BrazilMost software companies face big hurdles in scaling up to $1 billion
Out of approximately 600 software companies generating at least $100 million yearly, only 160 have successfully managed to scale-up to $1 billion in revenue. To achieve such hyper-growth, firms need to make big changes to their initial go-to-market motions, their products, their R&D, and M&A strategies.
With digitalization quickly taking over so many facets of life, software is everywhere – and there is a software service for everything, it seems. The software industry was estimated to be worth around $3.7 trillion last year, according to research from Gartner. The industry’s most successful companies manage to become giant enterprises, with private equity funding and M&A activity often important drivers of their growth.
The most common and effective path for software companies to hit $1 billion in revenue is through expanding their total addressable market, according to a new insight brief from Bain & Company. This involves diversifying across product offerings, customer segments, geographic regions, and industry verticals.
Successful companies increase their offerings in multiple areas. For instance, around 80% of software companies with over $1 billion in annual revenue sell at least two major products. Furthermore, more than two thirds of $1 billion-plus firms generate at least 30% of their revenue from outside their primary region.
Strategic expansion
Scaling up requires strategic focus on closely related areas first. Expanding customers, costs, sales channels, and capabilities helps to strengthen a company’s advantage and profitability.
HubSpot provides an illustrative example: It began as a US- focused marketing platform, but soon expanded significantly to eventually offer sales and customer service solutions to a wider range of businesses and regions, achieving over $1 billion in revenue within seven years.
Some companies face stagnation when attempting to scale. This can stem from overestimating their ability to develop and sell new products, displace competitors, or serve diverse customer groups effectively. It is important to have a comprehensive knowledge of what a company can offer clients.
Executive teams also frequently underestimate the organizational evolution necessary to support growth at scale. This includes failing to update go-to-market models for multiple products and a breakdown in cross functional leadership. Different customer segments also present varied demands, and misjudging these nuances can dilute focus and impede further growth.
“Reaching $1 billion in software revenue isn’t about a single bold move; it’s about executing the right set of strategic shifts over time,” says Greg Callahan, partner at Bain & Company and co-author of the insight brief. “Companies that successfully scale prioritize smart market expansion, adapt their go-to-market strategies, invest in R&D discipline, and build the corporate infrastructure to support sustainable growth.”
Growth segments
Recent growth in the software industry has been largely fueled by advancements in artificial intelligence. AI tools are enhancing productivity by automating coding and testing processes. Cloud computing and Software as a Service (SaaS) models remain the most significant subcategories with big potential.
With major cyber attacks often in the news, cybersecurity has also become a critical area of investment. Even the largest companies face vulnerabilities: Just this year, for example, North Korean hackers stole around $1.5 billion in cryptocurrency from Dubai-based exchange ByBit. Last year, Dell and US telecom giant AT&T both also suffered major data breaches.
