Only 11% of Public SaaS Companies Sell Just to SMBs

Almost everyone goes at least a little bit upmarket over time

So many VCs and others have gotten more and more excited about SMB SaaS.  After all, there are far more SMB customers than enterprise ones.  Millions and millions more.  And even though they pay less, they close a lot faster.

But SMB SaaS has a lot of challenges, too:

• Churn is much higher.  Much higher.

• ACVs are so much lower that there’s a lot of pressure on CAC.

• ACVs are so much lower that there’s a lot of pressure on sales productivity.

• Spaces can be more competitive in some cases, with fewer moats.

• Harder to get to $100m ARR and beyond with just a single product

So I was wondering, how much of the market cap of the leading SaaS companies is all or primarily SMB-focused?

The answer, at least how I calculated it here: only 11.8% of public SaaS companies are primarily SMB-focused.

Now, what about if you add in folks that sell a material amount to both SMBs and beyond?  Folks like Atlassian and Asana, and Zoom, and Datadog?  While many are going more and more enterprise at scale (an important note), they still have large SMB customer sets.  These “mixed” public SaaS companies I calculated as another 17% of the market cap of the SaaS public companies.

What does that leave?  Enterprise.  A lot of Enterprise.  71% of the revenue from SaaS public companies is from mainly enterprise players.  17% from mixed SML players.  And less than 12% from pure-play SMB.

Now one really important note:  I excluded Adobe and Paypal from the list, because they are just so old.  But Adobe definitely counts in “Mixed”, and Paypal definitely counts as SMB.  Add in other oldies like Microsoft and Intuit, and for sure, the total universe of business software skews SMB.  It does.

But I wanted to just take a look at the slightly newer generation.  “Salesforce and Later”, let’s call it.  They’re very enterprise.  And even when they are SMB, more are going upmarket, with just an SMB segment, than pure SMB.

Also, some may argue with my characterizations.  Sure, some of these enterprise players have a small amount of SMB customers, and vice-versa.  I took a rough stab at it.  Take your own stab at it, if you want.

But it’s just a reminder that SMB is great, but staying 100% SMB as you truly scale can be tough.  If you don’t want to at least slowly go upmarket, make sure it’s for the right reasons.

And also remember, it’s never too late to go a bit more upmarket.  PagerDuty, Zoom, RingCentral, Zendesk, and more IPO’d as mainly SMB-focused.  But today — they are mainly Enterprise-focused.  It’s just really, really hard to fly past $100m ARR being only SMB-focused.  Bill has done it, Toast has done it.  It can be done.