80% of venture capital investments take place in the enterprise

SaaS + Software
Quote in Growth Strategy

Quote Info

Characteristic 1: Product Is Core to the Operation of the Business The product is essential to the operation of a customer’s business. For example, Zuora enables subscription billing; Expensify manages employee expenses; ZenDesk builds customer support systems. Customers can’t function without it.

Characteristic 2: Cost/Value Proposition is Straightforward The product is either cheaper than the alternative: hiring an engineering team to build and maintain a custom implementation of the product;

Or provides network effect benefits otherwise impossible to find: LinkedIn’s network effects drive the adoption of LinkedIn’s applicant tracking system;

Or offers sophisticated technology that is difficult to replicate: Infer builds machine learning models on top of sales data to improve company performance. Not every company has ML expertise.

Characteristic 3: Finances Its Own Growth
The company benefits from negative working capital and shorter time-to-market.

Negative working capital means customers pay at the beginning of a month or quarter or year to use the product. These customers pay to improve the software over time by providing cash up front, reducing the cash needs of the business. Because customers are paying to improve the product, rather than buying a “production-ready” enterprise product, the company can go to market much earlier in their development.

At the outset, the company targets the less sophisticated SMB segment which doesn’t demand the compliance, heavy security and integration features needed by enterprise customers. This also decreasing time to market and provides revenues and product feedback in the short term.

Characteristic 4: Efficient Sales Model
The company is able to recoup its cost of customer acquisition, be it online marketing or inside/outside sales, in less than a year. Ideally, the company offers 12 month contracts and the company can be profitable on a customer before the customer has an option to churn. Hand-in-hand with this idea is strong customer retention.

Characteristic 5: Market Leadership The company is already a market leader, is on the path to becoming the market leader, or is operating in a segment with little viable competition. In SaaS, sales and marketing execution are critical to the success of the business. Competition increases customer acquisition costs and increases sales complexity.

Tomasz Tonguz

More SaaS + Software Stats

26% of SAAS companies with at least $15MM in 2015 GAAP revenue had a revenue growth rate + EBITDA margin of 40% or higher

Negative Churn and Expansion Revenue

The statistic shows the worldwide IT spending on enterprise software from 2009 to 2020.

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Gross dollar churn among companies with an internet go-to-market strategy saw a meaningful increase, up from 8% in 2015

51% of large (revenue >$2.5million) SaaS companies use field sales as their primary method of distribution

SaaS businesses face significant losses in the early years (and often an associated cash flow problem)

High-growth companies are 8X more likely to reach $1 billion in revenues than those growing less than 20%.

More than two thirds of SAAS companies experienced annual churn rates of 5% or higher

In 2017, IBM generated 37.8 billion U.S. dollars in global IT services revenue, making it the largest IT services company in the world in terms of net sales

More Growth Strategy Stats

In 2018, the market size of information technology outsourcing amounted to 62 billion U.S. dollars.

If a software company grows at 20% annually, it has a 92% chance of ceasing to exist within a few years

The average Quick Ratio of fastest growing SaaS companies (those with a CAGR of over 50%) is 3.9: generating $3.9 in revenue for every $1 lost to revenue churn

Smaller SAAS companies reported more frequent use of third-party providers as their primary application delivery method, while the largest companies were more likely to use self-managed servers

Non-renewal rates are higher than gross dollar churn rates and higher for shorter duration contracts. Source: ForEntrepreneurs

Google only has a 30 percent female workforce

Customer’s lifetime value (LTV)= average revenue per user (ARPU) / monthly churn rate

Non-renewal rates are higher than gross dollar churn rates and higher for shorter duration contracts

High-growth companies are 8X more likely to reach $1 billion in revenues than those growing less than 20%.

In 2017, the global adoption rate for biotech soybean amounted to 77 percent.

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