How do you build a billion-dollar SaaS enterprise software company? For one thing, you might start with a CEO who looks less like Box’s youthful Aaron Levie and more like Salesforce’s Marc Benioff—and stick with him for the long term. The current obsession with millennials running things doesn’t pencil out when it comes to one particularly important slice of the tech economy.
We recently analyzed the people running the 65 leading public and private companies in our SaaS Success Database, a list we first published earlier this year. It includes companies with a realized exit of at least $500 million and private companies valued north of $1 billion. Some 60% of the founding CEOs at these companies—all standouts in their respective markets–started their companies while in their 30s, while nearly 20% did so while over 40. Benioff was 35 when he left Oracle to start Salesforce; only 20% of the executives on our list were in their 20s, like Levie, and college dropouts like the Box founder were even more rare.
And, interestingly, 69% of these CEOs hung onto their jobs through a liquidity event, like an initial-public offering or acquisition—an interesting data point given the market’s focus today on “unicorns” and tech IPOs.
Obviously there are successful outliers in any analysis like this–congrats on your huge business, Aaron–but age and seasoning of business wisdom does play a role in making a successful software-as-a-service company. We’re going to be updating our database quarterly and analyzing different elements of a successful SaaS corporate trek—what we call the SaaS Adventure–to reveal a more nuanced picture of SaaS success and lessons for entrepreneurs.
The most recent work focuses on leadership profile: age, work experience, and educational background. We also examined how leadership switches at key inflection points, such as an IPO or acquisition, relate to these companies’ long-term success.
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The average age of the founding CEOs in our dataset was 35, and more than 67% were first time CEOs. While a small percentage were in their 20s when they began their SaaS journeys, 4.6% were aged 50+. As far as past work experience, by and large, SaaS founders rose through the tech ranks. Most were veterans of enterprise software who set out to solve a problem they found at a prior company.
Excluding those who’d previously served as a tech CEO (30.8% of our dataset), 21.5% of the group held “C-level” management roles at other companies, while 24.6% held lower-level tech positions in their previous organizations. Only 4.6% of our entire dataset hailed most recently from tech sales – the same number who claimed the CEO chair straight out of undergrad. Outliers from our “other” category included Cvent founder CEO Reggie K. Aggarwal (lawyer), several tech investors, investment bankers and consultant types (including KANA founder Mark Gainey and IntraLinks founder Mark S. Adams). Kenexa founder Rudy Karsan’s pre-CEO title was unique for our dataset: Head of Marketing Actuarial.
In SaaS and other sectors, entrepreneurship can be a long and lonely journey, so it’s not surprising that many of the successful CEOs in our database worked closely with others in founding their companies. In our group, 36.9% of the companies had two founders, and 18.5% started with three. However, 57.8% had no prior history of working together.
And, troublingly, just one of the 65 founding CEOs, Gail Goodman from Constant Contact, is a woman. Rebecca Ward took over the CEO slot later at Tealeaf, but the fact remains that diversity—specifically, lack of it– is an issue at successful SaaS companies and at every level in technology.
When we looked at educational backgrounds, our findings disproved the sentiment that an academic background in STEM (science, technology, engineering and math) is a pre-requisite for success in founding tech businesses. Three takeaways:
Successful SaaS CEOs skew technical in their studies, but by no means exclusively. Of the founding CEOs on our list who earned undergraduate degrees (our dataset included just one notable dropout, in Aaron Levie, and six others for whom we were unable to verify a degree), almost 40% majored in computer science or engineering, and 15.5% in math, science or premed. Business and economics majors together made up 32.8% of the group, making it the second-biggest category behind CS/engineering. Liberal arts majors represented just over 12% of the CEOs.
Our CEO stalwarts mostly attended private, domestic universities(41.5%), followed by international (29.2%) and public universities (nearly 20%). Only 3% studied at liberals-arts colleges.
MBAs aren’t a pre-requisite for SaaS success. Only 29.2% of our founders held MBAs. Of those who did hold MBA degrees, their alma maters included usual-suspect, top-tier business schools like Harvard, Northwestern, Stanford and MIT. But there were also several outliers, including Charleston Southern, the University of San Francisco and Baylor. Still, having an MBA paid off for many of these CEOs as their companies matured—more on that down below.
Going the distance
Next we wondered about leadership switches at SaaS companies and how those moves affected companies’ long-term outcomes. We’re big supporters of founding CEOs staying on for the entire journey, and our data indicates this strategy may often be the right way to go.
A solid 69% of the founding CEOs in our group stuck around beyond the IPO or public acquisition of their companies. This is even more impressive given how long it took many of these companies to achieve liquidity. Of the 80% of companies in our dataset that have achieved liquidity (either through an IPO or M&A), more than 42% took six to 10 years to get there. 25% took 11 to 15 years, and 5.7% took 15+ years.
Using the public and acquired companies’ enterprise-value-to-revenue multiple as a proxy for success, we sliced the dataset into several tranches: companies with multiples between 0-5x revenue; those between 5-10x; and the superstars at 15x+. The latter category included five standouts: Buddy Media, ServiceNow, Workday, Xero and Yammer. Four of the five companies –Buddy Media, Workday, Xero and Yammer – retained their founding CEOs through either a public IPO or acquisition. Workday did officially transition Dave Duffield out of the CEO role and give it to Aneel Bhusri, but both execs essentially served as co-CEOs from day one. ServiceNow is a different story: Fred Luddy served as the firm’s founding CEO, then stepped into a different role to enable Frank Slootman, the former CEO of storage company, Data Domain, to move into the top role.
That prompted our next question: In companies that did see a CEO change, what type of founding CEOs ultimately were swapped out?
- Of the 22 founding CEOs that ultimately were replaced—roughly a third of those in our dataset–only 18.2% had MBAs vs. a whopping 34.9% of founding CEOs that weren’t replaced. Say what you will about those pricey degrees, but they may have an impact on SaaS CEO longevity.
- CEOs that were swapped out are surprisingly more likely to have attended an Ivy League School (18.2%) compared with those who hung around (9.3%)
- Surprisingly, having prior CEO experience did not materially sway the likelihood of staying on in that role after a liquidity event. We found that 36.4% of replaced CEOs had prior CEO experience vs. 30.2% of those who stuck around.
- Finally, what type of executive wound up replacing the founding CEO in this group? Turns out 50% had prior CEO experience, 31.8% had MBAs and 27.2% came from Ivy League schools (so don’t go ripping up those expensive pieces of paper just yet). They were also by and large older, with 100% aged over 40.
The next aspect of SaaS success we’ll analyze are the companies themselves. Do the most successful SaaS companies sell broadly or target a specific vertical? Among public SaaS companies, is there a “sweet spot” for revenue per customer? Should your SaaS company aim to land a few whales or many smaller fish — and how does each approach impact subsequent growth? Stay tuned.
The information contained herein is based solely on the opinions of Neeraj Agrawal and nothing should be construed as investment advice. This material is provided for informational purposes, and it is not, and may not be relied on in any manner as, legal, tax or investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any fund or investment vehicle managed by Battery Ventures or any other Battery entity.
This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and is for educational purposes. The anecdotal examples throughout are intended for an audience of entrepreneurs in their attempt to build their businesses and not recommendations or endorsements of any particular business.
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