Think Dolphin Strategy for More Measured SaaS Growth

Todd Gardner has an excellent post up titled Use the Dolphin Strategy for Efficient SaaS Growth (with Lowered Risk) where he shares a strategy many entrepreneurs, SaaS or otherwise, would do well to consider, especially in uncertain times. Much like dolphins can stay underwater for long periods of time, they do need to come up for air regularly before heading back down. For investor-backed entrepreneurs, venture or debt financed, the default approach is losing money perpetually until the sale of the company. Instead of constantly losing money — being underwater — the entrepreneur would achieve a quarter of profitability — coming up for air — every 18-24 months. This is profoundly different from today’s standard playbook of growing as fast as the growth metrics and capital markets allow.

Here are a few quick thoughts on the dolphin strategy:

  • Less capital will be burned and, correspondingly, the business won’t grow as fast
  • If capital markets change quickly, as they have this calendar year, the business will always be on a plan to control their destiny — profitability — and isn’t as subject to market timing
  • Employees actively looking for a more measured approach to the startup playbook will appreciate this while others that want the go-big-or-go-home approach will be repelled
  • Profitability, even if only for a quarter on occasion, provides clarity to future investors and acquirers, especially private equity, what the business actually looks like when operated for cash flows, even if operating income is modest

The dolphin strategy will appeal to entrepreneurs that already have a capital efficient lens to their style and want to take it one step further and demonstrate real sustainability in their business model. Unfortunately, the dolphin strategy doesn’t work as well for smaller startups as it requires some level of scale and predictability — at least a few million in recurring revenue — to work unless the startup is super lean.

Entrepreneurs would do well to understand the dolphin strategy for more measured SaaS growth and consider it for their business. 

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