Breaking the €10m ARR software ceiling

Breaking €10m ARR is a significant milestone for a software business, and one that requires a shift in your thinking as a founder. The next stage of growth means developing scaling strategies and building the right systems and processes. But amidst all the change, founders often overlook the importance of having the right functional leadership in place.  

 

While a software business can reach €5m or even up to €10m ARR with the original founding team, the demands on those individuals start to evolve rapidly as it grows beyond that level, and experienced functional leadership becomes critical to scale core areas of the business.  

 

It can help to think of this as an evolution from directors to chiefs. While a director (finance director, operations director, etc.) implements the vision of the founder, a chief (CFO, COO) sets the strategy and manages upwards. This subtle but important shift frees the founder to focus on what they’re best at, and what the business most needs them to do.  

 

 

Leadership change is personal  

But, of course, leadership change differs from operational change because it’s highly personal. It requires founders and investors to look honestly at where the current team lacks skills, expertise, and experience for the next stage of the journey, as well as difficult conversations with loyal and valued colleagues.  

 

This discomfort around leadership change, combined with concerns about spending top dollar for leadership talent, means software founders often delay making tough decisions. The result is they hit a ceiling at around €6-10 million in turnover, when the limitations of their current team become apparent. By then, they’ve lost valuable time. 

 

 

Plan for change early  

Instead, founders should be thinking about senior hiring as early as possible in their plans to scale, to ensure they have time to assess and map out business needs, run a proper search, and give new team members time to bed in and shape the strategy. When hiring for a small, tight-knit team, this planning and preparation also ensures new leaders fit with the company culture, reducing the chance of a bad hire or bad timing, which can kill momentum. An individual from a large corporate trying to impose big-company process on an entrepreneurial business can quickly drain team resources and motivation. 

 

 

Investor and advisor support  

Another barrier is that founders often haven’t scaled a business before, so they don’t automatically know what good leadership looks like at this stage or the next. This is where investors and advisors can be incredibly valuable in helping founders define what they need and how to identify it during the hiring process.  

 

Founders often look to recruit from a very narrow talent pool of people they know or have had recommended to them. But this doesn’t mean they’re the best person for the role. In most cases, casting the net wider exposes them to higher-quality candidates. Our role as investors is to open up these networks, including introducing leaders from across our portfolio, to provide a benchmark of ‘what good looks like.’  

 

Investors can also support by meeting candidates for an additional sense check, to avoid missing any red flags. Of course, the founder or founding team must own the process; they need to believe in the hire and need the chemistry. But they also need the confidence to say no – even if it’s the third interview.  

 

 

Prioritising finance, tech, and sales  

Successful leadership hiring isn’t just about finding the right people but also prioritising the roles that will make the biggest impact. For a business aiming to break €10m ARR, that usually means finance, technology, and sales.  

 

Tech and sales are usually heavily driven by founders in the early growth phase; however, there comes a point where the business needs experience in scaling infrastructure, teams, and operating at scale. The right CTO, CSO, or CRO can be a game-changer.  

 

Meanwhile, an experienced CFO is critical for evolving the finance function from day-to-day cash management and bookkeeping to acting strategically to analyse the business, spot and overcome market challenges, drive M&A, and forecast where the business is heading.  

 

 

Raising the bar  

Introducing the right leaders at the right time is transformational for a growing software business, bringing fresh energy and ideas and raising the bar for what’s possible. It also takes the pressure off founders, enabling them to focus on setting the direction, culture, and engaging more meaningfully with staff and stakeholders.  

 

The big challenge is having the foresight to recognise what needs to change and then make tough decisions to move forward. For founders who have lived and breathed the business since day one, leaning on investors and advisors can ease that weight on their shoulders. When someone walks in and knows what good looks like – not just for the job, but for the team and the systems around it – they lift everything. 

 

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John Messer is Founder and Managing Partner at Copilot Capital

 

Main image courtesy of iStockPhoto.com and Fasai Budkaew