How Can a SaaS Startup Survive? Hint: It’s All About Growth

By Erika Malzberg July 27, 2016

In McKinsey’s recent study of high-growth software companies, they point out one particularly “salient conclusion: If a software company grows at 20% annually, it has a 92 percent chance of ceasing to exist within a few years.”

We see this over and over with SaaS startups: the fastest growing companies have a flexible approach to taking on multiple go-to-market strategies which facilitates rapid growth. With evolving go-to-market strategies comes complexity. It’s the companies that can manage this complexity—and have the right tools to help them to do so—that come out on top.

Read Tomasz Tunguz’s take on the report or check out the full report Grow Fast or Die Slow.

In order to survive, software companies must grow quickly. As Tungus summarizes:”The McKinsey study breaks down rapid growth into two parts. In part one, the authors identify five key factors of success in the early stages. Large market; logical revenue model; rapid-adoption; stealth/secrecy; proper compensation of the leadership team. Part two is more interesting. The defining characteristic of enduring software businesses is they master the transition from one act to the next. Fast-growth startups must metamorphose constantly because the market demands it of them.”

This transition is tricky, but crucial. And there are many challenges to successfully navigate to sustain growth during this transition. Zuora’s Founder and CEO Tien Tzuo talked about one particularly sticky part: breaking part of management.

The report concludes with five essential questions for software leaders “to evaluate when and how to maintain their growth trajectory:”

  • How much growth is necessary—and how quickly?
  • Is there growth left in core market(s)?
  • How secure is your company within your core market(s)?
  • Are there opportunities to expand the current businesses so as to generate more cash which can then be invested back into growth?
  • What’s our next logical step, and when should we take it?”

The McKinsey report (and Tunguz’s take on it) are essential reading for SaaS companies ready to power their growth.

To learn more about growth strategies for SaaS startups, download our free guide: 9 Keys to Building Success in the Subscription Economy.