Today, Lauren Bahorich, Venture Partner with GST shares with us how she and the GST team advise Growing B2B SaaS Companies to have regard for the Quality of Revenue sought.
Quality Revenue: Indispensable Value & Long-term Profitability
Most fundamentally, you are working to build a strong company that will be well-positioned for a successful, high-multiple acquisition in the future.
To do this, you need to align your focus with the metrics VC and PE firms focus on. While your company’s growth rate will undoubtedly be a factor in a valuation, so will the quality of your revenue.
Aligning your company’s strategy to pursue quality revenue, rather than solely growth, shifts the focus from a short-term drive for growth numbers to a longer-term pursuit of strong revenue that ultimately leads your company to be much more profitable in the long term.
When a company’s primary objective is growth, it tends to cast a wide sales net resulting in poorly qualified sales, which results in high sales and operational costs, lower profit margins, higher churn and less opportunities for account expansion. However, when a company is disciplined in its approach to product development and go-to-market strategies, it earns its reputation as a company who truly understands its customer’s pain points and can effectively offer solutions to them. This company develops and sells its products to customers who find them indispensable, earning itself quality revenue that can be counted on and expanded at a lower cost margin year after year.
We have all seen unicorns fail spectacularly recently. Their growth numbers were impressive and exciting. However, when investors began looking in their books, they found high costs and low margins. In other words, these companies were not very profitable after all, and investors did not value them nearly as highly as their impressive growth rates might predict.
Over the next few weeks, we will be discussing factors to consider in your pursuit of high-quality revenue.
As always, we love hearing from you as to what you're experiencing as you drive growth for your company; please reach out below.
We'd love to hear from you!
