How Algolia Crossed $20M ARR and Scaled to 6,000 Customers with 120% to 125% Net Revenue Retention (Interview with Co-Founder Nicolas Dessaigne)

Introduction to Algolia and Nicolas Dessaigne

Nathan Latka

00:00Hello everybody. My guest today is Nicolas Dessaigne. He's a co founder and CEO of a company called Algolia, the leading search and discovery API for websites and mobile applications. Launched in 2012, the company now is used by over 5,800 companies around the world. Before Algolia, Nicolas spent over twelve years working on information retrieval at Exalead and Thales. Alright, Nicolas, are you ready to take us to the top?

Nicolas Dessaigne

00:22Yes. Thank you for having me, Nathan.

What Algolia Does and Who Uses It

Nathan Latka

00:24You bet. So I'm hoping a lot of my audience has maybe seen your actually search tool kind of across some of their favorite websites. But for those that have not used you before, tell us what you do.

Nicolas Dessaigne

00:33Yeah. So we we basically help developers of website apps like Medium, Twitch, Under Armour, and many users power their internal search. So if you search on any of these companies, you basic... You are basically using us behind the scene.

Business Model: SaaS Subscription and Pricing

Nathan Latka

00:49That's great. And what's the business model? Is it a kind of a pure play SaaS company, or how do you monetize?

Nicolas Dessaigne

00:54Pure play SaaS, it's only in the cloud, so it's only subscription based. We are going to have customers from, like, long tail of developers that are going to self serve on the service. We start at $35 a month, and we're going also to have up to bigger enterprises that can use us, but we're speaking more of, like, upper 6 figure deals per year there.

Nathan Latka

01:18Yeah. Nicolas, this gonna be a tough question because your customers are so spread out. But just because we are short on time, if I forced you into an average, what would you say the average customer pays you per month?

Nicolas Dessaigne

01:31It doesn't make a lot of sense to be... To look at the average. Long tail, it's pretty small. I don't have enough quick numbers there.

Enterprise Focus: 80% of Revenue from 5% of Customers

Nathan Latka

01:37Are you more focused on long tail or enterprise?

Nicolas Dessaigne

01:40Enterprise is 80% of our business today.

Nathan Latka

01:40Okay.

Nicolas Dessaigne

01:40Revenue, let's say that 5% of our customers are going to bring about 80% of the revenue.

Enterprise ACV and Sales Team Structure

Nathan Latka

01:48Yep. Yep. Yep. Okay. So let me ask the... Let me re ask the question. In your enterprise cohort, I mean, we talking, you know, a thousand bucks a year, 10,000, 1,000,000 per year? Generally speaking, what's ACV there?

Nicolas Dessaigne

01:58We're close to 6 figures in the range, like 80 to 100 ks.

Nathan Latka

02:02Okay. And the reason I ask that is because I wanna understand, you know, that's obviously a high enough price point where you can afford put some touch on the sale. Do you have an internal sales team built out?

Nicolas Dessaigne

02:12We do, we do. So we'll have like two go-to-markets. One is the self serve side, long tail of developers. One is a really more higher touch, sales driven, very typical SaaS model where the teams that is split in different segments, SMB, mid market, enterprise, with all the supporting functions from sales development to SDRs, BDRs, they're helping helping create more pipeline for the upmarket.

SDR to AE Ratio and Pipeline Metrics

Nathan Latka

02:37And what's the ratio of how many SDRs responsible for how many AEs?

Nicolas Dessaigne

02:42Oh, that's a good question. I'm not leading the sales, it's about if I group SDRs and BDR together, we're speaking about one, between one and one for one, one for two.

Nathan Latka

02:53One SDR for supporting leads and demos for two AEs or BDRs?

Nicolas Dessaigne

02:57Yes. Yes.

Nathan Latka

02:58Interesting. And how do you... I won't go too much deeper here, but I am curious. Do you set them like they have to like cold email a certain number per per month or per day or or set up a number of demos? Like, what what metric do you build around those roles?

Nicolas Dessaigne

03:12When we look at the bottom line here, it's more pipeline generated. When we look at SDRs and BDRs, that's the most important for us. So we also look at the number of meetings. I mean, there is a lot of metrics we're looking at, but at the end of the day, what matters is how much dollar dollars we can close and get in the bank.

Nathan Latka

03:12Yep.

Nicolas Dessaigne

03:12So pipeline is the the the metric I looking at mostly on

03:34my side.

Team Size and Offices

Nathan Latka

03:35And what did you say total team size would add everyone together?

Nicolas Dessaigne

03:39You mean sales or like everybody?

Nathan Latka

03:41Everybody on your... Everyone in the company.

Nicolas Dessaigne

03:43300.

Nathan Latka

03:44Okay. 300.

Nicolas Dessaigne

03:44Yeah. Over five offices today.

Nathan Latka

03:47Okay. Great. So so spread out San Fran is headquarters?

Nicolas Dessaigne

03:51San Fran headquarters, we started in Paris. We have a big team in Paris. All of our engineering is is there, and we have sales offices in London, New York, and Atlanta.

Customer Growth and Revenue Milestone

Nathan Latka

04:01Oh, very good. Okay. And then you mentioned in intro, you launched in 2012. So over the past six months, how many logos have you grown? How many paying customers?

Nicolas Dessaigne

04:10We're about 6,000 customers right now.

Nathan Latka

04:12Oh, great.

Nicolas Dessaigne

04:13Exactly the last six months, couldn't tell you, but yet 6,000 today, we're pretty much doubling year over year.

Nathan Latka

04:22Sorry, pretty much what?

Nicolas Dessaigne

04:24Doubling.

Nathan Latka

04:25Oh, doubling year over year, that's great. And then you said about 5% of those are actually enterprise, so about 300 enterprise and the rest kind of long tail?

Nicolas Dessaigne

04:32Yeah.

Nathan Latka

04:32That makes that

Nicolas Dessaigne

04:33Good approximation.

Nathan Latka

04:35Yeah. That makes good sense. And then, I mean, I can kind of back into this. Right? If you said kind of your enterprise ACVs are getting close to that 6 figure mark, that would put you somewhere around kind of 2,500,000 today, and that's just 80% of your revenue. That's monthly. Is that generally accurate?

Nicolas Dessaigne

04:49We're we're always looking at at the yearly thing. Yes. That's pretty much the the right ballpark.

Nathan Latka

04:49Okay.

Nicolas Dessaigne

04:49We we crossed the... So we crossed the 20,000,000 ARR milestone last year, and and pretty good, like, we are going to close close to double this year, so we're going to be over 40,000,000 this year.

Nathan Latka

05:08That's great. Do you need these last thirty days to really get over the 40 hump, or you're already over 40?

Nicolas Dessaigne

05:15We're, we always want to get more. So we always need the last few days to get even more.

Nathan Latka

05:20Yeah, and as you know, the holidays are a great forcing function to close your pipeline.

Nicolas Dessaigne

05:27Yeah. I think the end of the quarter is the most important closing function for the team, because that's so important. I mean, you know how that works for sales. Of course. They have, like, 50% of their comp that is commissioned, and so, of course, they have the motivation, the right motivation to close as much as they can before the end of the quarter.

Funding History and Why They Raised

Nathan Latka

05:45That's right. Talk me through funding history. I think you have raised... How much total have you raised?

Nicolas Dessaigne

05:5174,000,000.

Nathan Latka

05:52And why did you decide... I mean, obviously, once you're on that path, you have to kinda stay on that path, but why why couldn't you bootstrap this?

Nicolas Dessaigne

05:59Oh, we could. Just wouldn't be the same company today. For us, it's more about, like, achieving the highest potential. I mean, the company has a high potential. It would be such a shame not to give it our best. And in our case, in our market, of course, meant raising money to be able to go faster.

Churn Philosophy and Engineers on Support

Nathan Latka

06:17Yep. And, you know, one of the things that can limit growth sometimes is churn. How do you think about churn today, and how do you keep it low?

Nicolas Dessaigne

06:26It's a lot around making sure we're delivering the right product to our customers and making them successful. And so it's... As we scale, we started to add customer success for the market deals, for example. But if I look back at the early days, our users are developers, really were implemented by developers, and so we decided very early not to have any support team, for example, because we wanted to make sure everyone in the company was user

06:56facing and really felt the need and the pain of the customers. So support was done by engineers.

Nathan Latka

06:56Mhmm.

Nicolas Dessaigne

06:56So our customers, when they had an issue, they would directly reach out to our engineers, and that was an expectation we set from the day... From day one with the engineer, which means that the product got way better, I think, that it would have if we had the support team dedicated.

Nathan Latka

07:17Well, Nicolas, let me role play with you right now. Nicolas, you just hired me as a senior engineer. You're paying me like $180,000 in San Fran to do, and you want me to answer support tickets? I don't wanna answer support tickets.

Nicolas Dessaigne

07:30Actually, yes, you should. No. I I hate the word pacing, but no, I think that's very important to have engineers who really care about the product they build and about the customers they serve. You know, actually, it's such a satisfying feeling when your customers has an issue, and you're able to solve and help them and see... And receive that thanks, that, like, fully heartfelt thanks from the customers. I think that's really a good thing. It's all

07:58a matter of proportion, you don't want to spend your days at doing that, but spending half a day, two half days, a month answering support is actually a great thing.

Nathan Latka

08:08Is that how you structure it? Each engineer has to spend basically one whole day per month on support?

Nicolas Dessaigne

08:13Yes. As we speak, we're actually creating a support team now, dedicated support team, mostly to be able to do twenty four seven support and have a higher quality of support and husband's time.

Nathan Latka

08:23That's great.

Nicolas Dessaigne

08:24But we still ask our engineers to participate to that. Yeah. So maybe that today is going to reduce a little, but still going to be there.

Nathan Latka

08:32And how effective has this been? So what actually is your churn per year today?

Nicolas Dessaigne

08:36So we don't communicate about the churn, but let's say that the most important here is really to have a net negative churn, which we have. You know, for SaaS businesses, you always try to get both the dollar churn and the dollar upgrades from existing customers. So what you want is to retain... To have a increase in the retention of the

09:00Yeah.

Nathan Latka

09:01Expansion expansion more than makes up for what you lost.

Nicolas Dessaigne

09:04Customers at the end of the year.

Nathan Latka

09:05Oh, sorry. Go ahead.

Nicolas Dessaigne

09:06Yes. Exactly. Which means that part of the... When you start a year, that the magical... The beauty of the SaaS business. You start the year, you already know that you are going to have more revenue that new year than the year before without even acquiring any new customers.

Net Revenue Retention and Expansion Pricing

Nathan Latka

09:20Nicolas, what do you... When you put those pro formas together, what do you assume, if so, I'm gonna make this up. If someone starts paying you $10 per year today, what can you predict in year two, they're gonna increase that contract value to typically?

Nicolas Dessaigne

09:34So it's going to depend about the segment industry and so on, but basically you can expect them to pay about 30% more the next year.

Nathan Latka

09:39Okay. So about 30% expansion annually. And more importantly than the number is how you're doing that. So, you know, folks that grow very quickly set up very specific pricing axes to give their sales team leverage to drive upsells. What pricing axes are most effective for you?

Nicolas Dessaigne

10:00So there's, like, two aspects here. There is the the usage itself. Users using more, like, coin by themselves, they have more things to search for, They have more users that are querying the the service. And the second axis is more on features, value based features. A, you want to add personalization on your search, then that's a new product, a new module, new add on that you'd like... Yeah. That you'll have to pay for.

Nathan Latka

10:23Mhmm. Okay. So so it... It's literally more more website impressions doing more searches on Under Armour, so usage, or whatever your customers are. And also, I mean, is there a seat model or an additional kind of product add on modules as well or no?

Nicolas Dessaigne

10:40No. There is no seat model, so it's mostly usage, and then we are going to have plans, and some features are including only in specific plans, And so you need to go to the next plans to have access to them.

Nathan Latka

10:52I see. And since you didn't wanna talk about churn numbers specifically, totally okay with that. In terms of net retention with that 30% expansion, does that more than make up for your gross revenue So you're above a 100%?

Nicolas Dessaigne

11:05Yeah. You are above a 100%. Like, the last year, above 100% retention. It's it's between, like... I mean, retention is going to end up between one twenty, one twenty five, depending of, like, depending of the year, depending of the segment, but that's basically it. So, no, it's it's a it's a how is that, healthy business.

Nathan Latka

11:23Yeah. It's great. Hey, look, if you have a 100 term... A 120% net retention annually, and, again, 30% of that is expansion, that means you... You're only losing, call it, five five, 10% per year. Right?

Nicolas Dessaigne

11:33Yeah. Well, that is like a ballpark.

CAC Payback Period and Unit Economics

Nathan Latka

11:36Yeah. Of course. Of course. Alright. So 300 folks, San Fran Remote. Last question to you about growth. So in order to get... Let's use a $10,000 ACV as an example. My purpose of this question is to get in your head in terms of how aggressive you're being. So to get a new $10,000 ACV account, what are you willing to spend on CAC?

Nicolas Dessaigne

11:52That's a good question. At the end of the day, you want to spend well less. It... If... It's it's so difficult to answer the question because it depends on the segment. We go from self serve where the CAC is basically nothing, like, close to zero, to enterprise where the CAC could be in the in in the, like, at least five years number. Like, if you factor all the cost of the people, the sales, the marketing, and

12:18everything, so it can go pretty high. So it's all over the place. At the end the day, what you want is a great ratio where your CAC is way lower than your LTV.

Nathan Latka

12:28Your first year ACV?

Nicolas Dessaigne

12:30First year ACV and LTV, of course.

Nathan Latka

12:32Well, of course, LTV. Definitely LTV. But but I mean, how aggressive though how aggressive are you being in year one? I mean, you getting paid back in three months typically, or ten months, or twelve?

Nicolas Dessaigne

12:40No. No. We're close at one year.

Nathan Latka

12:40Okay.

Nicolas Dessaigne

12:40But yes, like, the payback, like how long does it take to pay it back if you stay under one year, it's very easy.

Plans to Raise in 2019

Nathan Latka

12:52Yep, that's great. Makes a lot of sense, Nicolas. Last question here before we wrap up, any plans to raise additional capital here as the year closes out?

Nicolas Dessaigne

12:59Of course, but not this year.

Nathan Latka

13:01You wanna wait till next year?

Nicolas Dessaigne

13:02Yeah, it's going to be, like, probably next year, sometime next year, we'll raise a new round.

Nathan Latka

13:06And why is that timing right for you?

Nicolas Dessaigne

13:09It's it's a combination between when will we need the cash, the potential of growth, and the potential of growth. So, of course, you never want to raise when you have your back on the wall and don't have any more money in the bank because you cannot fully control. You don't have any leverage there. You have to raise. And then it's a question of potential if we believe we can... We are building the plan for next year,

13:32and, of course, we want to continue to grow very fast, and the faster you grow, the more cash you need to make that possible. Yeah. So it's really looking at the the... These two factors and making... And find your right timing.

Nathan Latka

13:45And if you do raise next year, about how much do you think you'd probably end up raising?

Nicolas Dessaigne

13:50I'd... I prefer not to communicate that because that's actually still under discussion to see exactly how much we would need. But let's say that at any point of time, my goal is to have an option to become profitable. I would never want to, yeah, have my back on the wall, so how much does that mean? It's basically a basically a math problem, except

Nathan Latka

13:50It's quite a helpful answer.

Famous Five Rapid Fire Questions

Nathan Latka

14:16Let's wrap up with the famous five. Number one, what's your favorite business book?

Nicolas Dessaigne

14:21Radical Candor.

Nathan Latka

14:22Number two, is there a CEO you're following or studying right now?

Nicolas Dessaigne

14:26I'm looking a little more at the Reid Hoffman today.

Nathan Latka

14:29What's it called?

Nicolas Dessaigne

14:30Reid Hoffman.

Nathan Latka

14:30Oh, Reid. Yeah. LinkedIn.

Nicolas Dessaigne

14:30I love his... Actually, podcast.

Nathan Latka

14:37Masters of Scale.

Nicolas Dessaigne

14:38Yeah. It's kind of like we're in that stage

Nathan Latka

14:38Number

Nicolas Dessaigne

14:38with the

Nathan Latka

14:42three, what billing tool do you guys use?

Nicolas Dessaigne

14:46Billing tool, we built our internal billing system on top of Stripe.

Nathan Latka

14:49Okay, got it. Number four, how many hours of sleep do you get every night?

Nicolas Dessaigne

14:53About seven.

Nathan Latka

14:54Okay, and what's your situation, married, single, kids?

Nicolas Dessaigne

14:57Married, three kids.

Nathan Latka

14:58Oh, wow, okay, how old are you?

Nicolas Dessaigne

15:00I'm 42.

Nathan Latka

15:0142, last question, what do wish your 20 year old self knew?

Nicolas Dessaigne

15:0620 years old, Optimize for learnings instead of anything else.

Nathan Latka

15:12Guys, Optimize for Learning founded Algolia back in 2012. They did call it $20,000,000 in ARR last year, more than doubled this year with $40,000,000 in sight, serving over 6,000 customers ranging from a long tail and then embedded in that about 300 enterprise customers. Those 5% of our customers make up more than 80% of their revenue. Definitely a model there. They're doubling down on what the sales team, you know, inside sales team prospecting, things like that. 300

15:36people based between San Fran and four other offices. In terms of payback, willing to spend up to twelve months of ACV to acquire the customer. Obviously that actual number is different by cohort. In terms of retention, over 120% net revenue retention annually, a lot of that's coming from a 30% expansion year over year on that same cohort. Really healthy growth. Thank you so much, Nicolas, for taking us to the top.

Nicolas Dessaigne

15:59Thank you, Nathan.