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In other words, software companies must grow quickly to survive. Slow growing businesses suffer from the lack of oxygen that fuels growth. Raising money is more expensive. Hiring becomes challenging. Without the capacity to invest capital in growth or the ability to compete for top talent, the slow growth cycle reinforces itself.

The McKinsey study breaks down rapid growth into two parts. In part one, the authors identify five key factors of success in the early stages. Large market; logical revenue model; rapid-adoption; stealth/secrecy; proper compensation of the leadership team.

This list will surprise no one, except perhaps for stealth. Is secrecy and stealth a prerequisite to success for every massive software company? For most bottoms-up businesses, stealth isn’t a competitive advantage, but awareness is.

Part two is more interesting. The defining characteristic of enduring software businesses is they “master the transition from one act to the next.” Fast-growth startups must metamorphose constantly because the market demands it of them.

Tomasz Tonguz

More SaaS + Software Stats

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

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

The average company booking professional services revenue on new deals is equivalent to 16% of the first year subscription value. Professional services margins are approximately 22%

In all SaaS businesses there will likely come a moment where they realize that not all customers are created equal

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

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A 2017 SaaS Capital survey showed that young companies actually have higher retention rates than more mature SaaS businesses

SAAS companies that are focused mainly on enterprise sales have higher levels of professional services

At a 35% CAGR, it takes 10 years for a SaaS company to grow from $5M to $100M in ARR

The median average contract length is 1.3 years and the average billing term is seven months in advance in 2016. Comparable to 2015, with average contract length shortening from 1.5 to 1.3 years and average billing period increasing by one month from 2015 to 7 months

More Growth Strategy Stats

The average SaaS business generates 16% of its new Annual Contract Value (ACV) from upselling to existing customers

Unlike many other industries, if a software company grows at only 20%, it has a 92% chance of ceasing to exist within a few years

In 2018, the global tech spending is forecast to amount to 3,212 billion U.S. dollars.

In 2017, Foxconn Technology Group achieved a net income of 135.37 billion New Taiwanese dollars, the equivalent to approximately 4.55 billion U.S. dollars.

56% treat “Existing Customer Renewals” as high priority

55% of SaaS companies rate Customer Retention as the key metric to measure

Internet Sales strategies have a significantly lower CAC of just $0.42

SAAS companies need to track the number of visitors, trials and closed deals; And also track the conversion rates, with the goal of improving those over time

The median cost for a SaaS company to acquire a dollar of new customer revenue is $1.18

The very best SAAS business has a negative churn rate and will have a Dollar Retention Rate of greater than 100%