5 Tips for SaaS Roadmap Planning
Most startups have a roadmap for the next year or two, and most investors ask about that roadmap during pitch meetings. The question usually sounds something like this: "If you raise the $1.5m that you're looking for, how much runway would that get you? What would you hope to do that in that time frame?" The answers can reveal unrealistic assumptions about operating costs or about growth trajectories. On rare occasions, they can also reveal a lack of understanding about how startups work.
About a third of the founders I talk to will mess this question up in some way, either by underestimating operating costs or overestimating growth rates. Below are five tips for better roadmap planning. These tips are specifically targeted at SaaS startups, but I think they're applicable to other tech startups, too.
TL;DR: 1) assume ~20% monthly growth; 2) don't promise hockey stick growth without justification; 3) assume your headcount grows gradually -- not all-at-once; 4) consider fully loaded costs -- not just salaries; 5) don't forget to include a buffer for raising your next round.
Tip #1: Assume sustained monthly growth will be 25% or less
Every month, I hear a handful of pitches where founders anticipate growing from ~$0 in revenue to several million in revenue over the course of a year. That's not impossible, but it's very, very rare. For seed stage SaaS startups, 10% month-over-month growth is slow, 15% is decent, 20% is good, 25% is great, and 30+% is fantastic. Everyone wants to be in the 30+% bucket, but it's hard to maintain that kind of growth for more than a few months. Bearing these rough benchmarks in mind, your roadmap should probably assume 20% monthly growth. 15% would be conservative; 25% would be aggressive. To put these growth rates into perspective:
10% monthly growth → 3.1x annual growth
15% monthly growth → 5.4x annual growth
20% monthly growth → 8.9x annual growth
25% monthly growth → 14.6x annual growth
30% monthly growth → 23.3x annual growth
If you have some initial contracts right now and you're at $10k in monthly recurring revenue (MRR), then 12 more months will probably take you to $50k or $100k in MRR. You're very unlikely to get to $250k MRR, so don't present that as a "conservative growth plan" and don't bake that kind of growth into your budget.
Tip #2: Don't promise inflection points without strong evidence
Every week, I see some variant of this chart:
This chart shows 10% monthly growth for the past 8 months, followed by a projected 25% growth rate for the next 6 months. Conveniently, the inflection point always seems to be next month. Charts like this raise eyebrows because if everything you've been doing so far hasn't taken you past 10% monthly growth, then it's very hard to justify an immediate jump to 25 percent. That's usually just wishful thinking. If you believe your revenue (or any other KPI) will accelerate, that acceleration will likely be gradual, and your plans should reflect that.
Tip #3: Build a hiring timeline
The wrong approach is to say something like "we need 10 engineers, and an engineer costs $120k/year, so we need $1.2m for 12 months of runway." That's true if you plan to hire 10 engineers tomorrow, but a more realistic plan might involve hiring 2 engineers now, 3 engineers in 4 months, and 5 more engineers in 8 months. In that case, $1.2m would actually produce about 17 months of runway. (Or, equivalently, you only need to raise $700k if you only want 12 months of runway.)
Tip #4: Consider fully-loaded costs, not just base salaries
If you have a team of 10 employees and an average salary of $100k/year, your costs are not $1m/year. They're more likely to be $1.5m/year after you account for payroll taxes, benefits, offsites, office space, and other per-employee costs. In SF, the fully-loaded cost for an engineer these days is roughly $150k-$175k.
Tip #5: Add a buffer for fundraising time
Here's an example of the most common planning mistake that I see: "We want to get to $1m ARR to get to a Series A. We think that will take 12 months, so we're raising 12 months of runway." No. Even if you hit your target in 12 months, you're going to be out of money just when you're ready to start fundraising. It's important to remember that fundraising takes time. Investors aren't going to be emailing you term sheets the day you hit your targets. Fundraising is one of those things where even when everyone tells you it takes a long time, it still takes longer than you expect.
I recently polled a few founders and asked them how long it took to raise their Series As. The shortest fundraising periods were a little over a month (when founders got inbound term sheets without even trying), and fundraising processes that lasted 4-6 months were common. In short, if you need 12 months to hit your milestones, you should be raising enough for 16-18 months of runway to be on the safe side.
The overarching theme in these tips is that roadmaps are important, and guesstimating a plan without thinking about the details and assumptions is dangerous. The result could be running out of money just when your company is starting to do well, or taking on way more dilution than you need. Both of those are easy ways to turn a potential success into a probable failure.
If you're not sure about your assumptions, consider asking another founder for their opinion, or perhaps an investor (especially if they are not investing in your company and you have nothing to lose).