Even in an uncertain economy, opportunity exists for SaaS startups to keep growing and evolving their businesses — founders just have to be smart about managing cash flow and runway as they make the right investments that support both near and long-term success.
For many young SaaS businesses, strategic investments in marketing, sales, and customer support can drive scaled growth in annual recurring revenue (ARR) that propels the business to its next big milestone.
Other SaaS startups may be able to gain traction by hiring engineers and investing in product development, cashing in on the flood of tech talent that recently entered the job market following several quarters of layoffs.
It can also be advantageous to delay an equity funding round and focus on strengthening the business’ financial metrics, which can help not only avoid a potential down round but also increase the startup’s valuation.
If you’re a cautiously optimistic founder looking to make the most of today’s economic environment, consider the following SaaS growth strategies to increase your revenue and growth rates.
SaaS Growth Strategies
Igor Ansoff, who is considered to be the father of strategic management, first developed the Ansoff matrix in 1957. This 2x2 matrix offers a simple yet effective framework for planning and implementing growth strategies that’s still widely used today.
The matrix offers four main strategies for business growth: market penetration, market development, product development, and diversification.
Market Penetration: Increasing sales of existing products into an existing market
Market Development: Selling existing products into new markets
Product Development: Introducing new products to an existing market
Diversification: Entering a new market with new products
One axis of the matrix represents new and existing markets, while the other represents new and existing products. Each quadrant has a different level of risk — market penetration has the lowest risk, while diversification has the highest risk.
Nearly all SaaS startups will use the first three strategies above to grow their businesses. Not only do they have the least risk, but they require less capital to execute successfully. Some SaaS startups do win big by pivoting to a diversification strategy, though it’s far less common.
Below, you'll find examples of real SaaS startups who have successfully grown their businesses using market penetration, market development, and product development strategies. Use their experiences to identify your own strategies for increasing revenue and reaching your next big milestone.
6 Strategies for Scaling an Early-Stage SaaS Startup
1. Expand marketing and sales to acquire new customers
You’ve got a product and happy customers that find value in it, with minimal churn. Analysis of your share of the total addressable market (TAM) also shows there’s plenty of additional revenue you can capture. It’s time to get the word out to more prospective buyers and win new business.
Expanding your marketing program can grow awareness and demand for your solution at scale, while a team of experienced sales professionals — even a small one — will complement your marketing efforts with a human touch, nurturing relationships and closing deals to deliver new ARR.
EXAMPLE
Valant grew ARR 5X with well-timed marketing and sales investments
Valant is a healthcare platform that helps caregivers navigate red-tape and paper roadblocks to provide better patient care. CEO, David Lischner, saw an opportunity to grow with a market that was about to explode, thanks to a 2009 economic stimulus bill that set aside $19 billion for healthcare technology and electronic health records.
The business had reached $1 million ARR by 2010, but cash flow was choppy and unpredictable. Lischner secured non-dilutive financing so he could quickly expand marketing and sales to capture as much market share as possible. In just one year, Valant doubled its revenue and customer base — three years later, ARR had grown 5X and it was on its way to becoming a $100 million company, and the market leader.
2. Invest product development and deliver more value to customers
Customers' demand for your product from its initial launch to expansion stages is crucial for growth. To put it simply, the better your product, the more likely you are to retain customers, expand business with them, and acquire new accounts. Naturally, investments in your product can be a boon to ARR when they meet the needs of your customers and add value.
EXAMPLE
Flip’s focus on product development fueled a 10X increase in revenue
Flip is a Voice AI leader that makes it possible for businesses to provide great customer support over the phone, affordably. The founders chose to focus on product, turning a $1.1 million capital infusion from Lighter Capital into enhancements that enabled its expansion into new industries, which drove a 10X increase in revenue over just 2 years.
SaaS Benchmarks Report
Get valuable insights from SaaS startup benchmarks to develop strategies that maximize your enterprise value. Our SaaS Benchmarks Report offers an at-a-glance look at private SaaS company metrics, including annual growth, churn, and more.
3. Enter new markets to scale revenue
If your SaaS startup is doing well in one market, then expanding across international borders may open up new opportunities to grow ARR and increase your growth rate.
You’ll need to carefully consider the resources required to expand geographically, as well as the potential value of the market, first. If it’s already too saturated or if it will be too difficult to gain market share and stay competitive, it may not be the right market for you right now.
EXAMPLE
Style Arcade’s market development strategy increased ARR 180% in one year
Australian-based Style Arcade is a fashion software suite that helps retailers scale their revenue and profits. Following early success, CEO Michaela Wessels decided that expanding to the U.S. and Europe would enable the company to meet aggressive growth goals.
After just one year and a modest investment of $420,000 USD from Lighter Capital, Style Arcade’s global expansion and new customer acquisition efforts grew the business 180%.
4. Develop customer support for sustainable long-term growth
Customer retention isn’t often a strategy that SaaS startups deploy early to scale revenue, but it shouldn’t be overlooked. By raising customer retention rates, you’ll increase customer lifetime value, and even a 5% increase in customer retention can drive up profits 25% to 95%.
It’s only getting harder to keep customers with increasing competition, lower switching costs, and better data integrations that all make customers less sticky — proactive steps to minimize customer churn and improve customer satisfaction go further than you might expect to scale your startup.
EXAMPLE
Contractor Compliance navigated the pandemic with a focus on customer success that helped grow ARR 6X
Headquartered in Toronto, Ontario, Contractor Compliance is an innovative software solution that helps businesses ensure their supply chain participants are meeting customers’ environmental health and safety expectations. While other businesses slashed spending and laid off employees in response to a global pandemic, Contractor Compliance looked for funding to keep growing — CEO and Co-founder Mark Bania saw an opportunity to shine in an environment that demanded higher health and safety standards.
Armed with non-dilutive financing from Lighter Capital, Contractor Compliance invested in customer success, sales, and marketing projects that would drive revenue and enable the company to pivot as necessary to serve a rapidly changing market. Agility was its advantage; the company increased its annual recurring revenue 6X in just 2 years.
5. Make key hires and build out teams to execute growth strategies
Successful SaaS startups keep teams as small as possible until they’ve developed the best possible product and systems that can scale — that’s when it’s time to hire additional employees.
You’ll need to recruit the right people to lead and execute your SaaS growth strategies, as efficiently and effectively as possible. Whether you plan to invest in marketing, sales, customer success, or critical leadership roles, always ensure strategic new hires and their costs are in alignment with your revenue growth tactics and goals.
EXAMPLE
Seamless.AI invested in the right people to achieve 8X growth in ARR
Seamless.AI, the top-ranked sales software and business leads platform, raised non-dilutive funding from Lighter Capital to make investments in talent acquisition that would drive scaled growth in customers and revenue. The startup hired 100 new employees, which tripled its customer base and grew ARR from $3 million to $25 million in just over a year.
Seamless.AI’s CEO, Brandon Bornancin reflects on his experience in the video below:
6. Refinance old debt and smooth out cash flows
Cash is always king. Anything you can do to reduce cash burn and better manage cash flow can help improve your startup’s working capital turnover ratio, which measures how efficiently you turn working capital into increased sales revenue. As your startup grows, your working capital requirements are likely to increase with it.
Refinancing outstanding debt with funding that’s aligned to your growth strategies can help you achieve a higher working capital turnover ratio and ensure you’re getting the most from your free cash. Short-term loans, for example, are useful in certain scenarios, but repayments can be a burden on cash flow and hinder growth when they’re used for investments that take longer to impact your startup’s growth rate.
EXAMPLE
Qnary doubled ARR after securing the capital it needed to scale
Qnary elevates brands online through the social media presence of their company executives. The bootstrapped startup had successfully used short-term loans to fund incremental growth until a change in strategy increased sales leads 500% almost overnight — its lending partner at the time couldn’t provide the funding they needed to take full advantage of the opportunity in front of them.
Non-dilutive financing from Lighter Capital not only gave Qnary the runway it needed to maintain its trajectory, but also it paid off the company’s existing debt and made it easier to manage future cash flow with payments that were tied to their monthly revenues. In just one year, Qnary doubled its ARR and is on pace to grow another 50% year over year.
The Not-So-Secret Ingredient for Increasing Your SaaS Startup’s Growth Rate
One of the biggest advantages of starting a SaaS business is your ability to grow under your own steam, but incoming revenue — especially in your early stages — isn’t always enough to support strategic investments at optimal moments.
Non-dilutive startup capital can fund your runway for maximum ARR growth and preserve owner equity, which is likely to increase both your startup’s future valuation and your ownership value at exit. Revenue-based financing turns your startup’s revenue into runway, so you can accelerate growth and scale your SaaS business on your terms.
The startups in the examples above all secured revenue-based financing from Lighter Capital to make strategic growth investments in their companies. In addition to increasing their revenue and growth rates, the owners retained valuable equity by raising non-dilutive capital.
Join the hundreds of successful tech startups in Lighter Capital’s portfolio
Apply for up to $4 million in upfront cash so you to take your SaaS company further. Learn more about how our financing works.