A SaaS startup in town hit $1 million in annual recurring revenue, often considered a significant revenue milestone for startups with a SaaS offering, and threw a party to celebrate with employees, investors and friends of the company. The party was held at a popular
Well, the act of celebration drew criticism from certain prominent members of the startup community. Their beef? Some said this celebration was unnecessary and made the startup seem provincial. Others didn’t see the significance of celebrating this revenue milestone making the comparison with an enterprise software license sale which in the 1990s and early 2000s could run in the seven-digits. Yet others thought it a waste of funds.
Having worked with founders of SaaS startups and having had to make enterprise software sales in the early 2000s, I offer a different point of view.
The economics of software has changed tremendously in the last 12 years. While it is much easier to “set-up shop,” meeting buyer expectations of being able to subscribe on a month-to-month basis makes it much harder achieve $1M ARR. For startups with offerings that are priced in the hundreds of dollars per month, this revenue target is even more daunting. But hitting it would imply that a startup has worked through product and operational issues and is ready to scale. The implied expectation is that the next $1 million in ARR would be reached in less time than the first.
So, yes, it is absolutely necessary to celebrate milestones. Even if simply for employee morale because milestones are just markers along the way to fulfilling the company’s vision. It would behoove founders to understand that it takes a motivated team willing to walk through fire together to get to the next one.
But the expense to be applied to a celebration is one for debate. While I haven’t witnessed anything rivaling the over-indulgent parties of the late 1990s, what are parameters for the scale of celebration?