Is anyone achieving Rule of 40?

The Rule of 40 is a very popular concept and we see founders doing whatever they can to generate growth and profitability at the same time. But are valuable companies actually achieving Rule of 40? No, not even close.

Below is every publicly traded SaaS company that has IPO’d since October 2017, of which 62 are still actively traded. The data shows their Rule of 40 results in Q3 2024. The median is 10%, average is -2%, and interestingly both figures are below median and average growth which implies negative profitability. If we look at only those companies that are growing above the median, we’re seeing more like the rule of 12% on median.

So where is the Rule of 40? Few publicly traded companies are achieving it. Our advice to founders is to continue to push hard for cash-efficient growth. That means generating ARR of at least $0.80 for every dollar of operating loss. Don’t forsake growth just to get to profitability; the former is still far more valuable than the latter.

Thank you for your readership. Visit us at blossomstreetventures.com for more SaaS data and blogs. Email the author at sammy@blossomstreetventures.com