Every stage of growth for your SaaS startup brings with it inherent challenges around your product, your internal processes, and the people involved in making sure all the moving parts of your business roadmap to $50M annual recurring revenue (ARR) are headed in the right direction.
Whether you’re in the early days of trying to establish product-market fit, searching for a profitable growth model with limited resources, or in the middle of scaling your startup — understanding the needs of each phase of growth is crucial to successfully increase SaaS revenue.
In this story, we’re looking at the cornerstones of building a business roadmap from $0 to $50M in ARR for your SaaS startup.
Startup business roadmap: from $0 to $10M ARR
Establishing that you have a product-market fit is the most important part of your early days as a startup and a crucial first step in your business roadmap that simply can’t be ignored. Don’t steam ahead and build a product without building a prototype and testing your hypothesis on buyers first.
Once you’ve met enough buyers to establish demand, your business roadmap should prioritize building out the product, and then concentrate on acquisition and retention of users to further validate your product and market positioning. When you have a number of (happy) customers using and finding the value in your product, it becomes easier to plan your next growth moves.
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 a valuable part of clarifying your product-market fit and refining your product at this stage of your business roadmap.
The failure rate for startups (especially in the SaaS industry) is high. In the early days of any startup roadmap, cash flow can be sluggish. If your annual subscription value is $300, that means you’re only making $25 a month from each sign-up. Balance that out against ensuring your startup maintains a scalable cost structure (the tons of work, overheads, and wages you need to cover with these tiny revenues), and it can feel like an uphill battle — for a long time.
Annual customer prepayments can be helpful to get a cash boost, but in the meantime, you’ll need to accept the painful realities of startup life. Defining, tracking, and optimizing your SaaS pricing models and strategies based on your key metrics will become an obsession, but one that is central to your success.
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.
Out of all the challenges your SaaS startup faces throughout a business roadmap leading to $10M 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 your startup faces.
Finding a way to get to $100K ARR can be extremely difficult, but growing from there to $200K, then $500K, and so on might come a little easier once you’ve got a working system in place and monthly recurring revenue coming in on a regular basis.
Once you hit around the $2M ARR mark, your startup will become more stable (as long as your churn is under control) and cash flow will start to get easier. This is a good time to start investing more heavily in your product and team members.
At the $10M ARR mark, your business will be experiencing the thrill of success and you’ll be ready to enter the next phase of your business roadmap, which will allow you to focus more on growth and less on fine tuning your product offerings and pricing models.
Lead generation and onboarding
Marketing your product properly is critical in this phase of your SaaS startup business roadmap. You need to get the word out to your audience and clearly establish all the benefits (not just the features) that your product can give to your customers. In addition, you need to know your competitors well so that you can sell the differentiators of your product.
Paid advertising might not be possible for your startup in this phase due to the high customer acquisition costs. With limited resources, you need to pinpoint the exact marketing tactics that will move the needle for your startup to avoid costly mistakes.
Mapping out clear strategies to build a repeatable, profitable, and scalable process for lead generation (e.g. content marketing, cold email marketing, or partnering with authority sites) can help you test out theories and figure out which tactics and channels work the best for your offering.
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. Ensuring your onboarding is well thought out helps customers to find the value in your product faster. Once they reach the AHA! moment, it will be harder for them to churn out.
Most importantly, when the acquisition and onboarding part is done, your business roadmap should begin prioritizing ongoing engagement with subscribers. Retention is one of the key players in helping your startup reach that $10M ARR goal.
Hiring your startup team
You will have hired your first employees on your team in this phase of your business roadmap.
Hiring sales reps should happen after the founders have established that they can sell the product. Bringing salespeople on board and expecting them to work miracles on your product can get expensive!
It’s important to remember that sales reps, like you, are trying to figure out how to get your product to fly. 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.
Don’t scale your sales team until you have a good system in place and you’ve established that you don’t have a churn problem that might undo all their hard work. Failing to identify and address any churn issues at the earliest possible stage of your startup roadmap can, at best, lead to significant losses in revenue that are not only preventable but also extremely detrimental to overall growth; and, at worst, lead to a complete failure to generate sustainable revenue that ultimately leaves your startup broke and unable to stay in business. It is imperative that you continue to actively monitor, record, and address any noticeable churn issues throughout every stage of your business roadmap.
It’s important to recruit new sales reps at a rate that keeps pace with your growth. Not enough hires means your growth will slow. Too many, and the same thing will happen. Sales reps can seem like an expensive investment, but if you’ve raised capital to build a startup team, making the right hires at the right stages of your business roadmap can have the highest payback for your company.
Your team should be kept as small and unified as possible in order to figure out the best processes and systems to build your product, generate leads, book demos, and increase revenue in your early phase.
“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
Startup business roadmap: from $10M to $50M
You’re now at a point in your SaaS startup business roadmap where your revenue has compounded, and your product and audience are likely to be evolving. You may have already expanded. Maybe you’ve implemented a low risk growth strategy such as market penetration, or maybe you realized a diversification strategy was your clearest path to profitability, and you’ve added new streams of revenue and built a stronger business that no longer relies on any single market or product.
You’ll know that:
You’ve carved out a place in your market
You’re solving a real problem for customers
Your product is sound
You’ve found the right team, metrics, and processes to keep you moving ahead
Most importantly, you’ll have figured out that every profitable move you’ve made until this point is repeatable and scalable, as you will have established what really drives your growth. Once you hit around $20M ARR, you should be mostly unstoppable.
In this exciting phase of your business roadmap you should look at scaling your recruiting, especially at the management and executive level, to ensure that your progress remains on track at all times. A dedicated recruiting team can help ensure that you’re hiring the best talent available for your business while you focus on other areas of your business.
By paying close attention to your KPIs, customer support and customer success teams, and financial projections, your sales and marketing processes will mature. Your product positioning will get increasingly more refined, your total addressable market will expand, and your customer base will follow.
Scaling your startup from $10M to $50M isn’t exactly a walk in the park. It comes with many tough decisions at a high level, but it’s all been worth it. You’ve found success while hundreds of other startups have come and gone around you.
Navigating SaaS revenue from $0 to $50M ARR
Each phase of your startup business roadmap requires a different approach to increase SaaS revenue. No matter whether you’re a bootstrapped company, debt financed with Lighter Capital’s startup financing solutions, or venture funded, understanding how to navigate each stage of your company’s growth is the key to getting sales traction and increasing demand for your product over time.
Download our 30-page eBook in which we explore the shifting landscape of SaaS startup financing, highlighting the growing trend of debt funding options like revenue-based financing. Learn about the structure of this emerging form of financing, and why revenue-based financing works well for hyper-growth, moderate growth and slow growth companies.
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