Why 90% of SaaS Startups Fail to Achieve Explosive Growth

by Wendi August 12, 2016 , ,

As a serial entrepreneur and angel investor, I know about failure and have been lucky enough to taste success a few times too.  The hard fact is that 9 in 10 startups fail or at least fail to achieve explosive growth. Many of us still have a lot to learn from the truths Geoffrey Moore published in Crossing the Chasm twenty five years ago.

What often goes wrong is that the management team fails to achieve its next funding milestone before cash runs out.  Even if it is still possible to raise capital, the company valuation can be significantly lower.  One of a CEO’s most important jobs is knowing how to sell AND how to regulate spending according to the company’s stage of growth balancing five aspects of growth: customers, product, team, business model, and funding.

Generally speaking, there are three growth stages that SaaS startups experience.  Knowing where you are can help you balance your growth so you can successfully traverse each stage ready to take on the next successfully.  Failure to complete each stage will invariably lead to crisis of one sort or another.

Three Stages of Growth

Early Stage Growth Stage Scale Stage
Sales Objective Traction Predictable Revenue Hyper Growth
Metric(s) Customer Success

Revenue Retention

Growth Rate where

(CAC = LTV, Payback < 3 mo)

Growth Rate where

(CAC < LTV, Payback > 3 mo)

Customers First and best Early adopters “visionaries” Early majority “pragmatists”
Exit Criteria Validate product-market fit and business model Understand growth model and growth levers Turn up growth levers and improve sales productivity

 

In the Early Stage, CEOs have to conserve cash while the product is being developed, the business model tweaked, and the product-market fit proven.  If you hire a big sales team during this window, it will result in fast burn rate, expensive employee turnover and make hiring more difficult when the time is right.  Instead, focus on developing the best product-market fit possible and winning early adopters, and keeping them successful.

Eager to get to the third stage (Scale), CEOs often skip or gloss over groundwork of the Growth Stage where crucial preparation for explosive growth happens.  Put simply, if your foundation for scaling your business is not well prepared, you will scale costs as fast or faster than you scale bookings, you will scale failure and lose your most precious resource (time), and you won’t have the operational insights necessary to make better-everyday improvements that are critical for performing at top speed.  The result is an environment where you over focus on putting out fires rather than anticipating and responding to opportunities.  In this chaotic environment, you end up with high burn rates due to customer churn, sky-rocketing sales costs, and lack of control over your business.

In the Growth Stage, you are planting the seeds for sales culture and building the machinery that will support your business at full throttle.  Your goals in this stage are the outline for this blog series.  Get these right, then scale.

  • Create a winning SaaS startup culture
  • Understand your SaaS growth levers and unit economics
  • Develop a growth model that will scale revenue faster than costs.

 

About SalesSmyth

We created SalesSmyth because we knew there had to be a better way for growth stage companies to build their sales organizations.  We’re sales leaders and consultants, so we’ve seen firsthand the effects of building a sales team by the seat of your pants: higher burn rates, lower valuations, and less control over the future of your company.  So we ask ourselves the question that drives us, “What can we do to help entrepreneurs build high performing sales teams that lead to explosive growth?”  We are on a mission to deliver torrents of revenue by designing, training and equipping sales organizations to do their very best work.

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