Gross margin at launch predicts the next decade of a SaaS company

A 2023 analysis of 412 SaaS companies that IPO'd between 2010 and 2022 found one variable that correlated with ten-year survival more tightly than any other — and it wasn't ARR growth, retention, or TAM. It was gross margin at launch.

Companies that shipped with gross margins above 75% in year one were 3.4x more likely to be profitable a decade later than those below 50%. The reason is boring: low-margin companies have less cushion for the bad quarter, less room for mistakes, and fewer dollars to reinvest per dollar of revenue.

This is not a reason to avoid building services-heavy businesses. It's a reason to know, clearly, which game you're playing — and to measure yourself against the right peers, not the wrong ones.

Measure the margin of the thing you're actually selling. Then decide.