SaaS Strategists,

Cursor is the fastest-growing SaaS company in history.

Yes, that’s a fact.

From $1M ARR in 2023 to $2B+ ARR by February 2026.

They went from a small MIT side project to a $29.3 billion valuation with fewer than 60 employees.

Just a code editor that developers fell so hard for, they dragged their entire Fortune 500 employers into buying it.

And today, we break down exactly how they did it.

Let’s dive right in. 👇

This is the single smartest product decision Cursor made. And it saved them at least 2 years of development time.

Instead of building a code editor from scratch, the Cursor team did something bold: they forked VS Code. 🍴

For the non-technical folks - VS Code is the most popular code editor in the world, used by over 14 million developers. It's open-source, which means anyone can take the code and build on top of it.

So Cursor built on what’s established, not on what’s new.

VS Code's entire codebase - the file system, debugging tools, terminal, Git integration, the extension ecosystem - and built their AI features directly INTO the editor.

GitHub Copilot (Microsoft's AI coding tool) launched as a PLUGIN inside VS Code.

It has the backing of Microsoft, OpenAI, and GitHub. It has 20+ million users. It generates roughly $300M in ARR.

Cursor has maybe 5% of those users. But it generates $2B+ in ARR.

How? Because a plugin is limited in what it can do. It can autocomplete code. It can suggest a line. But it can't fundamentally change how the editor understands your project.

A fork can.

Cursor built features like Composer - a multi-file, project-aware AI that understands relationships between your modules, tests, and config files. That's impossible as a plugin. It requires rewriting how the editor processes context.

Composer 2 came out just recently and it’s standing shoulder-to-shoulder next to the top AI models such as Opus and GPT 5.4.

❌ Plugin approach: AI sits ON TOP of your editor
✅ Fork approach: AI IS your editor

When developers switch from VS Code to Cursor, nothing feels unfamiliar. Same keyboard shortcuts. Same extensions. Same muscle memory.

That's the beauty of the fork strategy - zero learning curve + 10x capability.

If you're building a SaaS product, ask yourself: is there an existing open-source tool your users already love that you can build on top of?

Don't reinvent the wheel. Fork the wheel and add a jet engine.

The key requirements:

Cursor cracked the code on what you might call "stealth enterprise sales."

The traditional enterprise sales playbook:

1⃣ Hire a VP of Sales
2⃣ Build enterprise features (SSO, admin dashboard, compliance)
3⃣ Go after CIOs and procurement teams
4⃣ Run 6-12 month sales cycles
5⃣ Hope it works

Cursor did the exact opposite.

Here's the playbook that happened organically:

1️⃣ One developer discovers Cursor (probably from a tweet or a colleague)
2️⃣ They get 20-25% faster at coding
3️⃣ They tell their team. The team starts using it
4⃣ The engineering manager notices the productivity spike
5⃣ IT gets involved, negotiates a Teams plan ($40/user/month)
6⃣ Suddenly, it's an enterprise deal worth hundreds of thousands per year

By the time procurement gets involved, the product already has internal champions everywhere. The "sales cycle" is already done. The contract is just paperwork.

Developers are the hardest audience to sell to through traditional channels. They hate cold emails, ignore ads, and don't take sales calls. 🧑‍💻

But they trust peer recommendations. 🤝

When a developer sees their colleague writing code 25% faster, they simply ask “what tool is that?”.

Cursor weaponized this by keeping the entry price below the "needs approval" threshold. $20/month for Pro. That's a business lunch. Any developer can expense that without asking their VP.

🧬 Fork, Don't Build - By forking VS Code, Cursor inherited millions of developers' muscle memory and the entire extension ecosystem. Zero learning curve + AI superpowers = instant adoption.

🥷 Bottom-Up Enterprise - Don't sell to CIOs. Sell to individual developers at $20/month. Let them become internal champions. Enterprise deals happen automatically when enough people inside a company are already using your product.

💰 Price the Ladder - Free to hook them, $20 to keep them, $200 to capture power users, $40/user for teams. Every tier is designed to feel like an obvious upgrade from the one below.

Cursor never had to convince anyone that their product was good.

They just had to get it into developers' hands. The product did the rest.

Hope you enjoyed this breakdown and pulled a few nuggets out of the box! 🍗

What SaaS would you like me to break down next? Feel free to reply to this email with your thoughts.

I'll catch you in the next one.

Ognjen Gatalo

Chief SaaS Strategist ☁

P.S. Forward this issue to your fellow founders!