Exploring Important Metrics at the “Knee of the Growth Curve”

The “knee of the curve” is that sometimes magical, always hectic time when a company goes from exploring ideas to having traction in the market. Often, there is a solid enough product-market fit to attract customers. At this time, companies might begin to attract investment to fuel the next phase. The investment thesis at this time (simplified) is that the hockey stick revenue curve will start to materialize.

During the best of times, after investors step in, a pedal-to-the-metal mentality is exercised – directing hefty new investment into areas previously starved pre-investment (particularly so for bootstrapped companies getting initial investments) to accelerate growth. While there are numerous examples of how this strategy can work quite nicely, there are other examples where runaway investment (aka “spending”) not carefully curated can go very wrong during this period.

Vigilant leadership is a must. Finding the balance of feeding the opportunity beast while concurrently and always remaining alert for red flags that may be rising on the horizon is a must.

Astute founders, seasoned leaders, and their boards and advisors buy in to some fundamental truths that help them prepare for and navigate those times when the curve waivers or does not come to fruition:

  • There is no room or time for nostalgia. What got the company here (to the knee of that curve) will not get it there (to that beautiful hockey stick growth curve the investors want and expect.)
  • Be careful not to throw the baby out with the bathwater. Using newly available capital to acquire new talent and fill leadership gaps to propel the company through the transition is essential. However, it is also critical to put equal time, energy, and authentic enthusiasm into identifying and developing the high-potential talent that got you here in the first place.
  • Stay humble, and no matter what, keep your ego at bay at all times – things can change quickly. Keep an open door and welcome diversity of thought, opinions, ideas, and solutions – don’t surround yourself with folks who think or look just like you.

Many SaaS companies that might have previously been on the up and to the right of the curve face some challenges in today’s environment. Sometimes, this is a great time to lean into your team members who have experienced these patterns of market shifts in more challenging times and thus have the courage to see the signs. Keep the humility and the decisiveness to adjust the strategy if required.

I always find the OpenView SaaS Benchmark reports insightful for quantifying patterns that matter. The recently released 7th Annual version just came out and does not disappoint. It’s certainly not all bad news, but hyper-growth rates have declined on average. And according to the data, good old-fashioned management of the cash burn rate is a winning play for many of those in the outlier category. Furthermore, one of my favorite SaaS KPIs is getting its time in the sun – ARR per FTE. This metric is a good gut check, and as the Openview team points out – “This is a metric you cannot hide from. There’s no complicated math or financial engineering to do.”

Do you use this metric? Any insights you are gleaning from the trends?

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