T2D3 framework: how startups hit $1B value in 5 years
T2D3 stands for “triple, triple, double, double, double” and is a business tactic invented by Neeraj Agrawal – SaaS investor and general partner with Battery Ventures. According to this tactic, SaaS companies should increase their revenue growth three times for two years, then double it for three years.
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This way, businesses are supposed to go from $1-$2 million to $100 million in 5-6 years, plus earn a $1 billion valuation and achieve the infamous unicorn status.
Gaining data insights into your business value from investors helps you see new growth opportunities – and that’s what T2D3 is all about.
Making $100 million in five years is a rather ambitious plan. So, how do you make it happen? In today’s article, you’ll learn to get all the information on the T2D3 framework and how it can lead you to success.
The origins of T2D3
According to Neeraj himself, building a billion-dollar startup company is much like climbing a mountain: focusing on one step at a time is what essentially gets you there.
“You succeed by placing one foot in front of the other, of course — and more pragmatic, in that the journey is always broken into multiple, distinct phases,” Neeraj said to the TechCrunch website.
As Neeraj tells it, he started seeing the resemblance between his job and mountain-climbing after something his mom said. She and Neeraj’s father work in a completely different field than him – they’re not too familiar with what their son does or who he works for.
One time, Neeraj’s mom was having a conversation about her son’s career with some friends. Instead of saying Neeraj works at “Battery Ventures”, she accidentally exclaimed: “He works at Battery Adventures!”
This strange experience got him thinking: maybe, building a successful software company is much like going on an “adventure,” not just a “venture.” Neeraj’s role as a venture capitalist is similar to what a travel guide essentially does: as someone, who’s climbed the mountain before, he knows the ups and downs and can guide others.
T2D3 in 7 steps
Of course, there are numerous frameworks that can help you reach a $1 billion valuation. However, T2D3 is a well-documented one – it’s been proven to work for many billion-dollar SaaS enterprises, including Zendesk, NetSuite, and Salesforce.
Now, the T2D3 itself can be split into 5 phases based on the yearly revenue you’ll be generating. Typically, businesses start taking the T2D3 course after finishing product development, identifying partners, and acquiring at least a few loyal customers. So, let's begin the go-to-market path!
Step 1: Product development process towards a product-market fit
In this step, you should study your customer pain points, then align your product to solve those. Now, as a business founder, you might be asking: how exactly do I know I've established a product-market fit?
According to Neeraj himself, there’s no way to know that for certain.
Here, reviews help to discover the pain points – or, you can survey your customers or ask them directly. If you don’t have any customers yet, go through your competitor’s reviews, and you’ll definitely find useful data like, “Oh, this service solved a problem I’ve been having for the longest time!” If an issue is mentioned several times, you’ll know it is a pain point.
Once product development is done, see if your service is solving the problem your clients have: analyze audience insights data, survey your clients, or have a salesperson ask them directly.
Finally, make sure this pain point is in the top two pain points for your target customer.
Step 2: Reach a $2 million ARR
Typically, companies are closing all the new sales around this time. So, you should be landing your target starter clients and putting the finishing touches to your sales pitch and funnel strategy.
Say you’re closing deals in size $30K-$80K on average. By this point, you should’ve acquired somewhere between 30 to 60 clients. Usually, completing this step takes a year or two.
Step 3, year one: Triple to $6 million
Step three is where your go-to-market path begins. There’s a common mistake startups make: to reach $6 million dollar revenue, they sell the product to nearly anyone who’s just remotely interested. However, this gives no guarantee the customer is loyal.
One of the choices here is hiring an experienced sales VP and a team of sales reps. In other words, you need someone who will thoroughly analyze audience insights. A focused team knows who the ideal customer is or how to benefit from the market peak. This way, you’re making data-based decisions and building a stable base for consistent company growth.
Step 4, year two: Triple to $18 million
The second year of the T2D3 cycle is all about figuring out if your customers enjoy the product enough to renew their plan – that’s why acquiring good-fit clients matters. Chances are, they’ll recommend your product to friends and colleagues or leave a positive review.
Another thing you’ll notice during this step is that you’ll be demanded to hire more sales reps. As a CEO or a company founder, you’ll be pushed away from day-to-day happenings, allowing you to focus on other areas. As Neeraj says it, the moment sales are closed without the founding members getting involved is truly magical.
Step 5, year three: Double to $36 million in ARR
By the third year, you should have formed a strong sales team led by skilled managers, focused on international sales. Once again, you should prioritize quality over quantity: instead of entering multiple regions at once, build a strong presence in a couple of countries.
Step 6, year four: Double to $72 million
During this step, you should work on ensuring inside operations are running smoothly. This includes promoting, hiring, social media managing, content measurement, and other processes. All of them must be in-sync with non-linear growth and the launch of reseller or partner network.
As Neeraj suggests, you should get a reseller network running only if you’ve reached a $50 million run rate – this way, partners will choose your business over others.
Step 7, year five: Double to $144 million
Almost there: with everything going as planned and essential data metrics performing well, you’ll soon be hitting the $1 billion valuation. At this stage, you should consider adding the rule of 40 to your list of metrics.
In case you’re not familiar with the term, it’s a rule followed by startup companies. Basically, if your growth rate and profit margin are no less than 40% combined, your business is doing well – it could double in its value.
As you might have guessed, after completing the 7th step, the next milestone is to scale up to that $1B in revenue.
Keep in mind that T2D3 doesn’t completely define the success of your company. It’s a way investors use to measure the potential success of your business – many other points go into account. Plus, there are numerous companies making no profit, yet they’re highly valued.
Neeraj Agrawal considers T2D3 as a great strategy for SaaS businesses to succeed. Yet, he admits it isn’t the only way to crush goals and reach high value. All in all, you should consider the greater context of what success for your business is. As they say – see the bigger picture.
Published on Dec 10 2020
WRITTEN BYRoberta Aukstikalnyte
Roberta is a content writer and editor who strives to share industry updates with her readers. Her professional background includes Public Relations and Customer Success.
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