How to Grow Your SaaS Business from $0 to $50 Million ARR
- Lighter Capital
- 5 days ago
- 15 min read
Updated: 2 hours ago
Every stage of growth for a SaaS startup brings with it inherent challenges. But many SaaS businesses never even get to $1 million in annual recurring revenue (ARR), much less $50 million ARR. Between building your product, your internal processes and your startup team, there are a lot of moving parts to manage to keep the business moving in the right direction.
Whether you’re in the early days of launching your SaaS, validating product-market fit, or actively scaling your business, knowing where to focus your efforts at each phase of growth is crucial to increasing SaaS ARR year-over-year.
Having worked with hundreds of early-stage tech startups over the last decade, we've seen many founders working diligently to reach that $50 million milestone and there are common themes that emerge among successful SaaS startups.
We've broken down the SaaS journey from $0 to $50 million into 3 stages:
Each stage requires a different approach to increasing revenue and gaining the traction you need to reach your next milestone, which we explain in detail below. We also added a section at the end to help you hire for growth.
Whether you’re bootstrapped or venture-backed, learn how to navigate early-stage SaaS growth and which levers you can pull to increase demand for your product and sales over time so you can surpass $50M ARR.
Stage 1: Building Your SaaS from $0 to $1M ARR
Out of all the challenges your SaaS startup faces getting from zero to $1 million ARR, generating at least some initial MRR in the early stages and working towards your first $100K ARR may quite possibly be the largest and most difficult hurdle you face. Growing from there to $200K, then $500K, and so on should come a little easier once you’ve got a working system in place and revenue coming in on a more regular basis.
The failure rate for SaaS startups is high. It's estimated that only 4% make it to the $1M ARR mark. On average, it takes 3 years for a new SaaS business to grow from $0 to $1M ARR. You'll need a strong strategy to reach this first major milestone, but keep in mind, it usually takes founders a few tries to build, launch, and iterate before reaching $1M ARR.
Here's where to focus your efforts when you're getting your SaaS business started.
Building your MVP
You can start by building a prototype and pitching your idea to prospective buyers to get a gut-check on demand in the market for your SaaS, or you can get straight to building your minimum viable product (MVP). If you are developing the product yourself or you have an eager co-founder with the right skills, you may decide that nothing is lost by building your MVP out of the gate—especially if you are building a solution for a customer you already know well. This is a typical path for entrepreneurs who discover a problem within the niche or industry they've worked in that needs solving.
Finding product-market fit
Establishing that you have a product-market fit is the most important part of your early days as a startup and a essential for reaching a successful exit. Focus on building up your business to show that your value proposition and product offering resonates with a market and has gained traction.
Take the time to talk to your customers as much as possible. Survey them, interview them, and meet with them. Finding out what they love (or don’t love) about your product is invaluable for dialing in your product-market fit and refining your product at this stage. Once you’ve met enough buyers to validate what the market wants, you can prioritize building out the product further.
SaaS churn metrics, such as your customer churn rate (CCR) and MRR churn, can also be a good indicator of your success in the market and the value you're delivering to customers. When you have a number of (happy) customers using and finding the value in your product, it becomes easier to plan and execute your next growth moves.
Generating leads and onboarding new customers
While many SaaS founders find their first customers through their personal networks and word of mouth, you should begin marketing your product as soon as possible. Marketing helps you introduce your product to your target audience, communicate the benefits (not just the features) it offers, and differentiate you from competitors in the market.
Mapping out clear marketing strategies and tracking results early on will enable repeatable, scalable, and cost-effective lead generation (e.g. content marketing, cold email marketing, or partnering with other businesses). Paid advertising may not be possible for your startup in this phase due to the costs, but perhaps you can explore more cost-effective campaigns like re-marketing to people who already visited your website. As you test out theories and figure out which tactics and channels work the best for reaching buyers and producing quality leads, you'll build a foundation for efficient growth in the future.
Consider the entire buyer journey from awareness, to consideration, to decision, and to paying customer. Eliminate any unnecessary steps in your sales and sign-up processes to reduce as much friction as possible when customers are at the start of their journey with you. It also pays to invest in customer onboarding at this point to ensure customers find value in your product, fast—because once they reach the 'AHA! moment,' they'll be less likely to churn out.
Managing your money
It's important to stay on top of your startup's cash runway and financial health at every step of your journey to $50M ARR. In the early days of growing a SaaS startup, cash flow often fluctuates wildly and new business can be sporadic—yet, founders at this stage rarely make financials and bookkeeping more than an afterthought.
Learning to manage financials and cash flow as you're beginning to build your business has significant benefits that go beyond just staying solvent, including:
Influencing better business decisions
Earning trust and credibility with investors
Forecasting and budgeting
Leverage to negotiate
Minimizing risk and maintaining compliance
At this early stage, your biggest challenge will be making what little revenue you have go as far as possible. Carefully tracking and managing expenses and testing various SaaS pricing models will ensure your cost structure is scalable when it's time to go full-throttle, even though it may feel like a long arduous battle to get there.
The good news is that your SaaS revenue will eventually start compounding, which is one of the biggest advantages of a subscription-based business model. If you have a great product, stellar customer support, and you’ve nailed your market fit, you’re more likely to end up with happy customers that stick with you over the long-term and refer other subscribers, too.
Stage 2: Growing from $1M to $10M ARR
After you hit the $1 million ARR mark, your business should feel more stable (as long as your churn is under control) and cash flow should be smoother and easier to manage. This is a good time to start investing more heavily in developing your product, expanding sales and marketing, and hiring the teams to do it. You also want to make sure you're tracking the right KPIs to get you to the next milestone.
Only 0.4% of SaaS startups reach $10M in annual revenue, so this stage won't be any easier than the first.
If you want to be successful, you'll need to transition from the founder-led hustle that got you here to systems-driven growth that will help you grow beyond $10M ARR.
Product scaling
At this stage of growth, you should be optimizing the reliability and performance of your SaaS so it scales seamlessly with expanding business. You also want your developer resources focused on product innovations that add more value for your core users. That doesn't mean adding feature upon feature, upon feature. Ask yourself: What upgrades will be so hard to live without that my ideal customers simply can't leave?
As your product evolves, so should your pricing. Maybe that means introducing pricing tiers that fit different business needs, or switching from value-based pricing to usage-based pricing. Raising SaaS prices not only scales revenue quickly, it also aligns your product with the value you deliver, and that's a recipe for efficient growth.
Expanding sales and marketing
Now is the time to dial in your sales and marketing efficiency and to hire the teams that can 10x your business. Once your startup reaches $1M ARR, you should aim to build a predictable lead pipeline that's fueled by inbound and outbound marketing efforts, as well as sales processes that turn leads into accounts generating revenue.
Here's a simple sales and marketing checklist to help you reach $10M ARR:
Revisit your ICP (Ideal Customer Profile) to ensure your targets are precise.
Refine messaging to speak to the pain points of customers and the benefits your solution provides.
Build inbound and outbound marketing engines that maximize quality lead generation through the most effective and affordable channels.
Re-evaluate your mar-tech stack and make sure it can scale with the business.
Create a sales playbook that provides scripts, objection handling, opportunity and account stages, and repeatable processes for working and closing deals.
Consider segmenting your sales team by deal size, vertical, or territory to optimize the customer experience and improve sales velocity.
Invest in onboarding, enabling, and coaching your sales team.
Track marketing and sales efficiency metrics such as: cost per MQL (marketing qualified lead), CAC payback, win rates, and progress to quotas.
Get capital to invest in growth. Keep your equity.
Lighter Capital provides financing at 3 to 4x monthly recurring revenue (MRR) for early stage SaaS businesses and up to 6x MRR for later stage companies. We offer additional tranches as revenue increases, up to a total of $4 million in non-dilutive growth capital. Apply online to find out how much you could qualify for.
Customer success and retention
Nothing will help your business grow faster than happy customers. If you haven't already, you should begin to prioritize ongoing engagement with subscribers. Customer retention is just as important as acquisition, if not more so. Many SaaS businesses create health scores and customer success playbooks in order to build proactive processes around customer support and engagement.
In addition to investing in key hires and the right technologies to best serve customers who need help, it's a good time to analyze and improve your customer onboarding. Better onboarding is your first and best defense against excessive customer churn, because it speeds up time-to-value.
Last, begin working with your team to upsell and cross-sell existing client accounts to increase revenue—without the time, effort, and cost of acquiring new customers. You'll not only grow more efficiently, you'll also minimize the impact of churn on your SaaS business.
Building financial rigor
You need a lot more than revenue growth and runway to build a $10M SaaS business. Your startup needs to be healthy in order to scale. At this stage you should be tracking and monitoring several key financial and business metrics closely and forecasting growth scenarios.
Unit Economics
Unit economics measures profitability on a per customer (or unit) basis. With this simple method of analysis, you can more accurately make projections about future growth and profitability. Using your LTV to CAC ratio you can track how much a customer is worth compared to the cost of acquiring them. CAC payback period, the inverse of that ratio, tells you how long it will take you to pay back the cost of acquiring a customer—the shorter the better if you're preparing to grow fast.
Net Revenue Retention
Net revenue retention (NRR), or net dollar retention (NDR), calculates the net revenue left over from your existing customers in a set time period, usually annually or monthly. NRR shows what your business looks like if it stops acquiring new customers. With NRR over 100%, your business can still grow without new customers—solely on additional revenue from your existing customer base—and that's a good sign of a successful SaaS business that can scale up.
Cash Burn Rate and Runway
You should always have one eye on your startup's cash burn rate and how much runway you have. Not only will you know well in advance if you need more capital to maintain momentum, you'll also know if your growth and operations are capital efficient.
Financial Modeling
When you can model and forecast different startup growth scenarios (from sluggish to rocket ship and anything in between), you'll be able to plan ahead confidently and set your budget accordingly. Financial models can help you:
Plan ahead to sustain slow growth,
Manage expenses better,
Know when to look for funding to extend your runway,
Budget for key hires; and
Understand how quickly you can expand and grow the business.
By paying close attention to the metrics that provide insight into the health of your business and creating financial projections, your can ensure your startup grows sustainably and your business processes mature to become more efficient, which will get you ready to scale your SaaS in the next growth stage.
How does your startup stack up?
Enter your own data to compare your startup's performance to the key metrics in our SaaS Benchmarks Report.
Our one-of-a-kind SaaS Benchmarks Calculator makes it easy to evaluate your KPIs alongside similar B2B startups in your vertical.
Stage 3: Scaling from $10M to $50M ARR
At the $10 million ARR mark, your revenue has compounded and your product and customers are likely evolving. You're ready to move into the next phase of growth in which you'll focus more on scaling and less on fine-tuning your product offerings and pricing models.
You may have already expanded to new markets. Maybe you’ve implemented a low risk growth strategy such as market penetration, or you realized a diversification strategy was your clearest path to profitability. Ultimately, you've built a healthy business with loyal customers and minimal churn in a sizeable market that wants and needs your solutions.
Most importantly, you’ll have figured out that you've established what really drives your growth and you know which profitable moves you've made up until this point that are repeatable and scalable.
Getting your SaaS to $50M ARR is really about managing complexity, which requires:
Capable leaders with experience building processes and teams,
Scalable systems and infrastructure,
Good business and financial data; and
The ability to address market dynamics.
Your superpower at this stage is implementing the right strategies while saying no to ideas that are not right for you now. To do that, it's imperative you have reporting and processes that help you evaluate and make smart business decisions, as well as the right people to execute.
Leading with Culture
Successful founders start defining culture early in their journey. By the time you're ready to scale you should have your culture codified as well as ideas for OKRs (objectives and key results) and all-hands meetings that will get everyone in the boat rowing together as hard as they can to the same finish line.
What does that mean in practice? You'll need to identify core values, priorities, and measurable goals, and meet with employees regularly to align everything and everyone across your business. Communication gets everyone on the same page; culture makes your operations efficient and effective.
Very few SaaS startups make it to $50M ARR. If you get here, you'll have succeeded where countless others have failed. You'll need discipline, focus, and the ability to make many tough decisions along the way. You'll inevitably make mistakes, and you might wish you had done some things differently. No matter how you get your SaaS to $50M ARR, no matter how long it takes, it will all be worth it in the end.
Wes Smith, CEO of Galaxy Semiconductor, shares his experience and learnings leading an old startup into a new era on this episode of Bootstrapped: The Lighter Side.
Hiring for Growth
A good rule of thumb is to keep your team as small and unified as possible until you figure out the best processes and systems to build your product, generate leads, book demos, and increase revenue at scale.
“You don’t need 100 engineers to build the product. You need five engineers who work really well together and who know the problem domain, know the customer, can prioritize well and can ship and operate code. That’s the unit of progress in any company, that small team” — Jeff Lawson, CEO of Twilio
Making the right hires at the right times can have the highest return on investment. Making the wrong hires or hiring too soon tend to have the opposite effect, slowing growth and burning more cash. Many exited founders we talk to reflect on hiring when asked what they would have done differently.
Who do you hire, and when do you hire them?
There are 3 main things to consider when hiring for key leadership roles and building out teams to scale your startup successfully: timing, qualifications, and culture fit. Here are guidelines for addressing each to help you figure out who to hire and when to hire them.
1. Timing
Though you may always feel like you could use a few extra hands building your SaaS, it's important not to jump the gun on hiring. Making the decision to hire employees depends on your bandwidth, capital, business needs, and opportunity.
Stage 1: Your first hire(s)
On thing is certain: You're not looking to hire a VP of anything or a CFO at this point. If you're a solopreneur, your first hire might be a co-founder or partner to help you implement and get your product to market.
The early days of launching a SaaS startup require technical expertise to develop an MVP, the ability to get the word out about your solution and generate early interest, and the skills to sell your idea. If you can manage all that, then go at it alone for as long as you can. If you're not a technical founder or you know someone who you're confident can get you more traction when you launch (maybe they have a better network or they're a GTM rock star, consider making your first key hire.
Until you have evidence you're aligned with demand in the market, keep your startup as lean as possible and only hire for what your truly need, prioritizing key hires based on bottlenecks in your business.
Since employees still wear a lot of hats at this stage, you should be looking for generalists with expertise or relevant knowledge in your particular vertical or industry who can execute on their own. Focus on the roles and what they'll own, not titles.
Stage 2: Staffing for growth
At this stage you're beginning to move away from hiring generalists and doers to specialists and builders. If you see an opportunity to grow, such as an influx of sales leads you can't keep up with, a surge in subscriptions, or you just closed a major enterprise account, it's a good time to think about hiring.
Hiring sales reps, for example, should happen after you've established that you or our co-founder can sell the product. Bringing salespeople on board and expecting them to work miracles on a product that isn't quite right yet can get expensive! Your sales reps should be creating and evolving the processes that your next hires can learn from and repeat. These initial hires need to have their own ideas, be willing to test them, and then map out a successful, straightforward, and repeatable means of closing sales.
To bring on your next key hires, you'll either need to raise some capital or rely on the revenue you're generating from paying customers. Keep in mind, every new teammate will need time to get up to speed and influence revenue growth—on average you're looking at 6 months to a full year.
Stage 3: Hiring to scale
To scale, you need strong leaders who can manage and grow teams of specialists that can execute on your vision. In this exciting phase of your startup journey you should look at building a bench and scaling your recruiting, especially at the management and executive level, to ensure that your progress remains on track at all times.
ProTip: A dedicated recruiting team can help you hire the best talent available for your business while you focus on other areas of your business.
2. Qualifications
It's important you identify what skills and competencies you need for a specific role at a specific growth stage. Has the candidate built something similar before at the same stage of growth? Can they give recent examples of work they've done independently or are they more accustomed to relying on a team that executes? If you need a builder and a doer, then a team manager from a large corporation isn't going to be a good fit.
For example, the VP of Sales from a Fortune 500 company is probably not the right candidate for your first sales hire. Here you'd want a sales leader with proven experience selling software at a B2B startup that grew to over $1M ARR on their watch. Or you might do best with an expert in your very technical niche who can speak the same language as prospective buyers and communicate the value of your solution better than someone who's sold software.
Assembling Your Leadership Team
It's never too soon to start searching for and building a bench for your leadership team so you can hire the right people quickly when the time is right. Whether you need a VP of Sales, VP of Marketing, or a Head of Product, it's important you drive the talent search as a founder, define the roles and what they own, and do your due diligence on top candidates before extending an offer.
3. Culture Fit
A misaligned employee in your small, fast-growing company can do more harm than hiring no one at all. Assessing cultural fit and operating style is one of the most important—and most overlooked—aspects of hiring for a startup. A technically great hire who doesn’t align with your pace, values, or working norms can drag down the business fast.
Step one is to define your core values, your work style, and the pace at which you need to deliver. Once you have that, you can ask targeted behavioral questions in interviews to dig into the candidate's past experiences to assess their cultural fit. It's also a good idea to test for self-awareness and adaptability, since startups move and change fast.
Having a clear hiring process or framework at a scaling startup is essential to avoid chaotic, reactive recruiting—and to consistently bring in high-quality talent. With this, you can move from founder-led gut hires to a repeatable, scalable, and team-driven process.
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