How Freshworks CEO Pradeep Rathinam grew to $713M revenue and 50K customers in 2024.

Hello everyone, my guest today is Girish muffler butum he is the founder and CEO of a company called fresh works One of the world's fastest growing SAS product companies winning the economic times startup of the year in 2016 and the business standard starting off the year in 2017 fresh works now is a suite of products for businesses worldwide including freshdesk fresh service fresh sales fresh collar fresh team fresh chat and fresh marketer Girish Are you ready to take us to the top? Yes. All right, very good So I you know I think a lot of people listening maybe have heard or definitely part of one of these products and they go Oh my gosh one guy and one team is behind all of these things. So tell us the founding story When did you launch the company? And which of these product lines is your focus right now? yeah, so We started the company in October 2010 and at that time we started with only one product freshdesk freshdesk, the whole idea was the story is Coming from a life incident I was moving back from the u.s. To India And I was shipping my stuff back and a long story short my when my stuff arrived my TV was broken, you know the fancy 40 inch LCD TV was broken and I tried contacting customer care since I had purchased insurance, but 500 months numerous phone calls and emails later. They still wouldn't pay my insurance money So at that point I didn't care about the money. I wanted revenge and justice so I So as for marriages justice, right, yeah, so I actually shared my experience online on an online forum where I found the Shipping company and I posted pictures of my TV and posted my story and the community started engaging The next day the president of the company came and apologized and the next day money was my bank so I Sensed that there was a paradigm shift happening in the world of customer support This was February 2010 when Twitter Facebook using Twitter persephone was not mainstream yet. So I Got this idea to build a fresh L desk which Helps companies to listen to customer complaints not just on over email or phone call but also on Facebook and Twitter and so on so I think That was the original idea to build fresh fresh L. Bisque And we call the freshness and help me understand. So, you know, you have four actually give me the order real quick So freshdesk was first and then quickly what was second third fourth and fifth yeah, so first service was second Versailles was third and then finish chat And what about fresh team in fresh caller? So it came after the mediator. Oh, so fresh chat fresh caller and fresh team, we're all kind of together Together almost in the same week Okay. All right So, I mean that's a mercy I mean your average and what basically one new product line every you know One and a half years, essentially, correct? Tell-tell, so tell me how you one of things I'm interested in is how you're doing core analysis across your customer bases right you have Six different product lines and I'm sure you have different cohorts in each of those different product lines walk me through how you what kind Of kind of analysis you guys are doing on a quarterly or monthly basis with your executive team So so, I think the key freshness and first service are Not really Complimentary products one is focused on an entirely different buyer So the external customer support and internal customer support, so there is not a lot of overlap between those two before I answer your question so first sales was the first product we got out of which really could be sold into our existing customer base and then The other four products we launched last year. So what we do is again as part of our board meetings and investor Analysis, we do all this fancy I had to learn all of this stuff like the layer cake analysis, and and the net expansion into new products and so on and I Think what we see is a very big opportunity for us is the fact that I think less than only 5% of our customers actually use more than one product which is both the fact that all the products are new and So we didn't want to put a cross sell team. I wanted to do product based auto discovery So like two months ago, I think we launched Works unified experience with With the normally bar and a single sign-on called fresh ID. So so I am a product person so I believe that for our SMB customers I want to do product lead discovery automatic discovery of products Like how when you sign up for Gmail you don't sign up for Google Docs or calendar or you just use them, right? so so that's the kind of product integration you have done and Now we will we are starting to see that cohort of customers using more than one product move up rapidly and they are also in the process of Seeing if you can do a cross cell program across No touch though all and product Till now everything is involved. Yep, very good. So give me an average across all these products I mean your is this mainly for the SMB like what's the average price? When would you say across these things? So we have see one more than one third of our customers and our revenues are it comes from? larger customers so we have 65% of our revenue from SM because loss and 32% from what we call mid market Okay, and give me if people want to start with you, you know They want to start with fresh sales today are being are they took you're talking ten bucks a month to get started a thousand bucks Ten thousand bucks. Where is it generally start or average? fresh sales today Okay want to get started you can get started at zero, but the average customer today Basis, I think 1200 Okay, got it. And now they're paying on a monthly basis that right. You are. Are you locking them in you annual contract? Yeah, okay very good and then break down it sounds like there's some funding here because you mention you have a board So how much have you raised today? So, you know we have least close to 2250 million and when was the first round first round was closed? Mm. Okay. So fairly fairly it only about one year after your launch Why'd you decide kind of twelve months in that the right the right path is gonna be to go down to venture path yeah, that's a very interesting question and See, there are two things one is in a SAS business model The marketing costs are very front loaded So I have to spend let's say for example thousand dollars to acquire a customer who's paying me under dollars a month So unless I have real word-of-mouth and vitality Which usually happens when you are like a new category creator? But when we started we started in L test which was an existing category with multiple players So it was important to kind of get funding in order to pay for the front-loaded marketing costs So and and get scale and I think this is a question that many artists ask us Asked me actually should they be bootstrapping or should they get visa from there? So I think if you are in a category where there is a lot of competition and if some of your competition already funded it's probably a better idea to get funding and scale rapidly because PCs are going to look for other players in the Caribbean if you are still bootstrapping maybe others will get funded and Build a superior product quickly and scale. Yeah, but there is you have a nice mode and if you are actually Like you don't have a lot of direct competition Then you will have enough word-of-mouth. And if you can also manage larger customers, then you can profitable So help us understand today, you know, you recently did a raise How much what was the valuation what have you here in terms of ARR run rate? So we announced that we crossed hundred million dollars of ARR and valuation for the last funding round was 1.5 billion bucks and an IPO is coming up? So we don't have a definite date yet, but I think that is the one of the obvious choices And again, we are excited about that because like There has been no product company from India. That was actually IPO'd story for us to be like one of the Like I we love Atlassian for yeah the kind of success that they have from Australia They're the only multi-billion dollar products story from Australia, right? So I think we could do that the same for a company they start out of India so I think that's the excitement but having said that We are not on a timeline yet. We are not we still Like from in the startup stage and moving to more mature Company, I think we are there in terms of revenue. We have to be ready before we can go Yeah, now you're in good company J president of Atlassian was on a couple episodes ago And he said the same thing how proud they are that they were they kind of the only folks in Australia born in Australia known for this so I'm certainly rooting for you Give us. Um, you must the more the kind of the custom metrics here So how many customers you have know on across all the platforms? Using our software, that's great. Ok next if you're at about a hundred million run rate today I mean I can divide, you know a hundred million by the 115 what people are paying about fifty six ish bucks a month on average is that sound about right? So actually this includes our free customers also, so we don't think we and Oh got it, so when you say a hundred fifty thousand users that includes the freezers Businesses are using start users its companies using our software but since we have premium versions for some of our products that includes the Okay, how many so how many are just paid customers No, I think like we don't disclose that bigger place. Okay? Okay. Got it And and why is that it is a strategic thing or you're still working on the conversion rate? Basically, we just want to hold it till they're ready to disclose about it basically our PR team and our CFOs advices that Keep the numbers for some yeah, probably fair. Let's shift to something else If we don't want to talk about customer count you know churn is very critical at this price point especially in the SMB space sixty percent of your revenue comes from SMB how have You managed churn and what is your turn today? so so I think our turn is kind of in line with best-in-class SAS companies that have SMB business in terms of the business, so it's around It varies by product promptly around I would say two percent a month for sure and per month Yes, but are dollar-based Churn is actually negative because of expansion so we have a very healthy Expansion so which means on a revenue churn is negative. That's great We talked earlier about expansion and how you're driving cross product expansion within product kind of usage based upselling You also its but you said that less than five percent our user base actually pay for more than two products So I'm assuming most your expansion right now is coming from someone upgrading inside the same product. Is that accurate? Yes And what so what price you know when we had Brian Halligan on at HubSpot, he talked a lot about the different pricing axes They use to drive higher price, but a number of seats number of usage nor of contacts things like that What kind of pricing axes do you use inside your products to drive expansion revenue? So today it is Broadly only two axes on this when the customer grows in terms of number of seats. So that is definitely one And we see a law in our mid market and large enterprise business we see a lot of expand land and expand so companies that start with say 40 50 seats actually expand to 200 500 etcetera so that's the in one axis. The other axis is we also have customer success program where we manage our like we have three tiered customers for them and so for our top like we speak to customers understand their business challenges, we actually upgrade them to higher plants if What they need is something that they bill to Diana but the amount of air of it and not using it So today our account base expansion is much larger than our plan based. I See, okay So so I heard you say two things you have to pricing axes in terms of expansion revenue one is number of seats which is fairly typical the second is you have a team of essentially built-in consultants or account managers or customer support people who will Recommend additional feature upsells to customers who are not using you to your full extent. Is that right? Yes. That is very good Interesting so much like a consultative sale No, it is all customer success. So basically their job is not primarily sales their job is important and Function and be proactive in their relationship to their customers in terms of doing quarterly business reviews and helping customers accomplish what they want with our product if you during that process if they Find that the summers need to accomplish something and that particular feature is available in a higher plant But the customer is on a lower back then they suggest that It so seat based upselling and feature based upselling two main things Very good talk to me about you know We talked about up sighing but let's go back to the top of the funnel here for a second So customer acquisition what has proved most effective for you in terms of, you know customer acquisition so we really have a long trail of online acquisition as The primary so freemium is definitely something that drives a lot of top of the funnel and we do All kinds of online acquisition so we have very little outbound calling but like majority of our leads are inbound and primarily through a CEO sem So I think different products and a sense because we have 5050 6040 kind of split between faded Three or organic Legion and give me a general sense monthly. What are you spending on direct paid Google Ads Facebook ads? Or if you had to guess In a million's oh no, so between a mostly between a million and ten million you think Yeah, okay, and should not not more than not more You're not spending more than ten percent of your revenue on on on direct paid spend is what I'm trying to get at a percentage Per month, yeah Okay good. So maybe who knows very good and then talk to me about team today. So where you guys at how many team members? So we are In Where are the offices mainly where words the headquarters so we are headquartered in San Bruno California and the largest team is in today For $8 per team Israel. We also have offices in London Berlin LCB so London and Berlin are around 42 beach, I think logins 31 Sydney Australia is a smaller University Very and before we wrap up here Jewish with the famous five. I meant to ask you this cack So when you look at your fully weighted CAC, I know you're doing a mix of many different things, but generally speaking What is your fully weighted CAC today? So I think We I mean it's different for different product What we look at is seek act by itself would be meaningless what you are Basically, I am interpreting your question as what's more interesting for us as companies. You have to understand both payback periods and LGD to tack ratios, so I think each one of our products operates at Say 15 to 16 month payback on margin business that's what we try to be at and Really do three time and sorry an LTV attack of what? so depends on each product, but we you know, the benchmark is Three so we are around that. Okay, very good So goods quit, you know So someone comes on in his pen you 1,200 bucks per year you're saying you're totally willing to spend, you know 1450 on our bucks to acquire that logo or that company in the first place Very good and talk to me about growth So you just told us you passed a hundred million dollar run right today where we got a year ago in August or September 2017 So I think Like we as a private company yet, we're not ready to disclose some of those I'd love to check that but we are growing that let's say that we say very very healthy days like lot of Policies north of the north of 30 or 40 So I'm just using it as a ballpark North of 40. Oh, that's what I mean If you had a hundred million run rate today you know growing 30 40 percent year-over-year is healthy for obviously that scale so Congrats on that growth and is most that coming from a new customer acquisition or from expansion so Okay, that's that's great. Very good. All right, let's let's wrap up here with the famous. Five. Number one. What's your favorite business book? Execution number two. Is there a CEO you're following or studying right now? Easels number three. What is you besides any of your own? What is your favorite online tool for building your business? No, so-so. It used to be one note and but right now I'm just thinking Probably I would just say my Mac Man, he he's you struggle because your products I said you can't name on your own but your products do so many things It's like you don't want to name someone that might do something similar I have to ask you actually about that - I mean you going to you know? It's the entire Google suite we have every users of that the Google Docs Yeah, why do you how do you get up? Oh Yeah zoom, okay, very good Eric will appreciate that he was on a couple episodes ago as well. Um, tell me real quick So like you just you recently launched fresh chat I mean when you look at the space in a kind of isolated way I mean intercom drift people are raising hundreds of millions of dollars. Uh-huh, you know billions of dollars in valuation When you look at that space, why do you know what even though? There's there's some people here that are well-funded and they're only focused on kind of messaging and chat We're gonna go after that space. How do you make that decision? So we we are not looking at a competition and deciding so we are looking at the entire market size and our Codebase CVR focuses on customer engagement. So when I say customer engagement Like if you look at fish service or fresh team we look at employees also as internal customers for an IT team or for the HR team employees the customer so our code is about how can we make Customer engagement across all where the customer lifecycle is. How can we win there? So in that sense? Definitely today's customer Wants to be omni-channel so they want to speak on chat or social or email or phone So that explains why if you had to do like collar or chat or so? Today's customer. We want to manage all conversation. Today's businesses want to know everything about their customer So what we are doing is executing on our vision of how do we see the future of customer engagement? That's what the end. Ok, so then there is a ml or omni-channel Engagement or full lifecycle of customer management. All right. All right number for your how many hours is he forgetting every night? Seven hours. Okay, that's healthy. And what's your situation Jewish married single kids Well, I met it was too little are they little or they out of that out of the house? Fourteen and okay, and how old are you? I'm 43 last question. What do you wish your 20 year old self knew? Guys there, you have it fresh work, sir. Sorry Well, he everyone knows that for many different products now, but fresh works the parent company started in 2010 and now over six products Really focused on customer engagement across every platform it all started with a broken TV He couldn't get a frickin insurance or refund on he said he know it. I'm gonna build this thing myself make the system better They've just passed a hundred million bucks in AR are going thirty to forty percent year-over-year About two hundred fifty million dollars raised looking at potentially an IPO coming up here shortly serving over 150,000 business logos on their platform Economics are super healthy with the 16 month payback period on these accounts that come on and start paying them call it 1200 bucks in First year a cv churn is below 2% logo churn per month and net negative revenue churn because of their in product expansion Being at super healthy levels team of 1500 based in San Bruno, California, India and other remote locations Jewish Thank you for taking us to the top Thank you