The other day, for the first time ever, I put together a little bit of analysis on the 24 SaaS companies I’ve invested in since late 2013. 20 have crossed $1m ARR now, a bunch have crossed $10m ARR since, and a handful $50m ARR.

I wanted to go back in time and look at where they all were around $1m ARR. I think I’ve learned that your growth rate at $100k in ARR isn’t representative of your future — it’s too early. That data is simply not predictive. Many SaaS companies don’t really have a repeatable model & engine at just $100k in ARR. But usually by $1m ARR it’s starting to get there. It’s not a full engine yet, but it’s the start, and there is some real measure of repeatability.

4 of them I removed from the analysis — one was acquired early, one went a bit sideways, and two are early and aren’t there yet.

The remainder looked like this at $1m ARR:

Averages are misleading, but you can see the average month-over-month growth rate at $1m ARR of these 20 SaaS startups was 20%, and the average burn rate was $88k a month (that’s net of revenue, i.e. cash out the door each month).

Now a few notes on this cohort: first, all are first time CEOs. And second, none are bootstrapped. Second time CEOs burn a lot more. And bootstrapped startups burn a lot less, by definition. All had raised at least $500k in angel or seed financing before $1m in ARR.

A few take-aways, from what I know today, looking back 1-4 years in time:

The very fastest growth at $1m ARR did not correlate to the very fastest growth at $10m ARR . Two of the 20 were growing > 30% (!) month-over-month at $1m ARR. And today, both are also doing very well. But almost every company in this batch hit a roadblock along the path to $10m ARR (one didn’t hit it until $16m ARR, but still hit one). That roadblock — usually a phase transition in getting the first and later second management teams right — always slows down growth a bit. The two growing 30%+ normalized their growth to the peer group by $10m ARR. The very fastest growing still grew at outlier rates compared to all SaaS startups — but no longer significantly faster than their peer group after $10m-$15m ARR or so.

. Two of the 20 were growing > 30% (!) month-over-month at $1m ARR. And today, both are also doing very well. But almost every company in this batch hit a roadblock along the path to $10m ARR (one didn’t hit it until $16m ARR, but still hit one). That roadblock — usually a phase transition in getting the first and later second management teams right — always slows down growth a bit. The two growing 30%+ normalized their growth to the peer group by $10m ARR. The very fastest growing still grew at outlier rates compared to all SaaS startups — but no longer significantly faster than their peer group after $10m-$15m ARR or so. Almost everyone hit a rough patch of some sort between $1m and $10m ARR . We just discussed this in the prior point, but it bears repeating. 🙂 Overall, growth for all of them was strong on the journey from Initial Traction to Initial Scale. But even the highest fliers had a few slow growth months or quarters or two. The ones that didn’t were simply growing so fast those bumps didn’t show up until later. But they all hit a slow down patch during the transition from $1m to $15m ARR somewhere.

. We just discussed this in the prior point, but it bears repeating. 🙂 Overall, growth for all of them was strong on the journey from Initial Traction to Initial Scale. But even the highest fliers had a few slow growth months or quarters or two. The ones that didn’t were simply growing so fast those bumps didn’t show up until later. But they all hit a slow down patch during the transition from $1m to $15m ARR somewhere. High NPS since the early days is the savior and boost after $10m ARR . The ones that are growing the fastest after $10m ARR not only had high NPS after $10m ARR — but had High NPS very early. But they weren’t always growing the fastest before $10m ARR. High NPS since the very earliest days seems to be the highest correlation to sustained growth after $10m ARR. Boosting your NPS later is important too, but starting low and only going high later seems to drag growth down after $10m ARR. The second order effects (brand, recommendations, upsells) are likely delayed if the earliest customers didn’t grow into super fans.

. The ones that are growing the fastest after $10m ARR not only had high NPS after $10m ARR — but had High NPS very early. But they weren’t always growing the fastest before $10m ARR. High NPS since the very earliest days seems to be the highest correlation to sustained growth after $10m ARR. Boosting your NPS later is important too, but starting low and only going high later seems to drag growth down after $10m ARR. The second order effects (brand, recommendations, upsells) are likely delayed if the earliest customers didn’t grow into super fans. High burn rates are structural, but don’t seem to boost (or harm) growth . The companies with the highest burn rates also had very high growth rates, so that is probably OK from a venture perspective. But the ones with the highest burn rates didn’t grow faster because of it. Rather, they had higher burn rates for structural reasons — highest competition or highest cost of sales.

. The companies with the highest burn rates also had very high growth rates, so that is probably OK from a venture perspective. But the ones with the highest burn rates didn’t grow faster because of it. Rather, they had higher burn rates for structural reasons — highest competition or highest cost of sales. The impact of churn may be overstated — in SMBs only. We all know churn is in the enemy in SaaS. I know it. You know it. But the highest churn rate companies that also still had high NPS & CSAT (i.e., the customers still loved them) continued to grow very quickly after $10m ARR. This is only true with SMBs. But SMBs do churn. Even if they love you. Enterprises that love you should stay forever, however. They aren’t going anywhere.

If you aren’t growing this fast, don’t read too much into this. It’s a curated group. But do learn that happy customers and good growth at $1m ARR is the magic combination. And don’t compare yourself to everyone else too much. All 20 of these SaaS start-ups are doing very well. But the very fastest aren’t necessarily doing better post $10m ARR than the next group down. And the slowest (but still fast) growing at $1m accelerated on the way to $10m ARR and had the highest valuation in their next round.

And whatever you do — don’t just claim your customers are happy. What you think your NPS is and how happy your customers are and reality are often wildly divergent. Measure your NPS now. Segment it. And drive it up ASAP.

(p.s. I know the chart above isn’t perfect and combines a few data points, but it does a good job of representing the overall trends and data)

Published on June 2, 2018