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The Myth Of $1 Million ARR In The Software Industry


By Alexandru Stan, serial entrepreneur and CEO of Tekpon, a one-stop platform for all software needs.

Nobody will tell you at the beginning of your entrepreneurship career that you will face many impossible things that others are saying should be the main goal of your business. But let me tell you from my experience that you will fail if you build your startup after what the market is promoting as a real success. The first thing coming to my mind is the misconception that a startup is not a business. And let me tell you, future CEO of a startup, that it’s a real thing and harder to manage than a business that is already growing. But there are other myths about this industry that are worth mentioning.

Is there a ‘magic formula’ for $1 million ARR?

This is one of the fairytales that most startup owners believe in. Most of them believe that there would be a magic formula like the ones from Excel that will help them achieve $1 million annual recurring revenue (ARR). And we could blame no one for believing in such beautiful goals, apart from the people that supposedly know the secret steps for achieving this in an impossible timeline. But also, I would tell you that it is possible. However, if the main goal of your startup is to achieve this milestone, then you have forgotten some important steps on your way.

Is it still an important indicator for your startup?

It isn’t an important indicator of your success, marketing and sales. However, this is what I learned in the last two years by leading a team and a startup and creating a suitable product for the SaaS and software industry. Of course, now it’s easier to achieve this from an early stage with fewer clients than 10 to 15 years ago. But, again, this is optional for the success of your idea and startup. Yet, it’s easier to enter into the A/B round funding once you reach $1 million ARR.

Even if you’re not going to achieve this milestone in six or nine months, you still have to work hard and understand your product and your customers’ needs. And after that milestone, you have to work and understand how to keep going further—not only to keep your customers that brought you the $1 million but also to find new customers.

What should your focus be?

Instead of being obsessed with this number, you and your team should focus on the product or service you are creating. Put yourself in your customers’ shoes and ask how the service you’re creating can help. The service should essentially be able to sell itself without the need for a sales team to push on people or businesses. So the product should be your focus, and the customers with the desired sales can come without even knowing if you’re doing an amazing job.

Pay attention to your customers’ needs.

I’m afraid I have to disagree with the fact that our customers are the ones who always dictate what we do, but I can say that we are paying attention to their needs. Ultimately, we aim to help people improve their work and life and spend smart money. Thus, if you make your customers happy, they can be your voice further down the pipeline. They can be the ones who advocate for you. Again, I don’t have a magical formula for this, but the best advice I can give is to try it many times. Even when you are out of ideas, keep going. You may discover something new that can change the game for your startup.

I don’t want to be a myth-buster, but I only share what my team and I have learned during the last two years. We were stolen by the beautiful myth of reaching a $1 million ARR in a short period because we thought we had a great idea. And indeed, our idea is great, but first, we needed to actually build the product from that idea and put our focus on how to help people. Remember, the better you do, the faster your customers will bring you to that desired milestone.

The reality is that more startups reach that point after at least two years. And those are the lucky ones, because you need funds to exist during that period to be able to develop your idea. But, I do believe that luck is on the same part of the road as the ones who are dedicated and working hard to give something back to the industry. May the holy ARR be with you!

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