Getting to Initial Scale

The Lead Plateau You May Hit Just As It Gets Good. How to Plan Around It.

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Jason Lemkin

Many SaaS companies hit an “organic lead plateau” at several phases:

  • When you get Really Big, at some point, every company in the world is Already An Opportunity.  Box, Salesforce, etc. really don’t have many new opportunies to hit up.  Every company in the world has either used the product, or kicked the tires, at least someone there reasonably high up the org chart.  So instead of creating “new” opportunities, they have to work the the existing ones better.  This can hit you around $50-$80m-$100m ARR or so.
  • When you get Pretty Big, if you don’t drive up deal sizes, expand your customer footprint, etc. … at some point the leads keep coming, but they don’t grow fast enough.  Because you’ve won the market, but haven’t grown it enough.  Most markets you start with on Day 1 aren’t $100m ARR markets, the segment you initially go after.  The best companies expand their product and customer footprints to become $100m+ ARR companies.  This is one reason a lot of SaaS companies hit a revenue plateau (and a lead plateau) around $20m ARR or so if they don’t grow what they do and how they do it enough.

and, waaay earlier than that …

  • Many SaaS start-ups hit an Organic Lead Plateau somewhere around $1-$3m in ARR.  Just as it is getting good.  In other words, the leads stop materially growing month-over-month.  This doesn’t always happen, especially in very high lead velocity businesses.  But for ones with fewer leads, it seems to happen more often than not.  Like this:

Screen Shot 2016-05-15 at 3.00.24 PM

 

What happens is this, generally, for most SaaS start-ups:

  • First, you have no leads.  You are new and no one has ever heard of you or even knows to search for you.
  • Then, through content marketing, sheer hustle, PR, light virality whatever … you start to get a very small, but steady stream of inbound, organic leads.  10 a month, 20, 50 or whatever it is.  It’s consistent.  It’s not enough, but it happens every month, and the number grows.
  • They seem to grow month-over-month … and then … the organic leads stop growing.  The number per month flattens.

The good news is, at least in my SaaS experience, the problem eventually solves itself.  Eventually, you build up a Mini-Brand (more on that here) at least in a tiny niche.  And then second order revenue, referrals, word-of-mouth, etc. kicks in.  And brands build on themselves.  Brands + Happy Customers = Magic.

But rarely do I see leads grow like clockwork, month-over-month, before a Mini-Brand.  There usually is some organic lead plateau between $1m and $10m in ARR.  And the lower your NPS, the less second-order revenue kicks in, the longer it takes to get out of this rut.

So what to do?  Point number one is plan for it.  Expect this to happen.  Assume, just as you are figuring it out, just as your are getting to Initial Traction, that first $1m-$1.5m in ARR … that the organic, unpaid, magical in-bound leads still come in, but the growth rate stays flat.

The best SaaS companies don’t ever let this lead plateau show up in the monthly MRR growth.  Why?  Because they:

  • Hire a VP Marketing / head of demand generation as early as practical.  For me, it was $20k in MRR.  More on that here.  If you wait until $1m or $2m in ARR, that’s too late.  Because she won’t be scaled up once you hit the Lead Plateau.  If you make this hire earlier, she can get “inorganic” leads going faster, among other improvements.
  • Drive deal sizes and pricing up.  This is obvious, but the earlier and faster you go “up market’, drive from a Tool to a Solution … the more each lead will be worth.  So even if the leads are flat, the Revenue Per Lead can still go way up.
  • Start outbound earlier.  Outbound, worst case, done right is a layer.  Some extra revenue.  But it takes time.  Outbound sales cycles are at least twice as long as qualified in-bound.  If you wait here, there won’t be enough time for Outbound to help fill the Lead Plateau.
  • Hire your VP of Sales as soon as you hit Initial Traction.  She can get outbound going.  She can improve processes.  Whatever it is — she can also improve Revenue Per Lead.  Double your Revenue Per Lead through a great VP of Sales, even with flat leads … and you’ll never even see the Lead Plateau show up in the MRR numbers.

So don’t expect leads to grow forever.  It’s OK.  Take action now, and the outside world may never know.

And if you don’t do any of this, if you don’t make the hires, get inorganic leads and outbound going, and go upmarket, etc. … expect your revenue growth to hit a plateau as well between $1m and $10m ARR.  As soon as you see it, realize you diddled and daddled.  It’s still OK.  But take the above four actions ASAP.

Published on May 16, 2016
  • shane burns

    Caveat, don’t shoot the marketing girl?

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