The idea was always that, once at scale, software companies could print money.

With SaaS, revenue recurred. If you could buy a dollar of annual recurring revenue (ARR) for one, or even two, dollars, then why not buy a lot of them? You’d break even on customer acquisition costs in year one or two — and everything after that was gravy. Raise VC, invest in sales and marketing, and grow, grow, grow. 

If your market was greenfield and switching costs were high, all the better. When the music stops, the company with the most market share wins. And for a long time, the music wasn’t stopping.  Grab, grab, grab market share. 

Add cheap money — courtesy of low interest rates — and you get the Growth at All Costs (GAAC) era of SaaS. During GAAC, a (growth, profit) profile of (100%, -100%) was more attractive than (60%, -40%), which in turn beat (40%, 0%). Growth dominated everything.

Then the wind shifted.

Investors asked, “Why wait forever to print money?” Even if 40%+ mature margins weren’t required, why not produce some profit now?

Private equity (PE) became the most common exit path. And PE prefers fixer-uppers, not teardowns. Improving margins in a profitable business is far easier than rescuing an unprofitable one.

Moreover, PE enhances returns with leverage. Borrowing 1–2X ARR to finance a deal generates interest expense equal to 10–20% of revenue. If you’re not producing 20%+ margins, you won’t have the cash to service the debt. Losing money becomes a non-starter.

This spirit of balance crystallized in the Rule of 40: growth rate plus profit margin should equal at least 40. Grow as fast as you want — just don’t lose too much money (110%, -70%). Or grow more slowly and produce enough profit to compensate (20%, 20%).

The Rule of 40 (R40) didn’t replace GAAC overnight. It existed during the GAAC era as a disciplining metric — but it became binding when capital tightened. 

In the post-GAAC era, R40 worked. Companies that complied with it generally traded at higher revenue multiples than those that didn’t. Statistically, it outperformed growth or margin alone as a predictor of valuation. More nuanced metrics were proposed, like the Rule of X, to remind us that a point of growth carries more weight than a point of profit. Even so, R40 remained the headline metric.

Then the wind shifted again. 

Investors began looking past NRR to GRR, exposing soft SaaS underbellies where expansion masked churn. Cohort analysis replaced year-over-year snapshots. Interest rates rose. Leverage became more expensive. Multiples compressed.

AI fears went viral, amplifying uncertainty across markets.

In other words, we interrupted coverage of the SaaSacre to bring you live footage of the SaaSpocalypse.  

PE is a demanding overlord, largely unsympathetic to the daily pressures of customers and markets. While VC sees itself as “partnering with founders” to build a business, PE sees itself as “underwriting a model” — that they fully expect to achieve.

When the prevailing price of SaaS companies falls from 30X to 15X EBITDA, the model doesn’t bend. It breaks. 

Indulge me in some arithmetic: Assume PE bought a company in 2023 for 30X EBITDA — $180M total — financing half with debt. That’s $90M of equity targeting a 3X return over four to six years. Under R40, the equity grows nicely in Years One and Two to 1.4X and 1.9X. Then multiples are cut in half, and the equity collapses to 0.7X.

What saves the deal? The Rule of 60: maintain 20% growth while doubling EBITDA margins to 40%. Instead of 0.7X, the equity rebounds to 2.5X. The path to 3X+ reappears.

For the PE partner, switching to the Rule of 60 (R60) turns a 1.1X weak infield single into a stand-up double at 3.1X. The trick, of course, is that management must expand EBITDA margins to 40% while preserving 20% growth. And here, “management” means you.

Why the change to R60? Because the model fails without it. How do you double EBITDA while holding growth at 20%? That’s the hard part.

This isn’t a passing obsession. R60 isn’t PLG. It isn’t ABM. It isn’t a fad the board will tire of next quarter. It’s the financial model. That thing is out there. You can’t bargain with it. You can’t reason with it. And it absolutely will not stop. Ever. Until you are…

Okay, I know financial models aren’t Series T-800 Terminators, though they sure can feel like them sometimes. 

But enough warnings. Let’s talk now about what you can do. 

Here are 12 ideas to help you drive productivity and remain sane while doing it:

Don’t get wound up by techno-optimists or doomers. Watching the narrative swing day to day is as unproductive as tracking your stock price tick by tick — it will drive you insane. You have a job to do. Focus on it.

Don’t measure success by team size or budget — if you ever did. Your job is to hit the ARR target while increasing ARR per seller and ARR per S&M dollar. Growing faster than your costs is the mandate now — and the skill your next employer will pay for.

Work with your CEO to distribute the margin expansion burden intelligently across R&D, G&A, COGS, and S&M. Pro rata allocation is easy but rarely optimal. Don’t default to cutting S&M simply because it benchmarks high — or because the product-oriented founder won’t touch R&D and the CF-No refuses to trim G&A. Get in a room and have a hard conversation.

Sales, Marketing, and Success must build the plan together and share accountability. Align on pipeline quality, win rate, churn, and NRR. While most teams think they’re aligned, few actually are. If you’re not answering each other’s calls on the first ring — or reallocating budget across departmental lines when needed — it’s not tight enough.

Raise list prices or discount less. If your category is PE-backed, your competitors face the same margin pressure and are likely doing the same. No one should be racing to the bottom right now. Show pricing discipline — and expand margins in the process.

Let reps run their own demos. Charge for POCs. Push SDRs into real discovery — or eliminate inbound SDRs altogether. Disqualify aggressively and walk away from bad-fit segments. If PLG applies, feed sales only PQLs. Go back to the ideas you once dismissed as crazy in brainstorming meetings and reconsider them. Let new constraints force new behavior.

Start with partners as a lead source, then develop real channel leverage. Hire channel managers with meaningful quotas — effectively running partners as a leveraged sales force. If you need to improve GTM productivity, the channel isn’t “extra.” It’s structural leverage.

Go back to basics with the sales velocity formula: opportunities × ASP × win rate ÷ sales cycle. Improve any variable and revenue per day increases. The most overlooked levers are win rate — start with rigorous win/loss analysis — and sales cycle length. Identify where deals stall and systematically accelerate them from discovery to demo to POC to legal. Time kills all deals.

Move beyond experiments. Embed AI into workflows — content, analytics, segmentation, attribution, automation. It may take longer at first, but production use is the goal. Charter your Ops leader to know the leading AI tools in the GTM stack, educate the GTM leadership team on them, and develop a clear adoption roadmap.

Many companies will successfully automate with AI but will quietly erode customer trust in the process. Keep humans accessible in your workflows; escalation out of a chatbot should be effortless. Automate content generation, but don’t flood customers with slop. Never forget: There may be a human on the other side of your AI — even if sometimes it’s just another agent.

The fastest way to learn what’s working is by talking to operators doing the same job elsewhere. Shared intelligence compounds, which is exactly why communities like Pavilion matter. Sometimes you want timeless wisdom; sometimes you need to talk to someone doing the exact same job as you at another company. Do both.

AI will eliminate some roles and create others. Be on the right side of that shift. Redesign your workflows, raise the productivity bar, and position yourself as the person who knows how to get leverage from the new tools. Then bring your team with you.

In this article, we’ve traced the path from GAAC to the Rule of 40 — and why capital markets are now pointing us toward the Rule of 60. Unless multiples suddenly double, hope is not a strategy, and margin pressure isn’t temporary but structural.

The 12 ideas above are about regaining control: tune out the noise, redefine the mission around productivity, distribute the burden intelligently, and try the things you once thought were off-limits.

Constraints change behavior. And behavior change is where real performance improvement begins.

You can wait for multiples to bail you out or you can build a business that works at today’s multiples. The companies that figure this out won’t just endure this cycle, they’ll outperform in it. And the market will reward them — and the people who built them — accordingly.

About the author: Dave Kellogg is an independent consultant, author of Kellblog, and cohost of The Metrics Brothers. He has been CMO of three startups from $0 to $1B in revenues and CEO of two from $0 to $100M in revenues. He works as an EIR at Balderton Capital and sits on the board of five enterprise startups as an independent director.

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