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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

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

The best place to hide a dead body is page 2 of Google search results.

Cloud-hosted applications have a 99% uptime

Internet sales-driven companies have a much greater reliance on marketing, with 65% of the median company’s CAC budget devoted to marketing

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

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

Only 8% of large companies use internet sales strategies. The proportion of companies relying on internet sales increases as company size decreases

Publicly-traded SaaS companies have an average Revenue Per Employee of $200,000

The fastest growing SAAS companies averaged $250k in MRR and were only losing around 3.2% of that revenue each month 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

More Growth Strategy Stats

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%)

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

High-growth companies offer a return to shareholders 5 times greater than medium-growth companies

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

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

Revenue Renewal Rate= (MRR up for the renewal at beginning of month- MRR not renewed at the end of month)/ MRR up for renewal at beginning of month)

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%

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

How Often Should The Pricing Committee Be Meeting And Making Changes?

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