One of the challenges for SaaS startups that hit the growth stage is stalling revenue right around $15 million. After finding product/market fit and a repeatable customer acquisition model, things look great. Only, the $15 million recurring revenue milestone turns into a plateau, and not another simple number on the way towards serious scale ($100+ million). What gives?
Here are a few reasons why SaaS startups stall at $15 million in revenue:
- Leaky Bucket – As the customer base grows, the number of customers that churn each month grows as well. Eventually the amount of new revenue signed will equal the amount of revenue lost unless the renewal rates are high and the customer expansion rate is strong.
- Lead Velocity – Often, when starting to scale, there are a small number of lead sources that provide the bulk of the leads. Only, as the business grows, the lead volume from these sources don’t scale resulting in growth challenges.
- Market Size – While entrepreneurs talk about the amount of money spent in a market, the reality is that a much, much smaller percentage is spent on new software each year in that market. Most markets are smaller than what people think.
- Internal Challenges – Organizational health is much harder than it appears. Once the organization passes 150 employees (Dunbar’s number) things get even more complicated internally, and that affects growth.
SaaS startups in the growth stage often hit a $15 million revenue plateau and don’t recover. Recognize the impending challenges and work to minimize them.
What else? What are some more thoughts on why certain SaaS startups stall at $15 million in revenue?