Late last year, Gartner forecast that by 2021, cloud revenues will total $278 billion. Certainly, broad market demand can provide a nice tailwind for your business, particularly in this age of digital transformation. However, success is ultimately determined by what you do to make your SaaS business successful. I’ve had the good fortune of helping several SaaS companies reach the $100 million in annual recurring revenue (ARR) milestone that founders of all cloud-based businesses keep in their sights.
Helping these companies scale has taught me lessons that I believe are useful for anyone responsible for the success of a SaaS business. Recently I had the opportunity to share my top lessons with an audience of SaaS founders and executives at SaaStr Annual 2019. The top six are shared here.
1. Team first
This is probably the most important lesson of all. I learned in the venture capital business that having a great team can be the difference between outstanding outcomes and mediocre ones. A great team will gravitate to the market opportunities that will grow and accelerate your business. When I joined Adaptive Insights, we were a $40 million business with ambition to grow rapidly. In building our leadership team, we focused on two key tenets. First, we looked for people with a blend of skills and capabilities—experience running a multi-hundred-million-dollar businesses so they had seen great success as well as leadership roles in high-growth organizations as evidence of their entrepreneurial spirit. Next and most importantly, we focused on culture. Who are the leaders who would be accretive to our culture and values—and who would have the capability to grow or attract the next level of leadership?
2. Build trust and transparency
Building trust is essential. Accomplishing great things is hard work and cannot be accomplished unless everyone in your organization is aligned. And that requires trust in leadership and full alignment around priorities, vision, and purpose. Transparency is a foundational element of trust. Take bad news. We don’t often want to share it, but I’ve learned that whenever there is uncertainty, people will fill in the blanks with only the worst assumptions. Imagine what that does to morale. When you’re honest with your team, it builds trust and shows you respect them enough to process—and work with—the truth.
3. Instill a founder’s culture through every stage of your journey
A winning culture is very important to success. When people feel they belong to a healthy and strong team culture, when they feel they’re supported and have accountability, they perform better. But I also recommend you go a step further and instill a “founder’s culture.” Great founding teams have an incredible sense of alignment as well as shared vision and purpose. When I joined Adaptive Insights, I said to our team, “We’re all founders of the $40 million Adaptive Insights building the $100 million Adaptive.” Instilling the belief and commitment in the mission within your entire team will act like rocket fuel to boost your next stage of development.
4. Set aggressive (but realistic) goals—and set a balance
It’s well established that when we commit to stretch goals, we accomplish more than if we set less ambitious targets. But goals need to be realistic as well. Because if you set a goal no one believes you can reach, you’re setting yourself up to fail. So balance is key. As a guide for establishing an operating equilibrium, look to the SaaS Rule of 40: The sum of your revenue, growth, and operating or cash flow margin should be 40%. This provides a framework to achieve a sustainable balance. So if you’re growing at 50% a year, you can burn 10%. Or if you’re growing at 20%, then you should return 20% in terms of margin. Simple, but effective.
5. Know that megatrends matter
When you attach yourself to high-growth, impactful developments that are driving fundamental change, your probability of success increases. Whether securing funding, gaining traction, or scaling your business, it’s easier if you operate in a space that is powered by broad trends. Cloud is one such megatrend. There will be others. When they emerge, ask yourself: How can this help us?
6. Align your company vision with personal purpose
Years ago as a young finance professional, I had the opportunity to use the very first spreadsheet—VisiCalc. Almost immediately, I knew that software would change the world and that moment would change the arc of my career. When you connect your vision for how your company will change the world to personal purpose, incredible things happen. As a cloud leader, you’re driving change at an amazing moment in time. Take everyone along with you.
Fewer than 1% of cloud software businesses reach $100 million in ARR. But if entrepreneurs always played the odds, we’d live in a world with very little innovation and even less opportunity. And those long odds make these lessons even more essential to leaders trying to scale their SaaS businesses on the way to enduring success.