Why SaaS Companies Fail to get beyond $20 million ARR

Jason Lemkin, founder CEO of EchoSign (acquired by Adobe), offers an interesting take on why so many SaaS companies fail to move beyond $20 million ARR.

“The ones that stall out at $20m ARR, or thereafter? They all aren’t beloved products.They all have low NPS. They all have brands, yes. But the customers are really only behaviorally loyal — see more on this critical point here. The customers use the product because they have to. Not because they love to. It’s what we use for sales automation of a certain process. Or marketing automation of a certain process, they say. We use it. But. It goes down all the time. But. It’s really dated. But. No one ever gets back to our calls. But. It doesn’t have core competitive features. But. No one ever comes and visits us and truly solves our problems.” Read all.

According to Jason, companies stall at this level because their Net Promoter Score is low. People are using the product because it does it’s job but the users don’t love the product. He uses Box to show how important NPS is in predicting future growth.

Growth isn’t just about finding new users, it is about keeping your existing users on side – both as brand advocates and as a source of additional revenue.

NPS is very easy to measure:

• Ask your customers how likely they are on a scale of 1-10 to recommend you to their peers.

Your NPS is calculated as:

• Percentage of advocates (those scoring 9 0r 10) – Percentage of detractors (those scoring 1-6).
• The ‘neutrals’ (7 or 8), are ignored.

Most SaaS companies measure their NPS, if you don’t you should consider it, not because it necessarily gives you a clear indication about where you are at a point in time, but if you continue to measure it, what does it tell you about the various cohorts of customers you have acquired? For example, do, established groups of users in large companies record a higher NPS than new groups of users in large companies? If so, why are new users less favourable? Should they be onboarded more carefully?

We’ve used NPS as one measure of the success of our events for several years. It isn’t a good measure of profitability, but it is certainly a good measure of the value that attendees at events feel they get from being a part of the BoS community. This year, our Irish event, Business of Software Europe, had an NPS of 93. This is the highest we have had though our US event has always been in the high 80s. While it is not the only way we measure success, it is a very good indication of whether we have delivered what we want to our customers.