Just this past week I learned of two MarTech companies I hadn’t encountered that are north of $2M in annual recurring revenue and growing fast. We’ve all seen the crazy Marketing Technology Landscape Supergraphic: Martech 5000 that visually highlights what a crowded space it is out there. A number of people have speculated that massive consolidation in MarTech is imminent — I don’t agree. Yes, Terminus has acquired BrightFunnel, Sigstr, and Ramble Chat, but that’s the exception.
So, what’s the secret staying power resulting in so many MarTech startups?
Simple: good software with a clear return on investment makes for a sustainable business even with modest scale.
If you’re a marketer making money using the product, why switch? Combine that with the amazing components of SaaS — recurring revenue, cash flow predictability, strong gross margins — and you have a ton of niche companies. Add in some modest scale, like $1 million of annual gross margin, and you have the recurring cash to pay a team indefinitely. Good recurring cash flow, happy customers that renew, and decent employee salaries makes for a business that will never go away.
More acquisitions will happen in the future due to investor fatigue and fund-life dynamics rather than companies gobbling up other companies to achieve more scale. If a venture investment in a MarTech company isn’t performing, it’s often better for the VC to hold onto the investment, assuming they have time, rather than push for a sale that results in recognizing a loss. Put another way, there are a ton of zombie MarTech companies out there that are sustainable businesses, but will sell for less than their last valuation, creating a scenario where it’s better to do nothing and hope something will improve.
MarTech fragmentation, and proliferation, is here to stay. The secret staying power is a combination of software that helps marketers make money and the beauty of SaaS.
David Cummings on Startups 