How Can SaaS Startups Extend Their Runway Right Now?
by Lauren Thibodeau with input from awesome SaaS startup leaders and advisors
The message from 4 dozen investors and lenders was clear for SaaS startups under 1M ARR in SaaSCan’s most recent edition of The SaaS Metrics That Matter Most.
1. The most important metrics in 2022-2023 for early stage startups are ARR or MRR and runway.
2. The recommended runway for these companies has doubled in the past year to over 24 months.
But in reality, how much runway do early stage SaaS companies actually have?
Here’s some data from 200 venture backed SaaS companies collected from financial actuals (not surveys) in 2022 by Capchase.
Check out the 1 – 3M band. Even top quartile performers aren’t hitting anywhere close to 24 months, and the median is much lower. So if you’re finding it a challenge to get close to 24 months, you’re not alone.
And if you wonder why runway goes up at 5-10M and down again at 10-15M, here’s what Capchase had to say:
“At the 5-10M point, many companies raise another funding round – either venture capital or debt – increasing runway.
Around the 10-15M mark, many companies increase their burn rate by hiring, developing new products, and expanding geographically to accelerate growth.”
What is runway anyway?
Simply put, it’s the number of months before you run out of cash. You calculate it by taking Cash / Net Monthly Burn. It’s sometimes also called Out of Cash Date.
Why is it so important for startups?
SaaS startups are generally not cash flow positive for a long time. You need to make sure you don’t run out of money before you find product market fit, start generating meaningful revenue and/or can secure your next round of funding or financing.
How can you extend runway?
We discussed this question on a recent SaaSCan workshop with Canadian SaaS startup leaders. Nothing better than peer knowledge sharing for practical, real-world tips. We’ve also included some tips from early stage advisors who’ve been through the swamp before.
Generate (Incremental) Revenue Sooner
- Expand existing customers — often easier/cheaper than finding new customers
- Add-on revenues from add-on services
- Look for ways to automate work for your clients, saving them money AND generating incremental revenue for you
- Convert monthly contracts to pre-paid annual contracts – offer small discount to incent behaviour
- Convert annual contracts to multi year contracts for a small discount
Maximize Grants and Subsidies
- Maximize SR&ED & NRC-IRAP
- Take advantage of grants and subsidies for hiring students, including first time hirings through DS4Y and SWPP
- Take advantage of CanExport for travel/business development
Be Uber Frugal
- List all recurring expenses and review monthly in descending order. Cut anything that’s not essential.
- Pay attention to all of your software license tools when people leave the company…don’t pay for seats you aren’t using
- Leverage Incubator and Accelerator Perks and services if you can: advisory hours, discounted SaaS tools, cloud services credits
- Justify each expense from scratch for next year’s budget, rather than starting with last year as baseline
- Ask vendors for extended payment terms for a limited time.
Look Carefully at People
- Consider fractional senior employees
- Reduce headcount
Raise or Borrow
- Fundraise
- Secure venture debt / refinance
Closing thoughts from early stage advisors
- Companies that stay lean and mean have the opportunity to win business from those that raised excessive funds and over expanded when cash was flush.
- News is generally negative, especially in a downturn or recession. Ignore it all. Stay positive and focus on your business, your team, and your customers.
For more info, check out these resources:
About SaaSCan
SaaSCan for Scaleups helps scaling North American SaaS companies increase revenue and improve the customer & employee experience through scaling Customer Success, and Customer Journey Mapping.
