Until recent years, the fastest rate ever from $1m to $100m annual recurring revenue (ARR) was Slack, which achieved it in about three years of hyper-growth after they secured their first $1m in revenue (this typically takes two years in itself). Bessemer Partners reckon that the ‘good’ companies typically achieve $100m ARR in 10 years, while the best will reach $10 million ARR in two years and $100m ARR in five.
Until the release of OpenAI, Wiz, the cloud security company, had claimed the record, which saw it scale from $1M ARR to $100M ARR in 18 months of blistering growth (from February 2021 to approximately July 2022). Wiz claimed the gong from Deel, which had supplanted Slack earlier in 2022. In October 2023, OpenAI’s CEO, Sam Altman, reported to staff that the company is generating $1.3 billion ARR within less than a year of it’s November 2022 release date.
When modelling future growth of a start-up, the one thing you know for certain is that the model is wrong. That’s the point of a model – it’s predictive. But equally, the goal of a founder is to tighten threads to the point that they will hold some water. They should be as least-wrong as possible.
We very often see business models which forecast $100m of ARR in a handful of years. This is highly unlikely if history is a good indicator of success, given there are over 30,000 SaaS companies worldwide and only a rarified few have grown that fast.
The culprit is often the humble spreadsheet, which tends to amplify slightly wrong small numbers into terribly wrong large numbers.
Often a model will start out looking reasonable for the first 6 or 12 months, then suddenly sees the business growing at $500k a month, every single month. And increasing monthly still. It’s unlikely your market or customers will have changed so much that what you once thought would take a year, you’re now forecasting as happening every month, and accelerating. If you tend to growth, say, $5k per month over the past 6 months, it’s probably a good starting point to check your forecasted growth against.
Equally important is to put right to left pressure on the model – what have similar public companies grown at? How many people did they need to maintain that growth? And so on. Tension the model from the right hand-side (outputs) and reduce the inputs (left) to ensure what’s being produced has precedence in the real world.
Atlassian is regarded as one of the great SaaS companies. Here’s its 10 year path to $100m ARR:
Atlassian’s growth to $100m ARR – a 10 year journey
If your business model shows revenue growth to $100m in less than 3 years, it’s probably an indication you’ve modelled left-to-right and failed to look back at what other companies grew at. Because not even Slack would have expected the growth rate they achieved.
More: State of the Cloud – BVP
