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The SaaS IPO Playbook

JJ Xia
Senior Director Customer Strategy, Zuora


Take a look at many companies that recently went public—Pivotal, DocuSign, SurveyMonkey, Avalara, Pluralsight. How did these companies grow from $5M in revenue to the success stories they are today?

When we dive into each of these SaaS IPOs, it turns out that 3 patterns emerge.

1. They rapidly pursue new growth strategies to achieve 30%+ YoY Growth and 100%+ Net Dollar Retention

2. Their finance teams lean on operational efficiency to reach IPO maturity

3. They use a data-driven culture to uncover new opportunities

Simple right? So why doesn’t every SaaS company simply follow this formula for a successful IPO? It’s simple, but not easy. Each of these 3 patterns poses a fundamental challenge for growing SaaS companies. Let’s dig in.

Going public requires businesses to be prepared to meet shareholder and market expectations from day one.



Opportunity: Move faster and beat competitors by quickly executing on new growth strategies.

To maintain 30%+ YoY growth, SaaS companies can’t simply sell the same product and pray that 30% more customers will keep knocking on their door year after year.

While most SaaS companies start with a single product, they quickly expand their portfolio to sell their software to different segments of customers through editions, add-on products, and different pricing and packaging strategies.

With SaaS, you’re essentially selling the same products in many different ways – through different pricing and packaging strategies, across different geographies, and through different channels. Your goal is to then design an upsell and cross-sell path that will extend the lifetime value of your customers.

In fact, there are 10 core growth strategies that every successful SaaS company eventually pursues. As companies progress and mature over time, they need to adopt different growth strategies to sustain that 30%+ YoY growth rate.

Early Stage

In the early days, companies simply want to launch that first new product.

Maybe there’s only one pricing plan to start, but that grows over time. Start-ups experiment with new product packages, and need the ability to rapidly test and iterate on pricing and packaging. For example, look at a company like Box which started off in 2004 as file storage for personal use. It was a solid product offering for users, but that strategy wasn’t sustainable for long-term growth. Eventually, the company needed to experiment with their pricing and test how their product could be sold to businesses, which eventually led to Box for Enterprise.

Growth Stage

In the growth stage, companies start to create tailored product editions (think Gold, Silver, Bronze) and design different product bundles.

The reason is because companies at this stage want to test for upsell opportunities.

Instead of cranking out a completely new hit-product, successful SaaS companies figure out how to strategically tailor their product packages for existing customer segments and drive up Average Revenue Per Account. The CAC (customer acquisition cost) to acquire $1 in upsell revenue is just 24% of the cost to acquire a new customer – hence, companies need a strategy to create an enticing upsell path. To do that, companies use either a capabilities-driven or a consumption-driven upsell strategy.

As Box grew, they started to create more editions of their product, such as a Starter Plan, a Business Plan, a Business Plus Plan, and an Enterprise Plan for their enterprise customers. Each of these are offered at a different price point, has a different packaging of features, and is targeted towards a different type of customer. As customers’ needs grow, they eventually move up and upgrade to the next edition.

The Customer Acquisition Cost to acquire $1 in upsell revenue is just 24% of the cost to acquire a new customer.

Expansion Stage

In the expansion phase, we often see companies going after new segments or new geographies.

Since most SaaS companies start by selling to SMBs, they eventually expand upmarket to sell into enterprises. This often requires hiring a sales team and adding enterprise-grade capabilities within your product set. On the flipside, we also see customers moving down market as they expand, which means offering simpler versions of their product and offering self-service options.

For companies that expand internationally, finance teams have to consider how they will support multiple currencies, preferred local payment methods, and multiple entities. These operational changes take a significant amount of time to prepare, as they impact finance and operations teams, and many companies struggle to get these initiatives off the ground.

In the expansion phase, Box decided they weren’t growing fast enough with their current strategy, so they shifted their focus to selling into the enterprise. Going upmarket brought opportunity but also its share ofchallenges, and the finance team was quickly feeling the burden of new customer demands and market changes. With the right subscription management platform, Box was able to consolidate and automate their billing, payment, and revenue operations to easily handle the growing volume of subscription changes across their customer segments.

Maturity Stage

At this stage, SaaS companies have understood their product offerings, pricing strategies, and customer segments.

To continue driving 30%+ YoY growth, mature companies are making strategic acquisitions, launching new revenue streams for crosssell opportunities, and driving efficiency while scaling. When mature companies make strategic acquisitions, they need to ensure that they can smoothly take in those acquisitions, streamline them, and work through the migration process so there is a single system of record for subscriptions. Only then can the company drive cross-sell and upsell opportunities in the future.

Now in the maturity stage, Box is a hugely successful, public company with (according to recent earnings) 41 million users and 85,000 paying customers, including large enterprise companies like General Electric. Box runs their enterprise-grade subscription business through 20+ gateways and collects across 200+ currencies as a global company. At the time of their IPO, Box was at a 110% YoY growth rate. That’s incredible. However, Box couldn’t have grown from the $3M ARR company we knew 15 years ago to the $500M ARR company that it is today without being able to quickly pivot and execute on new strategic growth initiatives.

Every pivot spins up new quoting processes, new ecommerce pages, new payment gateways, new revenue treatments, new billing operations, new ARR reports, and more. Without a flexible platform, SaaS companies end up stitching together different siloed solutions or building a homegrown system – resulting in thousands of hours for IT and engineering projects year over year. While requirements might change across the different growth stages, one thing is consistent – your existing systems shouldn’t be the bottleneck to your growth.

Every new growth strategy impacts the order-to-revenue process.


Opportunity: Enable non-growth teams (Finance and R&D) to efficiently scale with growing volume of subscribers and subscription changes.

According to the Subscription Economy Index, 70% of a subscription company’s revenue comes from existing customers. As a SaaS business, your goal is to keep your customers for life and drive Customer Lifetime Value. But how do you do that?

In a subscription-based model, customer events throughout the year are ongoing and unpredictable. On average we see four mid-term changes per year for every subscription. Zoom, actually processes 5 changes to a subscription per month!

To illustrate this point, let’s imagine a complicated – but common – customer scenario: In the beginning of the year, your customer wants to start a new subscription, which means that, on the pricing plan from Bronze Edition to Silver Edition, and use a Monthly Plan for additional users starting that month. For finance and engineering, this means changing the pricing plan, adding a second monthly plan, prorating for the remainder of the month, sending a new invoice, redistributing the recognized revenue, and calculating the impact on revenue numbers. This raises multiple issues and questions:

• Does IT have to customize this? Do you do things manually with spreadsheets?

• Did the customer invoice get updated accurately?

• How was revenue recognition impacted?

• What is the impact on MRR and other business metrics?

This is a simple example of the types of requests that customers make in a subscription-based model. In fact, for some SaaS companies, up to 80% of their orders every day are changes to existing subscriptions. In other words, the majority of what they do is just manage change.

But these requests place undue burden on your finance and engineering teams: Finance needs to reconcile all of the spreadsheets. Engineering needs some kind of a hack. Every one of these actions has an impact on billing and invoices, revenue recognition, and reporting. And they all create downstream manual work for your finance teams. In order to be operationally efficient and have the flexibility to innovate and iterate – with products, marketing, pricing, and promotions – all in one central location, you need one system that can handle unpredictable customer events and take the burden off of finance and engineering.

For example, according to Box CFO and Co-Founder Dylan Smith, prior to putting into a place a subscription management platform, they “had Quickbooks as our ‘ERP system’ and were using spreadsheets to manage all of our billings and subscriptions.” Because of this, they were “running into challenges, with a lot of manual work.” Today, Box’s entire order-to-revenue process is centralized. As a result, their finance team is able to easily support any subscription change.

For some SaaS companies, up to 80% of their orders every day are changes to existing subscriptions.


Opportunity: Build a data-driven culture to drive decisions and uncover new opportunities.

Every SaaS company out there makes key strategic decisions based on subscription metrics such as MRR, Lifetime Value, or Net Dollar Retention. The leading SaaS companies build a data-driven culture and obsess over data to drive decisions and drive new opportunities. “Duh” you’re probably thinking. But the problem isn’t that companies don’t know to do this. The problem usually lies in dirty data.

To make the best business decisions, you need to ask the right questions and access the right metrics. For example, “What is my MRR growth in North America?”, “What’s my current net retention compared to last year?”, and “How much MRR is coming from add-ons today?” If the only way you can answer these questions is to pull bits and pieces of information from disparate systems – and even spreadsheets – this is not going to cut it. Trying to calculate business KPIs through manual processes is time consuming, and can lead to many inaccuracies. Even something as simple as adding a new product can be really challenging if you don’t have the right systems and processes in place. This means that it can become a challenge to correctly measure even the most fundamental metrics such as Monthly Recurring Revenue (MRR), Average Selling Price (ASP), Average Revenue Per Account (ARPU), and Net Retention. For example, Net Retention can be especially tricky to track if you don’t have the right systems in place.

In traditional ERP solutions, an upgrade for a subscription is modeled by 1) cancelling the existing subscription and 2) purchasing a new subscription of greater value. That might look okay on the surface, but you have effectively documented a churn – and that’s not an accurate depiction of the actual change that occured. The leading SaaS companies build this foundation from the start, using a single system of record to calculate these business KPIs and drive critical business decisions.

Without the right systems and processes in place, it can become a challenge to correctly measure even the most fundamental metrics such as Monthly Recurring Revenue (MRR), Average Selling Price (ASP), Average Revenue Per Account (ARPU), and Net Retention.

IPO Ready?

If you’re thinking about an IPO, you know that top-line growth is key.

As PwC noted in a recent roadmap for IPO, going public requires businesses to be “prepared to meet shareholder and market expectations from day one.” Investors will be closely scrutinizing the rate of your business’s revenue growth. In addition to revenue growth, businesses preparing for IPO need to demonstrate operational efficiency, and they need the ability to access and leverage data for growth optimization and necessary reporting.

It’s only with the right systems in place that businesses can confidently pursue a successful IPO. Zscaler, DocuSign, Pivotal, Smartsheet, Avalara, Dropbox… are you next?

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