In modern SaaS, TAM is overrated and TIME is underrated.
It’s about time we started talking about TIME > TAM.
What’s your TAM (Total Available Market)? That’s generally an investor question.
- How big can this business get?
- Can investors put a lot of money into it and and get a huge payback out of it?
Sure, it’s nice to know how many potential buyers there could possibly be if you sold everyone in the market. But that’s not useful when you start.
What’s useful (and 100x more efficient) is estimating these two questions:
- How many potential customers in my market would buy something from us and be happy enough to stay for more than a few years?
- How many of those ICP customers do we need to grow to $1M, $3M, and $10M in ARR (annual recurring revenues)?
After all the pretty charts about potential TAM, the real conversation is about getting to 10 first customers, then 100 better customers, then 500 great customers. It’s now how fast you get to 500 mediocre customers.
90%+ of SaaS startups don’t make it to $3M ARR, regardless of their TAM.
The real superpower of any recurring revenue business is TIME.
Very few startups ever meet the fast-growth criteria of VC funding: annual growth rates that triple-triple-double-double-double over 5 years.
That would quickly turn a $1M ARR into a $70M revenue business, which is VC-scale. It’s possible, but it rarely happens.
When it works well, for 90% of SaaS founders, you can reach a few million in ARR in a few years and then $10M ARR in maybe 5-10 years without big outside funding.
That’s also rare, but far healthier for founders, customers, and employees.
Patience is the reality in most markets that don’t grow fast, like most vertical markets.
Practical growth rates compound year over year, creating an efficient and virtuous (and valuable) flywheel:
- A $1M ARR company growing at 30% annually gets to $10M in 8 years. A reasonable pace to test, learn, and improve. That growth rate gets you to $100M in about 15 years, but it usually takes longer if you are one of the few to ever get there.
- Growing too fast wastes money on bad customers, bad spending, and not-great employees. Most VC funding is wasted on trying to go too fast.
Getting to $5M or $10M ARR is no small feat. And your SaaS business will be worth $25M to $50M to founders–if you didn’t take down VC funding.
That’s founder-scale wealth and the optionality (aka patience) to sell at the right time, or not.
Growth rates are still valued by acquirers, but CAC efficiency, revenue retention, and profitability are catching up fast, especially with private equity buyers, who create 75% of exits these days.
Practical founders want to create a healthy $5M or $10M ARR SaaS business that doesn’t take much or any outside funding to build.
An efficient pace gives SaaS founders the control to do things right to build a valuable software business.
It’s about time we started talking about TIME > TAM.
