leadership built plans around cheap capital and easy growth. Now they're rebuilding those plans from scratch.

What's "efficient growth" in B2B?

Efficient growth is a simple concept. It relies on two main components:

1. Building a business that can support sustainable growth.

2. Building a model that can survive up until that point.

Some companies invest so aggressively in growth that they need continuous raises just to stay operational. And when they can’t, or run out of cash runway, they start slashing budgets and rosters. This raises an important question that founders, including myself, must answer: Is the company growing in such a way that it needs to raise money to survive? If yes, the company is operating outside the bounds of efficient growth.

As a co-founder and CEO, I understand the struggle of starting and growing an early-stage startup. From the beginning, we adopted the mindset that we would always strive to survive within our means. Growth should operate independently from a raise, while a raise serves as a tool to accelerate it. The efficient growth mindset exists somewhere in the middle of bootstrapping a company and raising a lot of funds.

Which metrics matter for efficient growth?

Which metrics should leaders track to make sure they are on track for efficient growth? Our company aims for a burn multiple of one, which means that it costs the company a net burn of $1 to generate $1. However, there are other indicators that show whether you’re on a path of efficient growth that companies can evaluate.

• ARR, or annual recurring revenue, compared to how much money was spent.

• The so-called “magic number,” a formula that measures new ARR from sales and marketing expenses.

• Your sales attainment rate, which indicates whether your sales team is hitting its quota and if you have the wiggle room to hire more representatives.

• Monthly revenue per employee.

However you decide to track efficient growth, the goal is clear: getting back to sustainable growth that works for the company, its employees, and its investors.

How can you maintain an efficient growth mindset as you grow?

After a successful raise, external pressure from investors and inflated headcount targets often push leadership toward growth-at-all-costs decisions. In fact, many startups have fallen into this trap and ended up having to make significant cutbacks on their budgets and growth goals. Those cutbacks often hit sales and marketing first, setting pipeline back by quarters.

When our company achieved a Series A raise, we were determined to keep pursuing high growth but always kept our eyes on efficiency. So, how did we maintain this efficient growth mindset after a big raise?

• Strive for high output and prioritize the quality each employee delivers. Keep headcount grounded in business output rather than treating it as a measure of growth success. Put more value on the quality of output each employee can provide, with the size of your team as a secondary consideration.

• Track champion lifetime value. Customer lifetime value is a known metric, but you should also measure “champion LTV.” As a company grows, your relationships grow with it. And more people can bring your product and services to their next company. End users, decision-makers, and influencers are all potential sources of new business for your company. When a champion changes jobs, they're one of your warmest potential buyers. Tracking those moves and reaching out within days consistently outperforms cold outreach. Expect lower CAC, higher conversion, and shorter sales cycles..

• Set clear guidelines about when to spend and when to cut the budget. Right now, leaders are being forced to make such guidelines when they should have been using them all along.

• Accept the new reality and adapt your plans quickly. Remember, efficient growth is vastly different from growth at all costs. An efficient growth mindset means accepting that market conditions can change, and revenue goals can and should change with them. If there is a change in the reality of what “good” will look like for your company and your market, embrace the new reality, go back to the drawing board and adapt your plans as quickly as you can.

If the past two years were all about growth at all costs, the next two will be about efficient growth. Companies will cut what doesn't generate pipeline, double down on what does, and hold their teams accountable to revenue — not activity.

Growing a startup remains an evolving challenge, and the approach I've outlined reflects one proven path among many. However, the approach I’ve outlined has helped my team grow through a funding round and economic downturn. Maintaining that discipline through a raise and a downturn is what kept us growing without burning cash we didn't need to.