Investors will often refer to SaaS benchmarks to gauge how well their portfolio companies are performing. They'll look at things like growth rate, CAC/LTV, gross margin, EBITDA margin, net revenue retention, etc. They'll often cite the most successful companies like Monday.com, Zoom, Hubspot, ServiceNow, and Zendesk. These are all top-tier SaaS companies, and investors like to have their companies aspire to have similar metrics.

These companies, and nearly all of the top-tier SaaS companies, have two important things in common:

1/ They can sell into virtually any company in any industry (horizontal SaaS).

2/ They can sell into virtually any country.

As an example, in theory, Zoom could sell a license to everyone over the age of 18 with an internet connection — let's call that about 3.5 billion people. So their overall total addressable market (TAM) is 3.5 billion multiplied by, say, $100 per year. So Zoom's TAM is something like $350 billion.

Now consider a healthcare technology company that operates within the complex, highly regulated US healthcare system (vertical SaaS). They have a much smaller TAM than Zoom. There are about 21 million US healthcare workers, so, in theory, if a health tech company could get its product into every healthcare worker’s hands at $100 per year, their TAM would be $2.1 billion, about 0.6% of Zoom's TAM. Obviously, I'm using ridiculously simplistic numbers.

This becomes relevant when we start thinking about benchmarks, particularly with regard to growth and growth endurance (the ability of a SaaS company to sustain consistent growth over time).

Consider Everett Roger's Technology Adoption Curve, which illustrates how different groups adopt new technologies over time.

You start by acquiring the innovators, then the early adopters, etc. As you move through the curve and gain more and more customers, each sale typically gets more and more difficult. The first two parts of the curve (innovators and early adopters) generally represent about 16% of the addressable market for the technology.

So, using the examples above, when the health tech company gets to 16% of the market, its revenue is $336 million. When Zoom gets to $336 million in revenue, it hasn't even made a dent in the innovators and early adopters. It has another $349,664,000,000 in innovator/early adopter revenue to go get.

If an investor benchmarked the health tech company against a horizontal SaaS company like Zoom on things like growth, growth endurance, or the cost of acquiring a marginal customer, they'd be very, very disappointed. To say the least!

Now, obviously, it’s on the health tech company to figure out how to innovate, sell its product to a wider audience, and go international, but the point here is that we're not talking about apples to apples. Benchmarks that don't take into account the uniqueness of a business or a particular industry are, at best, a waste of time and, at worst, create really bad incentives for founders and management teams.