SaaS Startups

It Takes at Least 7 Years in SaaS: Can You Do The Time?

echojason@gmail.com'

Jason Lemkin

I was recently at a dinner with a founder of a pretty successful web company, and he asked how long I had worked on EchoSign, and he nodded his head, and he said “Yeah same for me.  It takes about 7 years”.

People know SaaS takes longer than consumer web to scale.  But it’s not always clear how much longer.  Let’s look at some basic math, assume it takes you about 2 years to really get going, and then you grow 100% a year through $50m in ARR or so (not easy mind you):

  • Y1 revenue: $0
  • Y2 revenue: $1m
  • Y2 revenue: $3m
  • Y3 revenue: $6m
  • Y4 revenue: $12m
  • Y5 revenue: $24m
  • Y6 revenue: $48m
  • Y7 revenue: $80m

So even here, ready for your IPO in Year 8, having done extremely well and hit $80m ARR in Year 7 – it took you seven years.  If you do well, but a little worse than this, it can take a decade.  A friggin’ decade.

What about M&A?  The challenge with M&A is most SaaS M&A, unless it’s trivial stuff — the acquiror wants to wait for some scale at least.  $10-$20m in ARR at least.  So with the math above, that can take 5-6 years as well to get a healthy exit.

Anyhow this math isn’t new.  Everyone in the old days used to talk about 7 years to an IPO, or whatever.  But the problem is a lot of folks who haven’t lived in the SaaS world, or come out of consumer, I’m not sure they really get it.  In consumer web, you really can think in terms of 18-24 month commitments, at least initial commitments.  Fail fast, pivot fast, acqui-hires, blah blah blah.

But if you want to start a SaaS company — you have to be willing to do the time.

image from here.

Published on October 5, 2012