Throughout this series, I’ve explained the six key drivers that can help maximize the value of your SaaS business, such as having a clear value proposition being able to articulate your total addressable market and building a compelling revenue model. For this final post, we look at the one factor that probably matters most to maximizing the outcome of your SaaS business: having happy customers.
Many aspects of your business will impact what revenue multiple you’re able to achieve when exiting your SaaS company. In my experience, the depth and quality of the management team is definitely a contributor to optimizing exits. Of course, that’s easier said than done.
One of the key reasons why PeopleAnswers was acquired for $200 million in 2014 is because we had a compelling revenue model. We’d been focused on getting it right since the beginning and all of that hard work eventually paid off. Between 2003 and 2013, we had 40 consecutive quarters of consistent, positive growth. Even in 2008, at the height of the global financial crisis when much of the world was melting down, we sailed ahead.
So your SaaS B2B business has taken off – congrats! Now how hard is it to keep up with the demand? What happens if an investor buys your business and turns the right dials to increase growth by a factor of three? How hard would it be to keep up? The easier it is for the business to accommodate new explosive growth, the more an investor will pay for it.
Being able to articulate your total addressable market (TAM) to its maximum potential is critically important during fund raising or when seeking an exit. Investors want to know that your venture has the potential to be really, really big. Most would rather have an investment in a small company with a large TAM than in a large company with a small TAM. Why? Because a company’s future growth potential is limited by its TAM.
In my first post I introduced the concept of six key drivers that can have a profound influence on maximizing SaaS company exit valuations. In it, I started dissecting the need to have a clear value proposition by examining how to best articulate what you do for your clients. Now let’s conclude the value proposition discussion by examining a few more points.
There’s a point for every business when it becomes time to either exit or seek more capital. In today’s market, if a predictive analytics SaaS company has done a good job executing, it should be able to get a 5x revenue multiple. But if you do certain things right, I believe it’s possible to increase that multiple further. That’s exactly what I’m going to outline in this series. Specifically, I’ll look at how SaaS companies can increase their value from a 5x multiple to 7x or higher by executing well in six key areas.