When Do You Need Revenue Operations?

KyleJepson
by: Inbound Professor
Inbound Professor

Over the past year or so, I’ve talked to about 30 different operations professionals, trying to wrap my head around what their world is like. I asked them all a lot of questions, but there was one question in particular I tried to ask them all:

 

At what point in a company’s growth should its leaders invest in operations?

 

The answer I got from every single ops professional was essentially the same:

 

Much earlier than they think!

 

I heard it over and over again, and it got to the point that I was starting to believe that maybe a startup’s first hire should be its head of operations. But as I’ve dug into this more carefully, I’ve come to understand both when the right time to invest in operations is and why every operations professional feels that the investment at their company came too late. I’d like to share my observations with you.

 

Why Operations Professionals Feel the Way They Do

If you’re in operations, you know better than a freediver what it feels like to be underwater. You know better than a firefighter what it feels like to be surrounded by flames and explosions. The promise of operations is that it can be a strategic role where you can fundamentally change the way the business functions, but the day-to-day reality is more often running from one crisis to another, patching things together, and trying to get on top of an endless backlog of urgent tasks. A lot of these problems are side effects of the unsystematic way the business was constructed from the beginning. You can see all the flaws, and you think to yourself, “If only someone had been thinking about operations from the get-go, things would be so much better now.”

 

This seems to be the case at almost every company I talked to, and I started wondering why. Why haven’t we figured out a smarter way to found a company? Why don’t company founders build their businesses for scale from the beginning?

 

So that became my next research question, and what I found surprised me. But before I share that, let’s talk a little bit about what scale even is.

 

What Is Scale?

Simply put, when a company achieves scale, it breaks out of linear growth. Before reaching that point, a company can only grow its revenue by adding headcount. You want more sales? Hire another sales rep. You have too many customers for your support team to support? Hire more support reps. The growth of your revenue is tied to increasing headcount, and that’s a really expensive way to grow. Worse than that, it’s a temporary strategy at best—eventually, you will hit a wall. After all, you can’t hire every sales and support rep on the planet. Even if you could, the cost of acquiring and training that ever-growing team would eat up all your resources, preventing you from investing in other parts of your business.

 

Of course, there is the option to stay a small business forever—and that’s fine! I’ve known and loved and worked for small business owners, and I have nothing but good things to say about them. If that’s your goal, you can settle into an equilibrium of steady revenue and static headcount and sustain that model for years and years. However, if your goal is to continue growing, extending your reach to more customers in more places, increasing your list of offerings, deepening your impact on the world—well, then you’ll need to find a way to grow revenue without increasing headcount at the same rate.

 

If you can find a way to do that, a magical thing will happen: Instead of your revenue growing incrementally every time you add a new head, your revenue growth will curve upward, breaking the linear trend, and instead of being caused by hiring, it will enable hiring. And research and development. And international expansion. And a host of other investments in the business that linear revenue growth can’t afford.

 

It sounds great, right? So that brings us back to the previous question: Why don’t startups optimize for scale from the beginning?

 

A Hypothetical Story

Imagine you’re starting a business. (Some of you won’t have to imagine it—you’re already doing it!) You have a product or service that you think people will like, and you have a hypothesis about what sorts of people will like it. So you go out into the world and look for those sorts of people and present them with your offering.

 

Some people buy it, some don’t. You take some notes and update your hypothesis, and soon a higher percentage of the people you approach end up buying from you. But as more and more people buy your offering, you discover a sizable percentage of them don’t actually like it. Some people even hate it and wish they’d never bought it. Luckily, some of these people are kind enough to give you feedback on why they don’t like it, so you make some changes, and your offering gets better.

 

Eventually, there’s enough demand for your offering that you hire a small sales team, and they go out and start selling it. Each salesperson has their own technique for finding leads and selling your product, and some get better results than others. You’re smart enough to investigate why this is, and you discover truths about how your target customers like to be interacted with. This leads you to a set of best practices that you circulate with the members of your sales team, and slowly a true sales process starts to emerge.

 

Meanwhile, you haven’t invested much in customer support because you haven’t had very many customers. But now your sales team is doing such great work that you have a substantial pool of customers, and they need support, so you build a team for that. And it’s the same story. Some of your support reps drive better results than others, so you investigate and find best practices, and soon that team is humming along, too.

 

I haven’t even mentioned marketing. Perhaps you invest in marketing really early on, and as you learn more about your customers and as your product matures, your marketing adapts and keeps up. Or maybe you’re just now getting that marketing engine going because you wanted to wait until you had your customers and product figured out. Either way, through another series of trial and error, you eventually get your marketing right, too.

 

Now you’ve got marketing, sales, and customer service all doing really great things, and your company is growing! But it’s linear growth. You can only grow sales capacity by adding to the sales team, and the same is true for customer service. Your customers love you, and demand for your product is up, but you’re having trouble keeping pace with it. It feels like the wheels are starting to come off, and you need help.

 

You need operations.

 

So you hire an operations person, and for the first time in your company’s short history, there’s a person whose full-time job is to take a close look at your marketing, sales, and customer service processes and the systems that support them.

 

And it’s all bad news.

 

The handoffs from marketing to sales and from sales to customer service have huge gaps in them, and you’re losing a ton of leads and customers in those gaps.

 

Your sales pipeline is full of holes. The conversion rates from one step to the next are abysmal, and there are duplicated and missed steps all over the place.

 

And don’t even ask your new ops person what they think of your tech stack. As far as they’re concerned, it’s just a bunch of unrelated tools held together with chewing gum and baling wire, and they’re worried if they touch it, it’ll all fall apart.

 

That poor, overwhelmed ops person! They come home at the end of the day, and they say to their dog or their partner or their empty apartment, “I like this company, but they should have invested in operations a long time ago.”

 

Why Startups Aren’t Built for Scale

Take a look at that hypothetical story. When was the right time for that company to invest in operations?

 

That’s a really hard question to answer, but I see three basic options: They could have invested at the beginning of the story, somewhere in the middle of the story, or at the end of the story. 

 

Let’s think through each of these.

 

Let’s say they invested at the beginning of the story when the founder sets out to secure the very first customers. Instead of going out into the world, the founder could have brought on an operations person and said, “I have this product, and I have a hypothesis about who might want to buy it. Can you build me an operations engine that will get my product in front of as many of those people as possible?” But that would be incredibly dangerous, right? In the story, as I told it, the founder quickly discovered that their intuitions about their ideal customer weren’t exactly right, and they got a lot of valuable feedback that helped them improve their offering. So introducing operational rigor at this point would have been too early. The company wasn’t on the right path yet, so using operations to increase their velocity would have just led them further afield.

 

Okay, so what about the middle of the story? I see a few opportunities there. For one thing, the founder could have brought on an ops person to figure out the sales best practices and train the team on them. That makes a lot of sense, and a lot of companies do that — a add a head for sales ops or sales management or sales training to add some rigor to the sales process. Great. And then when it came time to build out the customer service team, the founder could have replicated that playbook and brought on an ops person or trainer or whatever for the new customer department. Fine. And same for marketing. Grand. But then this leads to a new problem: Silos. Marketing, sales, and services each have their own strategies and goals and their own tech stacks. Sales has one way of processing orders, and customer service has a completely different way. The customers feel the disconnect and don’t like it. Furthermore, the founder has trouble pulling these three different datasets together into a single source of truth. This is probably better than waiting till the end, but we’re still going to have to bring in someone to iron out the inconsistencies, and they’re still going to see a lot of chewing gum and baling wire. Instead of avoiding the problem altogether, we just change its form a little bit.

 

So that leaves us with investing in ops at the end of the story, which is how the story already reads, and that’s clearly not ideal, either.

 

So what is the right answer? How do you optimize for scale from the beginning?

 

It’s a Trick Question!

Near as I can tell, you can’t. You can’t avoid the inefficiencies of early-stage linear growth—and you shouldn’t want to!

 

This is the key insight that I think so many people are missing: Inefficient, non-linear, unscalable growth is a vital part of every company’s growth.

 

In the hypothetical story above, one of the most important things the founder does is going out into the world and getting feedback on their product and positioning. The founder gains some important insights and makes some important changes. And that same thing happens with the sales team. And with the customer service team. And with the marketing team. They all learn by trial and error; they all gain important insights into what does and doesn’t work. They probably make a lot of mistakes along the way—maybe even some really serious ones—but eventually they get the right product in front of the right customer. That unlocks the demand their company needs for long-term growth, and they bring in an ops person to capitalize on that demand.

 

Yes, many companies wait far too long to invest in ops. Yes, most companies should consider having a full-time ops person before they feel the need. But there’s no avoiding the messy, painful beginning stages of getting things wrong before you can get them right.

 

A Quick Side Note About Butterflies

My kids recently got a book from the library about caterpillars and butterflies, and it turns out metamorphosis is way weirder than I ever imagined. I always assumed that, if you cut open a chrysalis, you’d find a bizarre creature that was somewhere between a caterpillar and a butterfly. Like the weird in-between stage we humans go through during our teen years when we’re a mish-mash of childlike and adultlike pieces.

 

But it turns out that isn’t true.

 

If you cut open a chrysalis, you’ll find nothing but goo. Once the caterpillar’s inside that protective casing, it releases enzymes that literally digest its entire body until there’s nothing left but a few cells floating in a sea of protein juices. Using the protein as fuel, those cells grow into a butterfly, building the entire body from scratch.

 

I think this is an apt metaphor for how companies achieve scale. At first, your company is a caterpillar, inching along, eating everything in sight, growing fast but moving slow. You want nothing more than to take flight, but you don’t even have wings. Then you enter the chrysalis. You think you’re on the path to flight, but suddenly everything’s falling apart. Everything you’ve worked so hard to build is dissolving into primordial soup. Disaster seems certain. But there within the crucible of growth, you have everything you need to move to the next stage. You just need to figure out how to put it all together. It’s terrifying and messy and painful, but in the end, you emerge a beautiful butterfly, and soon you’ll be soaring with the birds.

 

One more fun fact about butterflies: Somehow, despite a complete restructuring of their entire physical structure, they remember things they learned as caterpillars. If you teach caterpillars to avoid certain smells, they’ll still avoid those smells as butterflies. So as your company metamorphosizes from startup to scaleup, don’t lose the learnings from those early stages. When you’re turning to goo in the crucible of growth, don’t regret the steps that got you there. You were just being a caterpillar, which is exactly what you were meant to be. But now’s the time to take the pieces you have and rearrange them into something better.

 

And that’s the heroic job that ops people do. They are those little cells floating in the sea of digested proteins. They pull order out of the chaos. And it will probably always feel to them like they’re on the cusp of disaster — it will always feel to them like they were brought in too late— but there’s no avoiding the caterpillar stage of your company’s development. It’s just one of the steps on the way to scale. But metamorphosis is another one of those steps, and you won’t survive that without somebody paying attention to your company’s operations, so don’t wait too long to bring on that ops person. Without them, you’ll be a caterpillar forever.