I recently was talking to the CEO of a SaaS start-up doing about $40m a year — very impressive. I asked him when the IPO was coming, and he shrugged. We’re only growing about 33% at this point, because we’re so big, he implied. Fair enough. I know I couldn’t do any better in his position, in his industry. Problem is, that’s just not good enough.
It’s a common refrain among SaaS start-ups, especially after they get a few million or ten million in ARR under their belt. “The law of large numbers,” they say. The refrain is growth is slowing, but we’re still doing great, because it’s all recurring revenue, and growing recurring revenue takes time.
Sure it does. It is hard.
The thing is, what you really have to ask yourself, if you are growing less than 100-150% YoY — all the way to $100m in ARR — is the market just too small? Or if not — am I just not well enough positioned in the market? You don’t have to do as well as Workday. But you probably need to grow faster than you think.
Workday is going public at 17-20x this year’s revenues. And let’s watch it trade up from there. That’s really epic, and man, I wish we’d sold EchoSign for that multiple [insert violins please]. SaaS multiples have grown dramatically.
But despite what it may appear at a casual glance, the markets aren’t stupid. You need to earn it. There are no excuses if you want the big value. Workday is doing $250m in ARR this year — and still growing 90%.
Yes, I know Workday and Salesforce are outliers for different reasons. But that’s not the point. The point is we learn from the outliers, even if we can’t quite achieve their success.
So if you’re doing a 1/10th or less of the ARR of Workday, and not growing faster — something’s wrong. Or your approach to the market is just too small. (There can only be just so many $100m+ SaaS businesses). Or you’re not really a start-up — just a successful small business. Or at least, you haven’t crossed the chasm yet. Because once you have — you need to be growing >= 100% YoY.
