The fastest rate ever from $1m to $100m annual recurring revenue (ARR) was Slack, which achieved it in about 3 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 it in 10 years, while the best will reach $10 million ARR in two years and $100m in five.
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.
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. 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. Put right to left pressure on the model – what have similar companies grown at? How many people did they need to maintain that growth? And so on.
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