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Scale Studio Flash Update: Steadiness Amidst Market Turbulence


    Scale Studio Flash Updates analyze a representative sample of enterprise software startups to measure industry growth rates and the health of the SaaS market. The most recent updates were the 2022 Whisper Numbers, Q421, Q321, and Q221.

    Note that for this update — due to recent market fluctuations — we spent some additional time acquiring a broader sample than in previous editions of our Flash Updates.

    What You Need to Know Right Now

    • Underlying performance of enterprise SaaS companies continues to hold steady despite significant market turbulence.
    • Companies continue to grow (as per Q421) although the rapid acceleration of growth rates driven by Covid has come to an end.
    • Median Plan Attainment of aggressive Q122 goals held steady when compared to Q421.
    • Despite this resilient growth, many companies are re-planning the balance of the year given macroeconomic concerns.

    Performance Highlights of Q122

    • 37% of companies overachieved against Q122 plans, slightly down from final attainment numbers of 44% in Q421.
    • 89% Median Plan Attainment* — virtually identical to our Q421 final result of 87%. *Plan Attainment compares a company’s actual ARR for a period to its annual plan ARR target for that period.
    • 58% Median ARR Growth Rates return back to pre-Covid norms. However, top decile companies continue to have comparable growth rates to Covid highs.
    • 36% of companies are accelerating growth. This too is close to the pre-Covid historical average of 33%.

    Plan Attainment Analysis

    Last November, founders and CFOs were clearly optimistic about growth prospects for the coming year. A lot has happened since then, including the renewed uncertainty that came with Omicron, the war in Ukraine, and stubborn inflation.

    Even with the resulting market turbulence, companies continue to perform to plan in the near term — with 37% of companies achieving or exceeding Q1 plans and an 87% median attainment of plan. While many companies have achieved Q1 goals, most of our portfolio companies are taking a second look at the 2H plans and developing contingency plans that are robust against potential further deterioration in market conditions.

    Q122: Median 89% Plan Attainment

    Growth Rate Analysis

    As mentioned in our Q421 update, we had concerns about challenges surrounding supply chains, inflation, and tight labor markets and any corresponding impact on growth. Specifically, would higher labor costs, supply shortages and increased costs of goods take a toll on startup growth. The current 58% Median ARR Growth Rate in Q1 is the first material drop we’ve observed since the beginning of Covid in early 2020. Even with this drop, growth levels are still at or above pre-pandemic levels.

    Q122: Growth Returning to Pre-COVID Levels

    What’s interesting to see though is that the growth rates of top performing companies (top quartile and top decile) are still well above pre-Covid levels meaning that the economic headwinds are not affecting all companies equally.

    Q121 - Q122

    Replanning 2022

    With nearly half of 2022 behind us, the headwinds we identified in late 2021 are very much a reality for many companies. Companies are in the process of replanning the balance of 2022 and while some have already started to reduce spending, others who are growing quickly and efficiently will wait to see what Q2 holds. The topic of conversation in every board room is extending your runway and the corresponding tradeoffs between growth and burn. We’ve introduced an interactive tool that helps assess that by benchmarking your growth and burn multiple against a universe of hundreds of similar private companies.

    We look forward to sharing what we learn about market conditions in the next Flash Update covering Q222 performance.

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