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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

All types of investment have grown, year-on-year, with the biggest growth during the seed stage of financing

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

Revenue per employee has been steadily increasing in SAAS companies. It serves as a great longitudinal measuring stick to understand the increasing or decreasing efficiency of the business

Because of the losses in the early days, which get bigger the more successful the company is at acquiring customers, it is much harder for management and investors to figure out whether a SaaS business is financially viable.

The fastest growing SaaS companies scale their organizations rapidly, growing their teams by an average of 56% each year

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

How to Reduce Churn

Customer Segmentation analysis will help point out which are your most profitable segments

To establish a revenue or lead-commitment based on your funnel metrics and revenue-growth goals, work backward from the gross revenue amount that marketing is responsible for generating (generally around 40%)

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

More Growth Strategy Stats

Analyzed by contract value, field sales are primarily evident for companies with median deals over $25K. Inside sales strategies are most popular for companies with $1K-$25K median deal sizes

Moving from $1.5 million with an eye towards $10 million in ARR is a tough a task and will take an excellent VP of sales to get you there

If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business; which may have a dramatically negative effect on your company’s growth. Source: Mckinsey

Invention is 10% inspiration and 90% perspiration.

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.

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

Account Churn Rate (ACR) = customers at beginning of month – customers at the end of month / customers at beginning of month

SAAS companies invest between 80% and 120% of their revenue in sales and marketing in the first 5 years of their existence

Since churn is so important, wouldn’t it be useful if we could predict in advance which customers were most likely to churn?

If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business