What’s a good timeframe for reaching profitability?

Of course, this assumes you have options to not be profitable 🙂 Not everyone cash raise the capital to have the option to delay profitability.

But assuming you do, putting dilution aside … I’d think about the 50% of Your ARR on the Balance Sheet Rule.

What’s this rule? It’s that in SaaS, generally to comfortably make the investments and hires you need for the next 12 months, you need about 50% of your ARR in cash in the bank.

So if you are at say $10m in ARR, you’ll need at least $5m in cash to hire the 50+ folks you’ll want to hire the next year. If you have < 50% of your ARR as cash, then you tend to under-hire. You worry too much about investing in the future, and too much about conserving cash.

This is the last thing you want to do, just as it is getting good.

I experienced this myself. We went cash-flow positive around $5m in ARR, but only had a few million in cash. As we approached $10m in ARR, having just $2m in cash wasn’t enough to safely invest.

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Published on October 1, 2018

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