For the past couple decades, the “gold standard” for revenue growth for SaaS has been T2D3 – triple twice, double three times – beginning at the point of reaching $2M ARR ($2M, $6M,$ $18M, $36M, $72M). The T2D3 model was published and widely promoted by Battery Ventures.
In my book, Traversing the Traction Gap, I produced a similar ARR revenue growth model but I chose to begin the growth rate at MVP or $0 – where within 1 year I showed that a SaaS startup on a similar growth path to T2D3 needed to attain the following revenue growth rate to be among the best ($1M, $3M, $10M, $25M, $50M).
Interestingly, below is a chart – recently shared on Linked In by Yuechen Zhao from Informed Ventures – that compares the fastest growing AI-native companies (Cursor, Perplexity, Harvey and Abridge) against the original T2D3 SaaS cohort.
Yuechen’s stated thesis for these phenomenal growth rates is as follows: “…new generation of SaaS / AI agents being sold turned the traditional paradigm on its head. Instead of selling “best practices” or “efficiency,” the value being sold can be easily measured in dollars. Cursor sells a high-caliber engineering intern / assistant worth $50k for $200. Perplexity sells a high-caliber analyst worth $50k for $200. By dramatically simplifying the decision making for customers (“pay me $1 and you’ll get $10 in return”), these companies no longer need to endure long sales cycles and endless questions from customers about why they should implement a particular software system, enabling much higher sales efficiency, shorter sales cycles, and therefore much faster growth.”
That said, I believe we are still in “early innings” for AI-native applications and while these ARR growth rates are impressive, it’s not yet clear whether they are the new normal or an anomalous beginning. Phil Fernandez, for whom I have a tremendous amount of respect, had this to say about these native AI-based ARR growth rates:
“As the co-founder / CEO of Marketo and the original T2D3 model along with Bruce Cleveland (and later Neeraj Agrawal), this is indeed interesting stuff. I’m sure AI has changed the slope of the curve, but we’ve seen these bursts of innovation before. With Microsoft, Dell, NetScape, Google, Salesforce, Facebook emerging in their eras at a mind blowing growth rate, and ushering in a step up in GTM and financial productivity. But they are the outliers, as are today’s wonder stories. Yes, we are in the early days of a big step up! But it’s not magic, and we will revert to more “normal” (even if improved) growth numbers soon enough.”
The next several years will produce many new AI-native and agentic systems. The pricing, packaging and adoption of these systems will surely evolve. We will know then whether what we are seeing today was truly transformational or just a temporary phenomenon.