Why should startups focus on annualized and multi-year growth rates? The simple answer: survival and sustainability. Technology startups either grow or die.
Growth & Consistent Revenue
One amazing benefit of the SaaS / subscription business model is a company’s ability to compound growth year-over-year. There is no better revenue than recurring revenue and if your business doesn’t have it, it should become your aspiration to work towards it. Starting with a strong revenue foundation is unequivocally the best way to grow. There are now over a decade of successful SaaS companies both public and private to benchmark against. If you can match your five-year CAGR (compound annual growth rate) compared favorably to public company darlings we all follow, you’ll get big fast. Anywhere between 50-100% growth is outlier status and top echelon and once there incredibly hard to sustain.
Part of a startup’s growth is about revenue consistency and diversity to form a healthy mix across products, segments, verticals and channels. These knobs and levers should be utilized to ensure targets are met in the most efficient and strategic ways possible. Growing at the right pace, within capital constraints, via some measure of sophistication is integral and knowing where to loosen up or double down investments is what makes good companies great.
Importance of Cash Flow
As your business scales, I challenge you to work hard to retain existing customers that will serve as advocates to continue to help attract new ones. Don’t only obsess over the next logo on the wall. High retention and account expansion is a must in SaaS and the best flirt with 120-130% net retention rates or negative churn. There is no better gift than the ‘land and expand’ revenue opportunity in individual accounts but it only works with the right pricing model around consumption and add-ons. Community building through customer advocacy is a real cherry on top as this could and should become your most important brand amplification play. With accelerating net-new customer adoption, high retention and the ability to drive expansion revenue as an even larger percentage of our overall revenue (existing customers growing their relationship with you), the sky is truly the limit to scale. With growing overall revenue and customers who pay upfront, annual in advance (or even quarterly) for your services, you can continue to invest in systems, talent, and infrastructure to evolve and mature ahead of growth, with a five year outlook at all times. Cash flow is imperative. This is the magic of SaaS that commands large multiples and enviable enterprise value against your peers.
Having a true focus on the mechanics above enables a win-win for all involved and solidifies your vision of being a unique and game changing player in your space with an exceptional end-user experience for all. I find too many companies don’t strike a good enough balance on short-term strategic execution and long-term strategic planning. If you’re truly optimizing your business for everlasting viability, sustainability and impact, you must strategically align your growth plans with these principles in mind.
What Are Your Growth Plans?
When building your company, are you thinking five years out? Are you planning your growth with sustainability as a focus? Is your GTM a moat for you? Are you being pragmatic and realistic? How long a view do you have? What are your business motivations? Hit me on Twitter @kyork20 or @YorkGrowth and tell us your story!