30% average annual revenue growth is healthy and sustainable for most bootstrapped SaaS businesses, but it’s a nightmare if you have raised big VC funding.
Here’s why:
- Many B2B SaaS acquirers consider a 30% growth rate with some profits very good growth. 50% or higher without burning cash is great growth. Back to the Rule of 40 (or 50).
- A software business with more than $2M in revenues will struggle internally with growth rates of 50% or 100% when you double in size every year or 18 months. It strains systems, employees, leaders, processes, and your culture. It’s exciting, but it can get expensive and bumpy quickly.
- Many SaaS investors, acquirers, and stock market investors still value growth higher than profits, but a sustainable breakeven or profit is also valued now, as it should be.
- 30% CAGR without big VC funding is almost always a better bet for founders than 75% growth with a 25% cash burn rate and grumpy VC investors who are disappointed that you didn’t grow 150% and take on more funding.
30% annual growth doesn’t work for VC investors. They can’t get their big returns fast enough.
And 30% may not be great if your market and competitors are growing 100% this year and you are falling behind.
But a 30% growth rate will compound and GROW YOUR REVENUES 5 TIMES IN 6 YEARS.
Given that most $1M ARR SaaS businesses never get to $5M ARR, growing 5X at that size without blowing up or stalling is impressive. And the value of that company probably grew by 10X for the founders.
30% CAGR without big VC funding is almost always a better bet for founders than 75% growth with a 25% cash burn rate and grumpy VC investors who are disappointed that you didn’t grow 150% and take on more funding.
Sometimes, you need to slow down growth when something changes in your market or you need to fix something big in your company. A year of no growth or 10% growth is never fun, but it happens.
The game is being confident about growing revenues 5X healthily–and not stalling out.
Stay practical and keep growing.
#practicalfounders
