Growth Endurance in SaaS - A New Normal?

Dave "CAC" Kellogg and Ray "Growth" Rike discuss how a "growth rate" endures for a SaaS company trend over time!

Topics covered during the conversation include:

• T2D3 Growth Model and Mantra from 2015
• "56789" Growth Model from Metric Brother Dave "CAC" Kellogg
• The Impact of Growth Endurance decreasing to 65% in 2023 versus 80% in 2021

Growth Endurance is the measure of how a company's growth rate endures over time: GE = current year’s growth rate / last year’s growth rate.

At an 80% Growth Endurance (2021 value) says that a companies growth rate in the next year will be 80% of the current years growth

- example: 70% growth this year would predict 56% growth next year

Growth Endurance has decreased over the last two years and is NOW ~ 65% (2023)

- example: 70% growth this year would predict 45.5% growth next year

Growth Endurance decreasing from 80% to 65% may not sound that bad but let's look at the impact over 5 years at a $10M ARR company today but...

• 80% Growth Endurance = $189M ARR in Five Years (starting at $10M ARR)
• 65% Growth Endurance = $122M ARR in Five Years (starting at $10M ARR)

Using a 6.5x "Enterprise Value to Revenue" multiple that projects a material decrease in Enterprise Value 👇

• 80% Growth Endurance = $1.23B Enterprise Value in Five Years
• 65% Growth Endurance = $793M Enterprise Value in Five Years

The change in Growth Endurance translates into a $437M decrease in EV (at the same 6.5x multiple)

🤷‍♂️ If Growth Endurance has decreased by 15% over the past two years and Customer Acquisition Cost & Growth Efficiency have not improved materially over the past 7 quarters it might be time to change <insert ideas here>...

The "T2D3" Growth Model suggests the below ARR growth for a B2B SaaS company

• Get to $2M
• Next year: Triple to $6M
• Next year: Triple to $18M
• Next year: Double to $36MNext year: Double to $72M
• Next year: Double to $144M

The "56789" Growth Model suggests the below ARR growth for a B2B SaaS company

• Year 5: $10M
• Year 6:$20M
• Year 7: $50M
• Year 8: $75M
• Year 9:$100M

If you are a fan of B2B SaaS and have a desire or need to stay on top of the most recent trends this episode is a great listen!

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