Common Challenges Faced by SaaS Founders

The $2M Revenue Plateau Nobody Talks About Every founder talks about the grind to get to $1M. But what happens at $2M? Silence. At $2M, you often build a job, not a business. You become the engine, the glue, and the bottleneck. The company works because you are in every meeting, every deal, every fire. only 0.4% make it to $10 million but the rest? THE PATTERN: The hardest phase of SaaS is the phase from Initial Traction ($1-$2m in ARR) to Initial Scale ( $2 - 5m+) So what's the problem? It's not a product problem. It's not a market problem. It's a founder problem. You ( Founder) become the ceiling. It's called founder bottleneck syndrome 😅 𝗚𝗿𝗼𝘄𝘁𝗵 𝗰𝗼𝗺𝗲𝘀 𝗳𝗿𝗼𝗺 𝘀𝘆𝘀𝘁𝗲𝗺𝘀, 𝗻𝗼𝘁 𝗵𝘂𝘀𝘁𝗹𝗲 [𝗣𝗲𝗿𝗶𝗼𝗱] 𝗪𝗵𝘆 𝗠𝗼𝘀𝘁 𝗙𝗼𝘂𝗻𝗱𝗲𝗿𝘀 𝗚𝗲𝘁 𝗦𝘁𝘂𝗰𝗸 𝗛𝗲𝗿𝗲 1. 𝗧𝗵𝗲 "𝗛𝗲𝗿𝗼 𝗖𝗼𝗺𝗽𝗹𝗲𝘅" "Only I understand our customers" "Only I can close the big deals" "Only I know the product vision" 2. 𝗧𝗵𝗲 "𝗡𝗼𝘁 𝗥𝗲𝗮𝗱𝘆" 𝗧𝗿𝗮𝗽 "I'll hire when we hit $3M" "I'll delegate when I find the perfect person" "I'll build systems when I have more time" 3. 𝗧𝗵𝗲 "𝗖𝗼𝗻𝘁𝗿𝗼𝗹" 𝗧𝗿𝗮𝗽 At $500K: "I need to control everything to survive" At $2M: "I need to control everything to maintain quality" Reality: Your control becomes the ceiling 𝗪𝗛𝗔𝗧 𝗧𝗢 𝗗𝗢 𝗥𝗜𝗚𝗛𝗧 𝗡𝗢𝗪: 1. Audit your calendar - If you're in more than 3 recurring meetings per week, you're the bottleneck 2. List your "only I can do this" tasks - 90% of them can be delegated or eliminated 3. Fire yourself from one role this month - Pick the one that's most operational 4. Hire your replacement before you're ready - You'll never feel ready, that's the point 5. Create decision frameworks - So your team doesn't need you for every choice The companies that break through $2M don't have better products. They have founders who learned to get out of their own way. Again! Only 0.4% make it to $10 million. Not because of the market. Because of the mirror. #founders #saas

B2B SaaS revenue growth rates have slowed by over 50% in the past 2 years. And CAC Payback periods have skyrocketed by nearly 100% in the same period. These two effects combined put massive pressure on core financial metrics, business profitability, and enterprise value. The root cause of this is Go-To-Market Bloat (GTM Bloat) where B2B companies invest significant money in Sales & Marketing and do not get the appropriate return on investment. Sales & Marketing is by far the largest expense on a B2B company P&L - on average 40%-60% of total revenue; and 2-3X more than they spend on Product Development, Engineering, and R&D combined. GTM Bloat occurs across the entire go-to-market, including People, Programs, Process, and Technology. (1) People - Too many headcount on each GTM team, caused by outdated financial planning models, in addition to the overspecialization of roles on GTM teams (SDR, MDR, Solutions Consultant, AE, Onboarding Manager, CSM, AM, etc.). Or 90-person Marketing team that should be 35 people. Average sales quota attainment of ~40% is another clear indicator of headcount bloat. (2) Programs - This mostly happens in the Marketing budget. B2B companies dramatically overspend on large scale events and digital performance marketing - up to 15% of total revenue - and do not get anywhere close to an appropriate measurable ROI on these significant expenses. (3) Processes - Teams, meetings, reporting cadences to support programs that don’t work. SDRs to follow up with “leads” and get a meeting less than 1% of the time. Inefficient processes create significant bloat especially when operated at scale. (4) Technology - Buying an ABM tool for $200k per year and barely using it. So much bloated headcount increases license & seat costs for all SaaS subscriptions by 2-3X. Too many $100k+/year point solutions used by 1 department or team and not integrated or essential to the full GTM. __ Solving GTM Bloat is the #1 opportunity in a B2B company today to increase enterprise value. This is now a CEO, CFO, and Board Level issue. Eliminating GTM expenses that do not provide appropriate ROI could increase EBITDA by 20% or more. Restructuring the existing investments in GTM to deliver the appropriate effectiveness could increase growth rates by up to 2X (e.g. from 18% to 36% YoY). Or more than likely, the solution is a mix of both of these - eliminating low ROI expenses to improve EBITDA and doubling down on strategies that are already working to create breakthroughs in growth rate. #gtm #gotomarket #finance #b2b #sales *Benchmarks on public SaaS growth rates and CAC payback periods ℅ David Spitz and BenchSights. Shoutout to David for some of the best work in the industry connecting GTM with Business Financial metrics based on actual data (not surveys or inaccurate aggregated data). **At Passetto, we see similar, yet more amplified trends in our standardized analyses of CRM & Financial Metrics of private middle-market B2B companies

Growing from $3M to $10M ARR is almost the opposite game for B2B SaaS companies than getting to $1M in revenue. It's so different that most sales and marketing team members who got you started won't learn the new game to scale. It's a different DNA, especially for practical SaaS companies without VC funding. Here's why: 1) Starting up to $1M ARR is messy You do things that don't scale to generate revenue (aka, customer funding). You're experimenting to learn what works. Your product is useful, but it kinda sucks. Founders do most of the selling themselves. 2) Growing past $5M ARR is repeatable and doesn't require founder sales. All that scrappy founder-led stuff that got you going won't work at some point. Savvy salespeople need to be able to sell effectively without the founder. PLG buying processes get narrowed down. A $10M ARR business has a more organized customer acquisition engine with a clear customer qualification process. This is especially important for SaaS companies with an average annual contract value (ACV) of less than $5,000 because... 3) The bigger you get, the more customer retention matters. This is hard for startup founders to see at first, but someday, 90% of your monthly revenue will come from existing customers. With a 2% monthly customer churn and a $500/month product at $1M ARR, you need to sell 3 new customers that month before you have ANY positive MRR growth. That number grows to 30 customers at $10M ARR before any net new revenue. And to 300 at $100M! Is your sales leader ready to work as much on customer and revenue retention as on new customer acquisition? 4) 50% of customer churn comes from who you sell to--who you let in. Starting up is about saying YES to anyone who will buy. That's the survival game of funding your company with revenues while finding something that could turn into product-market fit. At $10M ARR, it's about attracting only the right kind of customers and keeping the wrong ones out, with clear definitions of who you say YES and NO to. You can afford only to buy new customers who stay long enough to be happy and profitable. 5) At $10M ARR you have a repeatable customer acquisition engine. An effective and efficient revenue engine at $10M has multiple teams, systems, channels, and often multiple products. Learned through multiple maturity levels in leadership, hiring, compensation, metrics, operations, and planning. A startup looks like a crazy band of capable people making stuff up and getting stuff done. A $10M ARR SaaS business looks like an organized factory where you can reliably and efficiently acquire customers and ensure their success. The laws of gravity of the SaaS business model require these changes. This is why acquirers value a well-organized $10M SaaS business at much higher multiples of revenue than a scrappy $3M SaaS biz. What did I miss in the revenue growth journey from SaaS startup to scale-up? #practicalfounders

In my customer conversations the No. 1 problem I hear these days is that it’s getting harder to grow SaaS businesses. Organizations are struggling with retention and expansion because of shrinking budgets and increased scrutiny by CFOs. Customers are no longer willing to buy seats “just in case” their employees need access to the product. To add insult to injury, layoffs mean there’s fewer seats needed. There are many things SaaS vendors can do to fix this, such as better qualification, or making sure they’re delivering value and improving onboarding. But the one thing I keep reminding CEOs and Founders, is to double down on API plans and promote usage of their product vs. relying on per-seat revenue - here’s why: - Enterprise processes are often headless, and would be better served by automated integrations and agentic workflows powered by APIs - Integrations run in the background and provide value to users without necessitating interaction. A consumption model makes sense here, rather than a per-seat license - API Integrations, once set up and running (yes you need to secure them and monitor them too), will generally be sticky and not be subject to displacement So, consider augmenting your per-seat licensing with a consumption model and make sure you have a solid API monetization strategy to boost your net revenue retention. Please chime in in the comments if you’re already doing this and have seen results or can recommend best practices. #APIs #SaaS #Revenue

SaaS finance cardinal rule: You must not fixate on a single metric. I've seen far too many founders and executives fixate on 1-2 metrics without context because a board member, investor, or blog said that its critical for growth, valuation, etc., etc. In the hypothetical example below, a SaaS company hits its annual bookings goal of $3m in combined New and Expansion ARR. And it does so efficiently with a CAC Payback Period of between 8-9 months and a blended CAC Ratio around .5. The issue is that this particular company exhibits a frustrating combination of Sales and Marketing prowess with poor retention. Zooming out and looking at the annualized churn rate, we can see that the company has a huge problem. And this issue shows up in another composite metric: The CAC to CLTV ratio. CLTV is an important metric. It's essentially the expected future cash flows from a single customer, and it's highly sensitive to churn rates. Because of this company's poor retention, the CAC to CLTV ratio is below 3 for most of the year (not good). Basically, this company is the classic leaky bucket. It's good at bringing in revenue but not keeping. Had we focused on the positive signals alone, (e.g., CAC Paypack Period), we would have missed the larger underlying issue. Now, what causes a company to have such a mixed profile. Two of the most common reasons I have seen: -Sales & Marketing prowess without product<>market fit. The team is good at selling to anyone and everyone, but is having a hard time delivering value. -Selling indiscriminately. Poor ICP discipline. The company may have a core of very happy customers, but there is no discipline around who we sell to. Peeling back customer data may reveal high retention in certain segments. THAT IS WHO YOU WANT TO SELL TO. Remember, it's essential to look at metrics in context rather than fixating on one or two in isolation. #saas #bootstrapping #founders #finance #startups #metrics

Only 4% of software companies ever reach $1M ARR. Only 0.4% reach $10M. Most founders fail not because they didn’t work hard… …but because they scaled wrong. Here are 6 brutal lessons I wish I knew before scaling my SaaS companies: 1. Don’t scale before Message-Market Fit. You need more than Product-Market Fit. Until your messaging resonates predictably with your Ideal Customer, scaling is a waste of money. 2. Don’t scale alone. Your early wins came from hustle. Your next stage of growth will come from hiring the right people. This isn’t about adding bodies. It’s about reducing execution risk. 3. Don’t wait for the “perfect” budget. Growth is an investment. If you're waiting for extra cash to feel safe before you spend, you're already behind. Spend strategically to grow now—not someday. 4. Do define what “great” looks like before you hire. Most hiring mistakes happen before the job post goes live. Study the top performers. Know the success archetype. Don’t hire blind. 5. Do inspect what you expect. Hiring doesn’t mean disappearing. Set clear KPIs. Review weekly. Be their coach, not their micromanager. 6. And never let go of Founder-led GTM. Benioff didn’t. Jobs didn’t. You are still your company’s most powerful marketing asset. Keep shaping the narrative. I've made every single one of these mistakes and learned the hard way. They won't kill you, but they'll certainly slow you down. This is why I share the lessons learned so you can recognize and course correct. If you're an B2B Founder and you want to build a scalable GTM Strategy that fuels the growth of your business, then grab a complimentary copy of my 5-Point AI/SaaS Growth Strategy Guide. Just follow the link in the comments below to grab your copy👇

By far the biggest problem for SaaS founders, is speed of execution, especially in GTM: - Founders don’t hire the right folks fast enough - Founders don't fire poor performers fast enough - Founders don’t build optimal comp plans fast enough - Founders don’t create realistic targets fast enough - Founders don’t remove rep excuses fast enough - Founders don’t provide the right tooling fast enough - Founders don’t acquire ICP clients fast enough - Founders don’t prove product usage & adoption fast enough - Founders don’t prove value exchange fast enough - Founders don’t realize fair value fast enough And whole load more. This lack of speed wrecks growth, which is central to valuations. So founders cut corners, skip critical growth milestones, which is even more damaging as it embeds "go-to-market debt", which is the most aggressive form of cancer in GTM teams. Having been the operator tasked with solving this for 20 years in Silicon Valley, Europe and Asia, I write weekly about how to identify these patterns, and how to rapidly overcome them, before they get out of control. Our writing is often referred to as the equivalent of a Startup MBA program. So it’s no surprise that Cornell lecturers reference us on their MBA programs. If you’re in B2B SaaS and anywhere from Pre-seed to series C, our weekly newsletter is for you. Sign up in my profile. You got this 👊🏼

Why do only 0.001% of SaaS businesses make it to $50M in ARR? Most of them drop off within a “Valley of Death” – a stress-test for your GTM motion that exists between each growth milestone. Here's a rundown of common challenges scaling: $𝟬 𝘁𝗼 $𝟭𝗠 (𝗧𝗵𝗲 𝗣𝗠𝗙 𝗧𝗲𝘀𝘁): The first biggest hurdle is achieving product-market fit. Most budding SaaS companies never get off the ground due to a PMF disconnect. If you do manage to scrape past $1M ARR without your PMF and ICP dialed in, it won’t take long for things to crumble. $𝟭𝗠 𝘁𝗼 $𝟭𝟬𝗠 (𝗧𝗵𝗲 𝗦𝗮𝗹𝗲𝘀 𝗣𝗿𝗼𝗰𝗲𝘀𝘀 𝗧𝗲𝘀𝘁): You’re unlikely to make it through this valley without a solid, professionalized sales process. This means, at the very least, you have one or two salespeople and a standardized base of knowledge about the product, its capabilities, and the pain points it targets. This is the zone where most companies start making mistakes in their processes that catch up with them later. $𝟭𝟬𝗠 𝘁𝗼 $𝟯𝟬𝗠 (𝗧𝗵𝗲 𝗦𝘂𝘀𝘁𝗮𝗶𝗻𝗮𝗯𝗹𝗲 𝗚𝗿𝗼𝘄𝘁𝗵 𝗣𝗿𝗮𝗰𝘁𝗶𝗰𝗲𝘀 𝗧𝗲𝘀𝘁): By $15Mil, bad processes are catching up to you as they buckle and break under the size of the company’s growth. Unsustainable growth practices will not get you past $20Mil. $𝟯𝟬𝗠 𝘁𝗼 $𝟱𝟬𝗠 (𝗧𝗵𝗲 𝗥𝗲𝘁𝗲𝗻𝘁𝗶𝗼𝗻 𝗧𝗲𝘀𝘁): This is where your problems start to shift from new sales to retention. Here, you might start to struggle to outsell your churn, like dumping water into a leaking bucket. $𝟱𝟬𝗠 + (𝗧𝗵𝗲 𝗥𝗲𝗽𝗲𝗮𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗧𝗲𝘀𝘁): At this point, if the company’s GTM strategy is scalable and repeatable, building out new products and repeating this process will allow further growth depending on the limits of the market. In other words, past PMF, you need process and systems to scale. Some ways RevOps can help: - Create a RevOps Roadmap - Create and run a pipeline council - Identify and eliminate technical debt - Audit and optimize compensation plans - Audit and clean up tech stack for simplicity - Create a strategic territory planning process - Double down on the best possible data provider - Align definitions of the most important KPIs for your team These are just examples of ways RevOps can help B2B SaaS companies navigate the Valley of Death and build processes and systems to scale GTM. More on this in the 📰 𝗥𝗲𝘃𝗢𝗽𝘀 𝗪𝗲𝗲𝗸𝗹𝘆 📰 Read the full newsletter on-demand by clicking here⬇️ 🔗 https://bit.ly/4ckqaXw Does this hold up to what you’ve seen in the industry? 🤔

Early-stage startups are naive in thinking they can (easily) go after the Enterprise market. Because all enterprise buyers are going to see is RISK. “Can you prove to us it will work?” Nope. You don’t have a proven track record. “Can you guarantee you’ll be around in 2 years?” Nope Your runway is only 18 months. “Do you have all the security badges (SOC2, ISOXXXX)?” Nope. They’re on your roadmap. “Do you have a robust support team if something goes wrong?” Nope. You’re relying on Timmy in Ops to figure it out. “Do you have a way to train 1000 employees in 6 months?” Nope. You’re hoping everyone will read your user guide. ——— I’m not saying startups can’t build products to serve the enterprise. They just have to understand what they are getting themselves into. So while founders salivate over the market size, big budgets, and brand names… They must be realistic about two things: 1. How the enterprise market will perceive you. Like a kid setting up a lemonade stand. 2. All the non-product things you must build to actually win a deal. Training, security, support, change management, testing, implementation, customer success, custom integrations, SSO, analytics and reporting, governance and control, legal compliance, and more. #b2b #saas #enterprise

The biggest threat to SaaS is the Churn Death Spiral. BACKGROUND Last week I was talking to a CRO of a $40M ARR business in the HR tech space and here’s what she said: “We’re stuck in the churn death spiral. We’re addicted to bad fit customers and discounting to hit our targets even though I know full well that new business is actually creating churn in the first place. I can’t see a way out.” Leaders beware. The Churn Death Spiral is a trap. And it's (almost) impossible to pull yourself out of. HERE'S HOW IT WORKS: You are addicted to new business success. You’ve set aggressive goals and your sales team knows they have to hit them. You’ve been hitting the targets. But you are aware that you are hitting targets because of massive discounting. You are also aware that you are selling to bad fit customers. But you love reporting that New Business was “110% to goal” last quarter. You’re addicted to it. Meanwhile on the other end of your business, churn is eating your growth. Bad fit customers are working their way through the system and coming out the other end as cancellations. Your discounting brought in high-churn customers with no commitment to your product. THE TRAP: You desperately need to show momentum. You say things like: “New business is doing great. We just need to fix Customer Success." Or... “We’re crushing it on new business. I’ll turn my attention to churn next.” Maybe you’re trying to fundraise next quarter. Maybe you just need the cash because you’re trying to be profitable. But you know that you are actively bringing in customers that will churn and pull your company apart. You don’t feel like you have a choice. You think if you slow down and reorient towards your ICP and stop discounting, you’ll get squeezed on both sides. New business will slow down while churn keeps going. If you need the money because your balance sheet is weak, you’re sort of screwed. And if you need to show growing ARR because you want to raise money, you’re sort of screwed. THE WAY OUT: There’s no easy way out of the churn death spiral. The obvious answer is to take your medicine, reorient to your ICP, and stomach the contraction that will inevitably occur so you can build a better healthier business over the long term. If that is absolutely not an option, the simplest thing you can do is reduce the percentage of customers that sign up with a discount or that are bad fit ICP even if you don’t get all the way there in one fell swoop. Making progress towards a clearly stated target is the 2nd best path if the first is not an option. But make no mistake: You must find a way out. The alternative is death.