Zane Tarence, a friend of mine, and his firm Founder’s Investment Bank have recently published a newsletter outlining the financial health of the SaaS industry. The software as a service business model has experienced startling growth. A number of our clients are SaaS companies. Included in the newsletter is a great article on MRR – monthly recurring revenue. I think a number of you will enjoy it.
We’ve talked a lot on SaaStr about the challenges in getting from nothing to that first $1m-$1.5m in ARR, “Initial Traction”. That it takes longer than you think. That if you get 10 customers, you can get another 10, 100, and so on.
There’s a particular moment in time I want to focus on here on the path to Initial Traction. It’s when there isn’t enough revenue to make it, to get there. But there’s too much that you just can’t quit. You can’t. Period.
I think that’s around $50k MRR. At this point — Money Is No Longer an Excuse.
This doesn’t mean money isn’t an issue. Money really won’t “not be an issue” usually until about $6-$8m ARR, sometimes later. By that point, you’ll have enough cash coming in to fund the core team of 50-60 you need to properly run a SaaS company. As you approach $10m ARR, Initial Scale, money per se shouldn’t be an issue, other than the rate at which you can and should invest it. But the core business will be self-sustaining as long as you have happy customers, a mini-brand, and strong word-of-mouth and second order revenue.
So let’s roll back in time to $50k MRR.
This is enough to pay for a couple of engineers, below market rate. A cr*ppy office. And a couple of sales guys, running in part, on commission. And maybe almost nothing for you and your co-founder.
And this is the time when it can start to get hard. Yes, you finally got 10 Unaffiliated Customers! That felt great. And then as you approach $10k a month, $20k a month in MRR … that’s no longer beer money. It starts to feel real.
Then at $50k in MRR, yes it’s real … but you still can’t really afford anything. Every hire is just too expensive. But assuming you are growing > 10% a month (which you sure better be) … you will get there. You will eventually get to Initial Traction, to $1.5m+ in ARR, to a self-sustaining engine.And eventually to $500k MRR (10x where you are today), when you can afford to pay yourself a living wage, get out of that horrible co-working space, hire more help, get ahead of things — finally.
At $10k MRR I’m not sure. I can’t be sure you’ll really get there. But at $50k MRR, if you are growing, I know if you will it to the next level, if you don’t quit, if you still run sales, marketing, customer success, and support all by yourself … you will get there.
So what do you do, if you are $50k MRR, but it’s just not quite taking off yet, and the VCs won’t fund you yet, and you can’t afford to hire that Great VP of Sales with her $500k OTE?
A few meta-suggestions:
The best SaaS companies scale faster than ever today. But there are so, so many of them. So product-market fit is harder than ever. Achieving it is magic, that first 10, then 100 customers. The next bit of magic is being just big enough that no one can question you’ll get there. That’s around $50k MRR. Even though it won’t really feel like it.