Updated: Nov 12, 2019
Does your 3 to 5-year growth plan pass the first test?
Great you have made a growth declaration for your SaaS business.
You will be at a $50MM ARR run rate in 5 years.
And your current run rate ARR is $3MM
That is a Compounded Annual Growth Rate (CAGR) of over 75%.
After all you have 5 years to figure it out.
Your projections show a negative EBITDA of 25%.
No big deal, you will still be a ‘Magic 50’ SaaS Company.
One where growth rate (75%) plus EBITDA (-25%) is 50% or higher.
The financial markets will love you for that.
(It used to be Magic 40 but the financial guys can’t help themselves).
You will be operating at an elite level.
Here’s the problem.
Your growth rate over the past 12 months is 65%.
If this growth gap continues, it is big trouble to your plans.
As this chart shows the lines diverge at an accelerating rate.
At the end of five years, your ARR is short by over $13MM.
That 10% gap turned into a 27% miss.
And that doesn’t factor in the natural drag on growth rates.
It’s really tough to maintain high growth rates as the numbers get bigger.
Gravity is a powerful force in business as well as the physical world.
So what do you do.
You need to find that extra 10%.
Where will it come from?
As discussed in a previous post, there are two key variables to impact; Price or Quantity.
And there really are only 3 places to look for more P or Q.
Optimize, Extend, or Expand.
First, can you optimize your current go to market?
Can you increase effectiveness enough to make up the gap?
Can you impact new customer acquisition rates or churn rates enough to dial up the Q?
Spend more face time with customers and prospects.
Really get under the covers of their businesses.
Better understand your user, buyer, and influencer personas.
Find out what obstacles they experienced to buying from you.
Remove those obstacles.
Organize to smooth your customer's path, not your effort.
You will be surprised at the result.
This path can have the fastest impact, but will it be enough?
Second, you can look to existing customers.
Can you offer new capabilities or offerings that they will value?
That they will pay for?
Do your current buyers have the capacity to spend more?
Or are they tapped out?
Can you increase your P enough through upsell to close the gap?
There is a lot of speculation here.
But at least you can engage with your customers to vet this path.
And if the path is valid you can impact the numbers in as little as 9 to 18 months.
Finally, you can look to adjacent markets or channels.
Can your products appeal to other customer segments?
Are there additional channels you can open up to reach new customers?
How much will this path impact your product roadmap?
How much will it stretch your marketing and sales teams?
Do the P times Q metrics align with your current model or are they significantly different?
The more numbers and models you have to track, the more complex the business becomes.
And complexity is the enemy of the emerging SaaS business.
Expect to take 6 to 9 months researching this path.
Engage with prospective customers and partners.
Understand the unique needs, idiosyncrasies, and pressures.
And when you do pull the trigger, don’t expect any real impact for at least 24 months.
So, what kind of plan do you have?
One that stands the scrutiny of your markets?
Or is it just a pipe dream?