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

The best SAAS businesses have a LTV to CAC ratio that is higher than 3, sometimes as high as 7 or 8

SaaS companies in the $7.5MM-$15MM range are among the fastest growers

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

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

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

Internet sales strategies are the only sales method to see a decline in CAC, dropping from $0.54 to $0.42 between 2014 and 2015

Companies that spend more on sales and marketing (as a % of revenue) generally grew at a faster rate than those that spent less

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

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

More Growth Strategy Stats

Internet sales strategies are the only sales method to see a decline in CAC, dropping from $0.54 to $0.42 between 2014 and 2015

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

47% of millennials want to work at diverse companies, according to a recent study.

Median annual gross dollar churn was 8%, 7%, 6% and 8% in 2016, 2015, 2014 and 2013

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

Less than 20% of new revenue came from existing customers in the form of up-sell and expansion sales

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.

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

The median Customer Acquisition Cost (CAC) for upsells is just $0.28 per $1, less than a quarter of the $1.18 spent to acquire $1 of revenue from a new customer

Customer Acquisition Cost (CAC) = sum of all sales & marketing expenses/ number of new customers added