Walking Away from $1M in ARR: Inside Folio's Gutsy Pivot from Startups to Enterprise
Picture this: your startup just hit $1M in annual recurring revenue. The champagne's on ice. Your team's celebrating. Your metrics are up and to the right. What do you do next?
If you're like most founders, you double down. But Cathy Huang? She looked at Folio's success and made a decision that had The Pitch investor panel picking their jaws up off the floor: she decided to start over.
"We hit $100K in monthly recurring revenue last July," Cathy told us, a hint of nostalgia in her voice. "It was incredibly exciting. Then we discovered this work-study funding opportunity – and made the difficult decision to scrap everything."
The Plot Twist Nobody Saw Coming
While digging into the market, Cathy's team uncovered a goldmine: billions in untapped federal work-study funds. When COVID hit and campuses shut down in 2020, the government did something unprecedented – they opened these funds to for-profit companies.
Folio jumped on the opportunity, becoming the first company ever approved as an employer of record for work-study funds.
Then she discovered that 85% of internships actually come from large enterprises, not startups. That $1M in ARR? All of it was from startups who wanted to offer an internship program on the cheap.
Impressive as it was, Cathy knew that she’d only be able to capture 15% of the market if she continued down this path.
So she pivoted the business… again.
The Hard Truth About Big Dreams
Pivoting from startups to enterprise isn't just about adding a few zeros to your contracts. Cathy had to make the kind of decisions that keep founders up at night. She let go of one-third of her team – the same people who'd helped build their initial success.
"If you're going to try to do something really hard, that's really new, you don't have time to train," she told us. You could hear the weight of that decision in her voice. "That was painful, but it's also, I think, the right decision to make."
Gone were the days of $5,000 contracts. Folio now plays in the big leagues, targeting enterprise deals worth $100,000 or more.
Enterprise Isn't for the Faint of Heart
Building for enterprise meant she needed to reimagine everything. Folio had to create custom integrations with HR systems, payroll providers, and applicant tracking systems. It’s a serious technical lift, this is why she trimmed the team and decided to raise additional capital.
But even after they stopped marketing to startups, Folio still gets about 10 new startup signups every week. But they're keeping their eyes on the bigger prize.
The Dream That Makes It All Worth It
When you hear Cathy talk about the future of education, you start to understand why she was willing to blow up a successful business model.
"The future of education looks very different," she says. "If it costs $50,000 to host each intern, it's impossible for us to create the 20 million internships that we need to serve 20 million students."
What This Means for You
If you're building something big, here's what you can learn from Cathy's gutsy move:
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Don't let success blind you to bigger opportunities - sometimes you need to burn the boats to reach new shores
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Different business models often require different team capabilities - be ready to make the tough calls
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Keep your long-term vision in focus, even when those short-term metrics are looking mighty fine
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When market conditions create unique opportunities, move fast and don't look back
Having said all that, it’s possible that Cathy made the wrong call! We may not know the answer for a while, but the important thing is she went hard in one direction.
That’s the kind of leadership that’s needed when running a startup.
