The compounding startup
A new look at growth levers on the path from $1 to $20M ARR
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A few weeks ago I shared data that most SaaS startups never make it. Just 3.5% reach $20 million in ARR within ten years of monetizing, worse odds than getting into Harvard or Stanford.
So what makes those outliers different?
To find out, I explored data from ChartMogul, the SaaS metrics and growth platform where I’m an Analyst-in-Residence. ChartMogul’s dataset covers 6,525 software companies with historical records going back over a decade. I retraced the exact steps of startups that went from $1 million to $20 million ARR, and of the startups that didn’t make it.
What I found surprised me: The winners didn’t necessarily start better. They became better. They changed their stripes, improving their revenue mix, monetization power, and retention. And they watched as the improvements kept compounding.
Chili Piper co-founder Alina Vandenberghe had a similar realization. She told me they needed to let go of everything that propelled the startup to its first $1.5 million, reinventing the business for the next stage of growth.
“In our case the biggest shift came when we learned to let go of everything that worked to get us to $1.5M. The strategy, the processes, the assumptions we had when we got started had to die for the next stage of our growth. Scaling in our case was less about efficiency (though we did a lot of that as well of course) but more about re-birth.” - Alina Vandenberghe, co-founder & co-CEO of Chili Piper
This post takes a data-driven look at startup reinvention, looking at how the outliers transformed and what you can do to join the elusive 3.5%.
The path to $20 million ARR
The first thing I wanted to do was to turn back time for the SaaS companies that made it to $20 million ARR (let’s call them the outliers). I looked at the metrics of these outliers when they were $1 million ARR startups and compared those metrics to peers who made it to $1 million ARR before stalling out (let’s call them the normies).
The typical metrics at $1 million ARR for outliers:
Growth of 16.7% month-over-month (MoM)
Average revenue per account (ARPA) of $564
Gross revenue retention (GRR) of 66.0% and net revenue retention (NRR) of 82.7% on an annualized basis
Net-new MRR primarily from acquisition with 15.4% coming from expansion and 1.7% from reactivation
Interestingly, starting metrics were pretty similar for both outliers and normies. The main difference was MoM growth rate. Outliers were growing 16.7% MoM on average; normies were growing 8.7%. Faster growth at $1 million ARR does propel future momentum.
But even this wasn’t as pronounced as it appears. The top quartile normies were growing 20.1% MoM. Put differently, the top 25% of normies outpaced more than half of the outliers. Clearly, starting momentum isn’t the only factor at play.
Now let’s look at the typical metrics at $20 million ARR for outliers:
MoM growth declined from 16.7% to 5.1%
Average revenue per account grew from $564 to $1,024
GRR was up from 66.0% to 71.8% while NRR increased even more from 82.7% to 92.8%
Net-new MRR became much more balanced with 34.7% coming from expansion and 3.8% from reactivation
The top quartile metrics tell a similar story: declining growth rates, higher ARPA, stickier products, more expansion revenue.
Here’s where the outliers start to diverge from the pack. The outliers were meaningfully better at improving their growth metrics compared to normies. The formula of faster initial momentum paired with operational improvements created advantages that compounded year after year.
A note on methodology: All companies classified as normies reached $1 million ARR, but had not reached $20 million ARR within a minimum of 36 months after the $1 million ARR milestone. The median normie started monetizing in December 2016, reached $1 million ARR in June 2020, and had not reached $20 million ARR as of October 2025. The median outlier started monetizing in April 2017, reached $1 million ARR in June 2019, and reached $20 million ARR in September 2023.
A SaaS startup can change its stripes
Next I looked at how SaaS outliers changed their growth metrics on the path from $1 to $20 million ARR.
Few managed to accelerate growth. But the majority got better at everything else.
Expansion as a share of net-new MRR: 86% improved by more than 10%
Average revenue per account (ARPA): 72% improved by more than 10%
Share of MRR on annual plans: 71% improved by more than 10%
Reactivation as a share of net-new MRR: 60% improved by more than 10%
Gross revenue retention (GRR): 51% improved by more than 10%
Net revenue retention (NRR): 45% improved by more than 10%
A SaaS company can change its stripes after all. That doesn’t mean it’s easy.
The normies were much less likely to improve their metrics. And, when they did, the improvements tended to be far smaller.
1. Higher revenue per account
Outliers increased their ARPA by 82%; normies increased it by 63%.
There are many paths to higher ARPA like monetizing new products, going upmarket, raising prices, reducing discounts, or driving more usage/consumption. The common denominator is to increase perceived value over time while simultaneously monetizing that extra value. And it helps to have a pricing model with multiple levers to expand your best customers.
Mangomint CEO Daniel Lang credits their success with gradually expanding the product surface area, launching three major new products in the last few years.
“We grew by staying focused on one specific type of customer, mid-sized salons and spas, and gradually expanding the surface area to solve more and more of their problems. In just the last few years we added an advanced marketing automation product, a full communication suite (phone, texting, chat), and payroll. This not only improved retention, it helped us attract new customers by giving owners even more reasons to switch off legacy systems.” - Daniel Lang, CEO of Mangomint
2. Better net revenue retention (NRR)
Outliers increased their NRR by about 10 percentage points (pp); normies increased it by 4.2 pp.
A major driver of this is shifting from single product to multi-product, allowing for more surface area to expand customers. Historically the rule of thumb has been to wait until you’re $20-50M ARR before going multi-product. I suspect this ARR threshold is dropping and will continue to drop with AI.
Fyxer co-founder Archie Hollingsworth pointed out that for AI products the breakthrough comes from convincing customers to replace their habits. They targeted a core workflow, organizing and writing emails, and then worked hard to turn early users into superfans who could help Fyxer grow a single user into five or ten inside an organization. (Their net revenue retention, shared in an earlier post, is quite enviable.)
“In AI, the breakthrough isn’t invention, it’s habit replacement. We’re not creating new behaviors yet, we’re automating the old ones. The smartest thing we did was choose a universal workflow, organizing and writing emails, and made it effortless with zero prompting (because adoption of new tech is so hard) to win 100 superfans. Then we asked every single one of them to post online if they loved it.” - Archie Hollingsworth, co-founder of Fyxer
3. Small improvements add up
The differences between outliers and normies might not sound massive at first glance. It’s worth studying how even small improvements can fundamentally change the trajectory of a SaaS company in time. Patience is essential.
Replit founder and CEO Amjad Masad said that his team’s progress didn’t immediately show up in the company’s top-line. He tracked internal KPIs and small wins that he saw as better leading indicators and that would eventually compound with time.
“In the early years, external metrics didn’t always reflect progress. The hardest part was staying locked in even when others seemed to be growing faster. We reframed success around internal scoreboards like making daily progress, learning faster, and compounding small wins until growth became unstoppable.” - Amjad Masad, founder & CEO of Replit
ClickUp founder and CEO Zeb Evans shared a similar sentiment. While the business is now a behemoth, they bootstrapped to $20 million ARR in one of the most competitive categories within software. Zeb credits a near-obsession with tracking incremental progress on a weekly basis rather than quarterly or annual.
“Bootstrapping forced us to focus on profitability and control our own destiny. Most companies measured progress quarterly; we measured it weekly. We’ve shipped massive new features every week since day 1, and still do so today, delighting our community who help us build and iterate.” - Zeb Evans, founder & CEO of ClickUp
The compounding SaaS company
The ChartMogul team recently introduced a Scenarios feature, which allows companies to model how different “what if?” levers would impact future ARR and subscriber count.
I used Scenarios to create a composite $10 million ARR SaaS company that’s growing 11% year-on-year. This is an illustrative example, although it mirrors what is most common across the ChartMogul dataset. It’s the Baseline in the chart below.
I then ran five different growth initiative scenarios over a three year period including pricing, acquisition, and churn cases. Each scenario assumed a 50% improvement over the period.
What I found:
Increasing prices for existing customers had the smallest impact, although it still amounted to an extra $1.7 million ARR after three years. Not bad!
Increasing prices for new customers had a greater impact, adding $5.4 million ARR after three years. This one change effectively doubled the annual growth rate from 11% to 24%.
Increasing acquisition is equivalent to raising prices for new customers in terms of ARR impact. (Although this would likely also require incremental marketing spend or sales headcount.)
Increasing prices for both existing and new customers adds $7.1 million ARR after three years. While this might seem high, remember that the outliers managed to increase average revenue per customer by 82% on the path from $1 to $20 million ARR. This change would increase the annual growth rate from 11% all the way to 28%.
Reducing churn has the single biggest impact and adds $8.9 million ARR after three years. This would be equivalent to improving gross revenue retention (GRR) from 66% to 83%. In other words, it’s not impossible, but it is statistically improbable.
Now imagine the effect of increasing prices and reducing churn simultaneously. The combined impact takes ARR growth off the charts (quite literally). That’s the outlier path in a nutshell.
Keep raising the bar
If you made it past $20 million ARR, you’ve outpaced 96.5% of your peers. This path wasn’t pre-ordained based on your initial performance. It didn’t just happen because you built an AI-native product or relocated to San Francisco.
It didn’t happen because you copied everyone else’s playbook, either. Clay co-founder Varun Anand stressed that founders need to trust their instincts and seek out what’s authentic for your business.
“Experts will give you well-meaning advice but only you know what will authentically work for your business. It’s why we hired GTM engineers (technical product experts) to sell Clay instead of traditional AEs, as we continue to optimize for adoption and usage vs immediate revenue maximization.” - Varun Anand, co-founder of Clay
Reaching $20 million ARR was the by-product of building valuable products, finding ways to monetize these products, and consistently improving the customer experience around your product. Here’s to those who keep raising the bar.
very nicely summarized ;-)
You took this data and made it sing! Way to paint a picture