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

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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.

More SaaS + Software Stats

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

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

86% of SaaS businesses treat “New Customer Acquisition” as their highest growth priority, both in terms of executive support and funding available

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

When venture capitalists participate in seed rounds, the average round size is 3x larger

It’s common for startups to grow rapidly, doubling or tripling in size year over year, until they hit $5M in ARR

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

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

It’s 4x cheaper to upsell existing customers than acquire new customers: costing just $0.28 to acquire an additional dollar of revenue

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

More Growth Strategy Stats

At Twitter, 10 percent of tech roles are staffed by women

Growth rate accelerates in the expansion stage ($2.5M – $10M ARR)

For SaaS companies valued at over $1billion, the median amount of financing raised is $206million

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

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

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

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

Growing faster has twice as much impact on share price as improving margins

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

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