Gainsightrevenue, acquisition & funding

hello everyone my guest today is nick meta he's the ceo of gainsight the customer success company he's a big believer in the golden rule and tries to apply it as much as he can to bring more compassion to his interactions with others under his leadership gain site was named the second fastest growing private software company in 2015 by inc magazine nick you ready to take us to the top i'm excited nathan thanks for having me all right so this is a fun space to be in um help me understand for folks that have not heard of you guys what do you guys do and are you pure play sass yeah so gamesite is a sas company and we help businesses uh be more customer centric so we think across almost all industries whether you're a sas company you're in the cloud you're moving to a model where customers have more power and you've got to make sure that you recognize that power and do everything you can to put that customer at the center of the business we build software that helps companies be more proactive with their customers people call that customer success software so they make sure their customers are getting value from what they bought they're liking their experience and ideally they stay with you and spend more money over time mm-hmm and then help me understand i mean you have a lot of different customer courts i'm sure we don't have time to go down to all of them but what would you do a sweet spot is an average customer's gonna pay you what per year to use you so we got started in the world of selling to sas companies so many companies folks listening probably run size companies are our sweet spot company is somebody that's moved to a sas or cloud model so building technology your customers might be paying you per month per year per transaction you want to keep them longer get them to spend more money our customers pay us anywhere from you know in the sort of you know 50 000 a year range all the way up to you know millions of dollars a year so solution kind of scales up and down from kind of companies 50 75 employees all the way up to some of the biggest companies in the world that's very cool and put this on a timeline for me when did you launch uh we launched six and a half years ago okay so about 20 20 12-ish yeah 2013 february april 2013. and when was that when the first line of code was written uh no we've been working on it probably for about a year and a half before that okay so i always like to ask this how much money did you guys burn before your first dollar revenue building mvp not you know i'd say probably a few million bucks three three million bucks on that range okay so something yeah so someone listening right now that's out of school launching their company they're going well gosh nick must been rich i can't afford to burn three million on my mvp so what'd you do did you raise on day one or you're just really rich we add venture capital there you go yeah all right so how much have you raised a date we've now raised about 155 million dollars today and why was the capital needed i mean why couldn't you bootstrap this yeah in in enterprise sas businesses in general because you sell you have a longer sales cycle and you you have to build a sophisticated product typically they do take a lot of money because you have to spend a lot of money up front and you get those customers to pay you over time i think it's even more so when you're creating a new category we created this category people call customer success and there's a whole new job associated with it that we've helped to kind of popularize when we got started it was a brand new category so you have to do a lot of stuff to make people aware of the category in our case to get people to hire customer success managers build the product so building a category is definitely expensive but hopefully it'll pay off are you generally so i've interviewed maybe 60 ceos that are doing between 50 and 180 million in arr and there's a trend i'm seeing where a lot of them are now experimenting with actual quota carrying csms based off the csm's responsibility to drive expansion revenue tied to an activation metric uh you generally in favor of that move or you think it's gonna be detrimental no i think it's it's situational but i'm in favor of considering it if you have a business that is a very long deployment cycle long contract and very high touch you may not need to do that because the csm can really just focus on value and making sure customers adopt but if you have a business that's a little bit higher velocity and you can start from a small amount and just keep expanding a lot of companies do give their csm some incentive for expansion some people go in between where they say it's not about like a commission on the expansion but maybe you give leads to sales and you get kind of an incentive for every lead you give back to sales to do upsell yeah no i mean the reason i ask is the most effective companies i've interviewed they have very strong pricing axes worth there's a seat based approach based upselling and the most important one utility-based upselling this is you know this is like twilio api you know calls per month kind of thing right and so csms are typically the ones that drive that activation or you call account managers whatever i'm just it was helpful to get your insight there on how those folks are being incented well nathan it's a great point because if you have a business model where people pay you as they consume like a consumption-based model like twilio which is we're proud to have as a gain side customer in those businesses that customer success motion is the growth motion right that's exactly right in other businesses where you sell a long-term contract customer success is more about value and all that so a lot of it depends on the type of pricing model that you have yeah okay very good so you put in three to five about three issue if the mvp up on the up on the ground and then uh 2012 as first line of code 2013 first paying customer right okay and how did you get i mean walk me through that story how'd you get your first 10 customers be specific yeah well it's funny i think that's probably quite similar to a lot of folks where it's a lot of just like friends that are willing to try out your stuff you get you meet somebody they meet somebody else so for us specifically we were fortunate that one of our first customers was marketo which probably many of the listeners know marketing automation software not part of adobe at the time it was a few hundred percent company and actually we the person that ran customer success of marketo was so enamored with what we were doing that he ended up joining us as one of our first executives his name is dan steinman he's still with us today and so we ended up basically hiring somebody from the field that we were selling to which was a very powerful thing can't recommend it enough if you can have somebody in your company that's been in the shoes of your buyer so marketo ended up being one of our early early customers a number of other companies exactly which is a company that went public was taken private by vista we have several we got it wasn't one of our first ten but probably one of our first hundred was box was probably one of our first big customers and kind of marquee names and in every one of those it's interesting how tightly connected the customer network is you know so the marketo folks know the exactly folks knew the box folks and once you have success one place it helps build on itself and i think that's one thing that's why it's so important to get those early customers right because they all know each other and that network is very tight yep and guys if you want to learn from chris uh we just had him on from exactly in episode 2028 he talked aggressively or a lot about how they're incentivizing their cs reps obviously it sounds like the tool they're using or that at least they were using on the back end of that is was uh was gainsight they're still using yup there's all those things they're still good that's good so they've got you know exactly has been able to drive 30 expansion revenue and a lot of that is tied to their csm's and their ams uh so 130 net revenue retention there so it's something is working nick congratulations thanks well they're a great company all right um so let's go back so those were your first couple customers how many are you now serving today we have about 700 customers now and it's kind of a who's who in technology so publicly traded sas companies like an octa or workday or twilio or docusign big companies that have gone to the cloud like an ibm or an adobe or a cisco as well as companies in other industries that are moving to a more digital business model you know ge as they move to more digital model adp the payroll software company so companies that are coming into software and trying to adopt the practices of software companies like customer success yep now churn is obviously critical in any size company you actually have it yourself but you also this is what you help people manage as well so i i know you'll i you're the you're if i'm going to ask anyone these questions it's going to be you so if you look at your past 12 months and you look at gross revenue churn what has it been for you and how do you try and mitigate it yeah so we we don't report exact numbers but we've had in the net gross retention in the 90s so very good gross retention um and uh generally speaking our customers have been willing to partner with us for very long period of time and that that's been very consistent over the last you know four or five years the the reason i think that's happened is obviously with every business it starts with your market and your product right you got to have the right market value prop and product and obviously we iterate a lot on that and then on top of that we of course have our own customer success methodology and by the way we're not perfect we we just like all of our customers are constantly learning one of the things we've tried to do is be more prescriptive with our customers that's when i think i tell every cs person it's not just about doing what your customers tell you to do it's not be about being nice it's about actually helping them get to where they need to be so with gainsight we realize that we're the experts at customer success we need to create a methodology and how you should use gainsight what are the best practices we turn that into a table we call it if you remember high school chemistry class we're going to go back in time for a second remember the periodic table of elements yeah you've got your 14 elements we've got our elements as we built these elements of how to do customer success at world class levels and we basically put that and canonized that and that's really catapulted our customers forward to value much more quickly of your 700 customers how many of them pay for more than one of the 14. so we don't charge based on elements it's a very logical question we actually sell the platform kind of as a platform and then based on the number of users more like you might buy sales for us the elements are just good ways to get value out of it oh so you don't upsell based off feature set then no i mean we have some advanced features now but they're not really tied to elements it's more like um upselling for you know new modules and things like that interesting okay so what's your most effective upsell module is it number of seats yeah it's seats um but it's really seats driven to use cases so when people buy gain site just like probably many products that are listing now they buy it initially for their csm team but then the sales people want to know what the cs team is doing so we might buy sell seats to them or the product team wants to know hey how do i make my product better and by the way that's a good segue we also launched new products because we've now built a suite we call the overall suite customer cloud and the idea is we want to make every department centric so we customer-centric so we built a product that's all about helping product teams build more customer-centric products sales teams sell a more customer-centric way so now we have different kind of products for different functions within the company okay interesting and then um so so what about we talked about twilio earlier any kind of utility based or consumption based upsell model or no not today no it's really kind of basically users and also like the number of customers you're managing but it's not a consumption based model today okay no consumption interesting and then okay talk to me about team how many folks on the team today so we've got actually a similar number about coming up to 700 employees okay um it's very global we're we really believe in kind of the distributed model so folks all around the world big team in india and a couple different cities folks all throughout the us london and other places as well and what is i mean how aggressive today right your stage can kind of company how aggressive are you being to drive growth in terms of burn i mean you happy burning a million two million a month or give me a general sense of where you're at yeah i think it's in that rough range that you just said um uh we are aggressive probably not you know if you kind of plotted everyone we're not at the extreme of aggressive but we're not yet a break even right um but i think it's all as you know very well it's all about just understanding where you're gonna be growth wise what that burn is what's your customer lifetime value um and and very specifically you know we want to get to the point where you know next couple years when you look at us you probably familiar with rule of 40 where you take the growth rate minus the burn rate as a fraction of revenue and a lot of the best companies have that metric be above 40 we're you know we would like to get to that point where we're if we're burning money it's because we're going super fast and if we're not going super fast we're making money right and that's that's the ultimate balance everyone wants to get to yep uh and guys it's not just the best companies in fact if you look at all the publicly traded sas companies over 80 percent of the total market value is inside of companies with e40 or higher less than 20 of the value is e40 or lower so that is definitely a target as you look to ipo you guys are going to ipo the next couple you know call it two three years well as as you probably hear from all ceos i feel is not the goal it's just the step of the journey i i will say it this way as he smiles i love this job this is the best job i've ever had i don't want it to ever end i'd like to keep going and so the companies that want to keep going often that that ends up being a part of the journey yeah um we want to build a company for long term let me ask you a different question i mean what's your next you know typically people think about growth of companies and kind of stages right there's your first dollar revenue first 10 maybe 15 then it's like 100 and then past that you're like in reggie kind of sphere with c event where you're like how do i get to a billion in ar so for you like i mean what's the next big uncomfortable goal is it 100 or 50 or what yeah it's it's actually more about our strategy so the big thing we're doing right now is going from one product to a suite of products and people on the podcast you may either have done that or you're thinking about that i think it's a radical change for a company reggie and sivan who i know wells done that long time ago and they really catapulted their company to growth so we moved from this one product for cs teams that most people know us for to this suite that we call customer cloud i mentioned that we have a product for product people for sales people and that change is so systemic in a company because it changes the way you market the way you sell the way you do planning how do you organize yourself and we're just figuring it out now so if people are listening and want to give me advice i definitely would soak it up that's the big step function for a company you know i was moving to a multi-product company well and it seems like you're having success right so 700 customers at you just said earlier kind of you know people are caught 50 000 or north in terms of acvs that puts you nor i think probably well north of 2.1 million bucks a month right now in revenue is that accurate it's significantly higher than that our average customer is spelling spending well under the six figures so oh so 50 so people can't 50 000 a year is not that's not an accurate figure 50 000 where you could start but the ab if you kind of as you probably know you do you're out you have a bunch of people 50 yeah with lots of people spending millions of dollars right so you do the averages and yeah okay fair enough so if that's if that's more like a we'll say north of 100 grand 700 customers six grand a month that's north of call it four million a month in revenue or almost call it 50 million ar when do you think you hit 100 million can you do that next year you think you need more time uh yeah no we'll be there uh in that time frame okay interesting and so next question on that right obviously you're managing burn rate you mentioned exactly you mentioned reggie why haven't you sold a vista yet well i hear about the experiences that actually i will say vista's tremendous like people uh private equity firms uh kind of get a bad rap i think but i think some of the progressive ones like vista have done a great job of still allowing growth even inside the kind of private equity world um vista actually is a great partner to gain site a lot of private equity firms have gotten the point where they realize a lot of the value in their portfolio is about getting customers to spend more money right so you think of us event you think of it exactly so much of the value vista is going to get is getting that net retention rate up so vista's been a great partner to us in getting gain site in a lot of their portfolio we have a lot of respect for the private equity firms um in terms of you know who we partner with we have amazing investors right now you know battery bank capital ventures bessemer salesforce lightspeed insight um summit and so we're very happy with our investors but we have respect for all the pe firms out there nick but in this world if you're not doing some kind of activity whether it's a raise a sale a debt or something every one or two you call it 18 months you know something's probably happening now your last raise with what was with lightspeed 52 million in 2017. so i would bet if i was a betting man something is happening right now are you mean are you looking to raise capital right now are you in acquisition talks with vista or another private equity firm no um on the ladder um we are doing something right now uh selling to our customers and serving our customers well and make your importance so good guys i mean he's so good this is good nick you gotta get into you gotta get to pittsburgh politics here soon exactly we'll talk about the steelers that we can get real or no no actually i generally mean that we've we really really focused on making our business and and um so um we want to just run this for the long term interesting um of the 52 in 2017 was all that going to operations or was any of it secondary for early liquidity for early you know employees operations it was all operations okay so then maybe i mean one thing at this stage i see see is do all the time is do you call like a 60 80 100 million kind of raise where some of that's going to early you know employees who sacrifice comp for equity would you do would you do something like that yeah i mean i think those kinds of things are the types of things you you want to do to make sure people are incented for the long term being transparent it's not something we're doing right now yeah but those are the types of things i think companies do do to make sure you have the the gas and the fuel tank both for the company as well as for the employees so i i do respect companies that do that last two kind of rapid fire questions and we'll wrap up growth rate past uh 12 months call it 30 40 50 percent or where you generally fall yeah in the higher end of that range okay yeah fair enough and then um cac so to get a new hundred thousand dollar your customer how aggressive willing to be happy with the 12 month payback or what yeah you know i think in enterprise it typically is like 12 to 18 months in that range i think that's pretty common our customers a lot of them are spending a lot of money so we end up it fluctuates kind of quarter to quarter but that's the rough range okay interesting all right wrap up with the famous five here number one great great question nathan you asked more questions than my mom does on my typical check-ins if your mom asked all these questions i would hire her immediately to write for me on sas girls me about ipo all kinds of stuff so i love love her she keeps me honest that's so funny no no i mean look i wish i had data like this when i was launching my first sas company so i appreciate ceos we've got almost two thousand now more than two come on and be so transparent like you were so i appreciate it no problem all right wrap up here number one what's your favorite business book five dysfunctions of a team um that's an amazing book if you haven't read or encouraged it's very quick it's a parable about a management team and some challenge they run into and you read it thinking oh this could be totally different than my company and then you read and you see little shades of your own company and the things you can work on and obviously the only other one i'd say is customer success the book we wrote about the topic of course that's my other favorite that's the five dysfunctions is the one i'd recommend what's what's the actual book title of your yearbook it's called customer success oh okay and you can look it up on amazon it's actually become a better on amazon for business books and yeah very good all right number number two is there a ceo you're following or studying yeah um i think that i'll give you kind of two different ones maybe at different altitudes so satya nadella obviously a legendary with what he's done with microsoft i've never met him but from afar i think the combination of the fact that he's driven the strategic change of microsoft but also that people like really gravitate towards his leadership style i've heard he's just such a humble person very approachable so definitely somebody i admire and they just pick somebody that's maybe some folks might even know that's um i just really admire and i've gotten to know well jen tahada who just took pagerduty public she made she's amazing ceo balances uh caring about her team but unbelievable execution focus so those are two i'll pick no guys if you want to hear more stories about satya yesterday's episode with omar uh voicia he worked directly with microsoft before he spun out and shared some very interesting stories about how satya does right after a meeting so go listen to that episode if you want to hear more about that number three nick what's your favorite online tool for building your company besides gainsight yeah besides getting i'd say the one that like i thought about this question linkedin it's so obvious but i gotta say it is just so universal and of course using it to look up people and all that but specifically to get your message out there if you haven't thought about that if you're not doing more on linkedin for business folks i just think it's it's an amazingly powerful tool to connect with your customers and your audience number four how many hours of sleep to get every night i am a huge believer in sleep i believe all that research and all that so i as long as i can fall asleep sometimes i you know toss and turn like a lot of people but i target seven eight hours a night that's good and uh how old are you i'm 42 years old 42 and situation married single kids married uh for 19 years this year uh we've high school sweetheart and we have three kids amazing amazing all right take us back to your 20 year old self what's something you wish you knew all right a few things um apply for a job at amazon or buy amazon stock those would be good decisions 10 20 years ago um i think that you know you're always rushing to get things done um and it's interesting there's an expression i love which is the days are long but the years are short and it's interesting like that kind of conundrum that like getting through everything feels like it's a slog and then you realize like i'm 42. so you know 20 years went by pretty quickly post college um and then the last one i'd say um this is being really honest and we're big into vulnerability our company i'm personally i'm i'm the kind of person who's very like constantly like hey are you achieving enough are you doing enough am i successful enough um i don't feel like i am i haven't done as much as i should and a friend just a few months ago who knows me very well gave me a little card and it said you are enough um you were bored it says you were born enough nothing you can ever do nothing you can ever accomplish will change who you truly are and i think that idea that you are enough and i think a lot of people struggle with that am i enough that's i still haven't totally figured it out but i think that's what i try to tell myself every day guys there you have it gain site helping you sas companies and other companies retain more of their customers more of your customers deliver more value they're now serving over 700 customers contract sizes all in the six figures kind of low to high low to mid six figures so call it north of 50 million bucks in ar he says next year they'll definitely hit or hopefully hit more than 100 million bucks in terms of ars they look to continue to scale with their team of 700 people 10 gross annual churn again that's max uh spending up to call it 16 12 to 18 months of lifetime value to get the the customer in the first place burning caught between one and two million bucks a month to do that with 155 million dollars raised nick thank you so much for taking us to the top yeah awesome great talking to you thank you so much