The companies shown above have been wildly successful, but most don’t meet the inflated growth expectations put on them by investors and outside market pressure – and these companies are the lucky few that have managed to IPO.

On the other hand, there are 5,000 venture-backed SaaS companies in North America that haven’t yet managed to IPO, but that make decisions about their business as if it’s realistic and even expected that they hit T2D3. Companies that fall into this trap often overhire and ultimately burnout trying to reach this near impossible benchmark.

To put it another way, only a handful out of the 5,000+ venture backed SaaS companies managed to hit $100M in 5 years and they required an enormous amount of capital to do so (read: up to $1B in some cases). Creating budgets around assumptions of performing like a statistical outlier seems a bit absurd to us.

KEY TAKEAWAY: Let’s reframe what it means to be a top performing SaaS company. You can build an enduring business by growing smart and sustainably – don’t feel boxed in by the T2D3 rule.

It’s common for startups to grow rapidly early on. But after $5M in ARR, the median growth rate plummets, falling to 50%. It slows even further once companies reach $20M in ARR, down to less than 30% on average.

KEY TAKEAWAY: The real test for SaaS companies comes then in maintaining an accelerated growth rate as you hit scale, or in balancing growth and profitability.

Sales and marketing spend peaks at 50% of ARR at the expansion stage. Too many companies underinvest in sales productivity, saddling them with huge costs without the ROI.

KEY TAKEAWAY: Start tracking time to quota of individual reps today and invest in training, technology and processes that will help you reduce ramp time for each new hire.

On average, sales efficiency is about 0.7, so for every $1 spent on sales and marketing in a year a company gets $0.70 in revenue that same year. With a subscription business model, that $0.70 in revenue should grow and grow every year as customers renew.

These numbers prove why venture capital firms are willing to invest so much money in early stage companies that burn cash. As long as sales are efficient and retention rates are high, any extra dollar put into a startup will have a positive ROI over time.

KEY TAKEAWAY: You should be carefully monitoring your sales efficiency and looking for ways to improve or maintain it year-over-year. Look out for the ‘leaky bucket’ problem, where you spend significant sums to acquire new customers, but then they churn shortly thereafter (churn bait).

Survey data reveals the same pattern of miscalculating CAC – the median self-reported CAC Payback Period was 6 to 12 months. Based on the sales efficiency scores, which we derived from other inputs, we can tell that companies are not paying off their acquisition costs anywhere close to that quickly. Consistently underestimating CAC Payback leads to an overinvestment in sales and marketing spend and inefficient cash burn.

KEY TAKEAWAY: If you aren’t factoring in gross margins and fully loaded acquisition costs when calculating CAC Payback, you too are likely misrepresenting this important metric.

Top SaaS companies see net negative churn, where the value of every new customer cohort actually increases over time. After all, it’s more efficient to up-sell to a customer you already have than going out and acquiring a new customer entirely.

KEY TAKEAWAY: You need to first make sure your product, pricing and sales incentives accommodate up-sell paths to allow for ongoing customer expansion.

KeyBanc Capital Markets (formerly Pacific Crest Securities) data shows that 79% of the market cap of public SaaS was above the 40% threshold, and these companies trade at the highest multiples. But, most private companies still trend below the Rule of 40 and must improve to make attractive IPO candidates.

KEY TAKEAWAY: There are two levers at your disposal to build a fundable SaaS company – profitability and growth. Growth is the main focus for early stage companies, but a forward looking path to profitability is an insurance policy against future funding uncertainty.

To be a successful company, you must hire the right team. This should include people with diverse experiences and backgrounds because without diversity of backgrounds, you also fail on diversity of ideas which in the long run will stymie growth and profitability.

Unfortunately, our data shows that too many software companies fail on the diversity front. 71% of all those surveyed have no female board members. Only 4% of those surveyed have parity between men and women on their boards. Similarly, only 12% have full parity between men and women within their leadership ranks (director level and above).