We often hear that 50% of new businesses don’t make it through their first year. Or that 90% of startups fail. That’s not the whole story or even useful for software entrepreneurs.
Software and tech startups are not normal small businesses like your local dentist. Startups are abnormal experiments to find a rapidly scalable business.
Startups have a higher failure rate than small businesses because they are supposed to. And they also can have much higher rewards than normal businesses if they ever grow up. Very few do.
I have a unique perspective that isn’t just from reading headlines about small business failure rates or tracking the few big VC-funded winners.
I track the comprehensive list of 6000 software companies in 12 local software ecosystems outside Silicon Valley on Gregslist. And I personally talk to 500+ startup and early-stage founders all over the world every year.
So do most SaaS startups fail? What’s really happening in software startup land?
Here’s how I see the odds for SaaS founders:
- 10% of entrepreneurs with an interesting idea actually build a usable and sellable MVP (product) based on that idea. There are millions of ideas every day.
- 10% of startups with an MVP get to 10 paying customers
- 10% with some paying customers ($5K-$15K) actually get to $30K MRR (monthly recurring revenue)
- 10% with $30K MRR get to $1M ARR (annual recurring revenue)
- 10% with $1M ARR make it to $10M ARR
- 10% with $10M ARR get to $100M ARR
- 10% of $100M ARR revenue companies get to $1 billion ARR. There are just a few hundred of these that exist now—in total.
Is it always 10% between every level? Of course not. But it’s definitely not 20% or higher. No way.
Can you see that .1% of software companies with $30K MRR ever make it to $100M in revenue?
Investors know this. There are never no risks, even with a $10M software business. That’s why seasoned SaaS investors with big funds wait for you to prove your revenues before they will consider investing.
For founders, the odds are against you to grow your idea from nothing to a $1M software company.
It probably won’t work, but there’s a chance.
We’re all trying to beat the odds and make it to the next level.
Founders need to know that this journey isn’t like progressing through the stages of life (baby, toddler, teenager, young adult, etc.) where it just happens.
It’s more like climbing Everest where very few make it through all the stages to the higher levels, despite monumental efforts.
Just be in the top 10% of your class and make it to the next level. It isn’t impossible, it’s just not common.
Practical founders who want to grow valuable companies with at least $5M+ in ARR should focus on these things:
- Sustain yourself and your startup without outside funding during the treacherous and long experiment stage.
- Focus on the few key things that will help you grow to the next level.
- Procrastinate outside funding—forever if you can.
#practicalfounders
