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

 

I was recently at a dinner with a founder of a pretty successful web company, and he asked how long I had worked on Adobe Sign / 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
  • Y8 revenue: $110m

So even here, ready for your IPO in Year 8, having done extremely well and hit $80m ARR in Year 7.  If you do well, but it goes a little slower than this, it can take a decade or longer.  A full 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.  Often $10-$20m in ARR at least, unless your category is seen as super strategic.  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, viral coefficients, and all that.

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

24 months often to really get to a minimum sellable product and $1m in ARR.   Often 5 years just to get to Initial Scale, and say $10m in ARR.  And 7-10 years to get to something Big.

You gotta plan for it.

image from here.

(note: an updated version of a SaaStr classic post)

Published on October 13, 2020

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