How Gainsight Hit $100M ARR and 1,000 Customers Before Partnering with Vista Equity at a $1.1B Valuation (Interview with CEO Nick Mehta)

Introduction and Gainsight Overview

Nathan Latka

00:00What's up, guys? Special guest today. My guest is Nick Mehta with Gainsight customer success software aficionado, leading the company, launched many years ago. Customer success company is the brand today, a five time Forbes Cloud 100 recipient. Their team is now nearly 700 people who have created the customer success category that's currently taking over their SaaS business model worldwide. He's been named as one of the top SaaS CEOs by the Software Report three years in a row.

00:24Nick, you're ready to take us to the top.

Nick Mehta

00:25>> Awesome to be here, Nathan. Thanks so much.

Nathan Latka

00:27You know, were joking about football last time you were on, I think back in 2018, 2019. Have the Washington football team. My team has passed Dwayne Haskins on to you guys. Will say, don't don't get too excited. I'll just leave it at that. Okay?

Nick Mehta

00:39>> He's doing okay in the preseason surprisingly, so I don't know. But yeah, he seems like you can't count on him. We'll see. See.

Product Expansion: From CSM Tool to Customer Cloud

Nathan Latka

00:48Anyways, you're on a tear. So, guess one thing that I want to sort of get folks on really quick, your product lines, it seems like you're expanding product lines very aggressively. Used to just be like, how do you comp your customer success reps? And now you have like way more product lines. Where is the product today? How are you thinking about product?

Nick Mehta

01:05>> Totally. I think a lot of people go through this, Nathan, and you've seen this from some other companies you've covered, where you start out solving a point problem and then you're like, there's a much bigger problem to solve. When we started out with Gainsight, the point problem was there's a new role in companies called the CSM and they need to figure out which customers to reach out to, how to effectively manage them, identify risk. And we

01:26>> still do that. We have a lot more to do there. But why do people have CSM teams? They have CSM teams to improve net retention in their company. They want to keep their customers. They want to get them to spend more money. They want them to be bigger advocates. That's net retention. The number one valuation driver in SaaS is net retention. And we want to be the company to help businesses improve net retention. Now to do

01:46>> that, it's not just about the CSM team because you need the sales team to learn how to sell new things to your customers. The product team needs to build products that are easy to adopt and use from the beginning. And so, we went from a single product company to now portfolio products that we call customer cloud.

02:03Customer cloud. And I think there's four key things here. Are success, engagement, experience and expansion, right?

02:08>> Yep. So customer success, which is where we started scale your CS team. How do you not have to throw people at it? There's customer experience, measure how your customers feel about you in terms of surveys, NPS in application through email and then really deep natural language processing to understand what are the themes that are coming up? Are people upset about your pricing model? Are they really happy with the sales experience? Number three, revenue optimization. That's all

02:34>> about now that you have these great successful clients, how do you get them to spend more money? So forecasting your renewals, driving expansion, identifying the cross sell opportunity accounts. And then finally, product experience, which says, okay, the most important thing is to make your product awesome because everything else doesn't matter if your product isn't awesome. So in the app, you drop in a small amount of code, onboard your users more easily, get them to try out

02:56>> new features, get feedback from the user in the application and give them in app support to guide them to the right experience to get them the most value out of your product.

Nathan Latka

03:04And Nick, when you're thinking about these new product lines to go into, I now understand the net dollar retention figures like the driving force, it sounds like, which is on the engineering side. But there are, as you know, multibillion dollar companies doing just like one of these things. I mean, look at Pendo or say one product engagement, right? How do you decide what wedge to launch with in the product engagement category and then decide what order

Competing in the Product Experience Category

Nathan Latka

03:25of operations is in terms of what you develop next on product side in that category?

Nick Mehta

03:29>> The great question. And when we decided to go to a multi product, the first thing we got into was PX, the product experience area. And there's great companies in there, Pendo, WalkMe, they're all very good companies. What we heard from our clients over and over again, when we asked them if we had a magic one and we can do one thing to help drive net retention of your company, every CS leader said product, every single one.

03:51>> The number of product, better data about how people use the product, better engagement in the product, better feedback from the product. And so we found a great company that hadn't really launched yet called Apptrinsic. We bought them integrated into our suite. And what we're seeing from our clients is they don't want a disconnected experience between what the CSM is telling the customer, what the salesperson telling the customer and what's happening in the product. They want all

04:13>> of that connected together. Companies like Adobe, Splunk, Autodesk, they want all of that stuff tied together versus being silos. So it's, you know, there's great point companies in the space and they do other things that we don't do, but we're the only company in the world that can really link together CS product and sales to improve net retention.

Customer Count Growth: 700 to 1,000

Nathan Latka

04:32Now, the last time you came on the show was back in, again, July 2019. You shared with me at that point, you guys were working with about 700 customers. Nick, where are you guys today?

Nick Mehta

04:40>> Yeah, we're close to, I think about thousand customers now, a little bit more than that, but the ASP has gone up a lot too. Sort of, as you know, Nathan, one of the things that happens when you have multiple products is you actually can drive a lot more spend from your clients as well.

Nathan Latka

04:51So this is something I want to go deeper on because this is net dollar retention. We're to get meta. Right.

Nick Mehta

04:56>> Meta. You like

Nathan Latka

04:58how I see what I did there?

Net Dollar Retention and Expansion Opportunity

Nathan Latka

04:59>> Meta. I love that. So you were back then, you told me that average ARPU was around $8 or annual ACV about a $100. I imagine you've significantly expand that at this point.

Nick Mehta

05:09>> Yeah, it's higher than that. As we get bigger, it's a little harder to disclose all the metrics now because you can imagine for obvious reasons we have to be more careful. But yes, it's significantly higher than that, which means other people are both buying more of our core products, yes, but also more of those other products as well.

Nathan Latka

05:24Nick, let me ask you sort of an interesting question here. If you could not add any new customers, no more new logos, you could only sell more seats and more products to like your current logo base, how much could you grow over the next year?

Nick Mehta

05:36>> Well, you know, it's interesting that

05:40>> if you look at our business, there's a few factors that drive very natural organic growth. There's more CSMs in the world every year. And so that naturally drives growth of our RCS product, right? And then most of our customers, about 17% of our customers have our PX product today. That means there's 83% still to go buy it. So you can go drive more sales there. We have these new modules, revenue optimization, customer experience, and then we're

06:02>> launching more and more modules, organically, as well as at some point, some other acquisitions. So I can't give you an exact number, but it's significant. There's a lot of opportunity in our base for sure.

Growth Rate and Market Tailwinds

Nathan Latka

06:13So then if we combine all the new customers you're going to add here in 2021, plus the expansion from historic ones, you don't have to give me a flat number, but what do you think percentage wise you guys will grow at this year?

Nick Mehta

06:22>> Again, these are the kind of numbers unfortunately. I'm such a transparent guy. Love sharing that stuff. But now as you get further along for disclosure reasons, we can't share that stuff like we used to. But what I can tell you is that we think that we grow in some ways, Gainsight is a derivative off of SaaS, right? So as more companies go into SaaS, I mean, honestly, Nathan, you're the person that for me to talk to

06:43>> because all these people you're documenting and interviewing and your great list that you build, all those companies at some point are like, God, we got to focus on net retention. We got do this thing called customer success. Who knows customer success? They get to gain sight. We've been fortunate to be the leader in the space. And so there's this natural tailwind for our business, which has been really, really cool. But one thing, just piece of advice

07:04>> for entrepreneurs, I think that as, you know, if you're in a new category, the question Nathan's asking is actually a really hard one because you can't just go to some industry report. Right, Nathan? Like that's something that in an existing category, you go to some report that says, oh, the market is growing by x. But if you are the market, if you're creating the market, you don't nobody else knows except you. And so one of the

07:26>> things we do a lot of is look at primary data. Like, for example, Bain Consulting Group did a study for us and found that CSM kind of teams are growing about 30% a year overall. And that includes some that are growing super fast and some just getting started. And so there's a lot of data out there that helps us understand what our growth rate should be long term.

Nathan Latka

07:44Well, again, it's a hot space. Now, sit on all this data on other companies. For someone listening right now that's maybe trying to scale and go between 10,000,000 revenue up to 50,000,000 revenue. What is like world class net dollar retention for that size company in SaaS?

World-Class NDR Benchmarks for SaaS Companies

Nick Mehta

07:59>> Yeah, totally. And there's, by the way, one thing about net retention is there's kind of two big variables. One is like your operations, meaning your sales and customer success and all that. That's my world. The other one is your business model. So there's some companies that have a consumption based business model. So Snowflake 180% net retention, right? Don't compare, if you're like a classic kind of software seat model, don't compare yourself to Snowflake because honestly, it'll

08:23>> just make you feel bad because that's a different business model. So in consumption, you see companies with 150, 160, one hundred and seventy, one hundred and eighty percent. In sort of more your classic subscription, you know, 110 is very good. 120 is like, is really good. 130 is like awesome, right? And so that's kind of the range. If you're more of an SMB player, meaning selling to small businesses, a 100 is good. HubSpot, I think is

08:47>> about a 101 and that's amazing. They're doing a great job. And so you need to put yourself in the right comparative set. We actually published a report on our website of all the public SaaS companies in terms of net retention and also what their valuation multiple was. The point was to show there's a big correlation between net retention and valuation. But when you look at it, you should eyeball and think about the companies that are like

09:08>> you.

Nathan Latka

09:09Nick, if someone's listening right now going, I want to maximize valuation and the highest valued companies are ones like Snowflake that are not really SaaS. They're more like a utility line. It's utility pricing. Shouldn't everyone be moving away from SaaS and into utility based pricing?

Consumption vs. Subscription Pricing Models

Nick Mehta

09:24>> Shouldn't every basketball player that is starting on the court be LeBron James? Right? And the reality is some are born to be LeBron James, some aren't. I would argue that there's some businesses that actually naturally lend themselves to utility based pricing. So, if you're starting a company from scratch, I do think the companies that are utility based product led growth, consumption based pricing are the best businesses largely. And by the way, I'm saying that Gainsight is

09:48>> not one of those. I'm not.

09:49You are not.

09:50>> Yeah, I'm not, you know, and we have very good business, but definitely the outlier businesses mostly are in that sort of product led growth consumption based pricing, etcetera. But you have to sort of say, what are you, right? If you're selling enterprise software that is like sold to CHRO and it's like a three year contract, you're not going utility based pricing anytime soon. Don't even waste time on that. That's just a total waste of time. What

10:11>> you should figure out is how do you sell more modules to your customer, etcetera, right? But if you're in the developer ecosystem selling platform technology, you have to be some kind of utility based pricing, right? Whether you're Twilio, Snowflake, etcetera, right? And so, it's more about what market are you in. I think those markets, the kind of subscription SaaS and kind of consumptionutility are actually just very different markets.

The Vista Equity Deal and Crossing $100M ARR

Nathan Latka

10:33Makes a lot of sense. Pivoting back now to your Founder story, Nick, I think it was valuable data for anyone building a SaaS business thinking about NDR. Your own business, I mean, you launched in 2012, you shared this last time on the show. I think you guys raised up through 2017 about $190,000,000. One of the big changes though between the last time we chatted and now is you did a deal with Vista Equity in November 2020.

10:53Why did do that deal?

Nick Mehta

10:54>> Totally. So, you know, at that time we'd been doing Gainsight by eight years and have been amazing. And we reported that we had crossed a 100,000,000 of ARR and all that. So lots of amazing, awesome, super lucky. And everyone listening that's an entrepreneur knows that if you really believe in what you do, it's a long journey. It's a marathon. It's not a sprint. And I really believe what we do and we think we can build something

11:15>> really big. And so I wanted us to be aligned for going long and being a long term independent company. And Vista is kind of showed up in this new category where they're not really private equity anymore and they're not your classic VC. They're investing companies that are trying to be these like long term growers. Not, you know, Gainsight's never since the early days been a snowflake or UiPath, one of those, you know, 500% growth, right? That's

11:39>> just not who we are because we're kind of creating a new category. But we have a very good growth and very actually now good and great economics and everything else. And, you know, really wants to invest in companies that are building for the long term. And so we were excited about that. As you know, Nathan, when you run a team, part of it is our team has been doing a long time. So there's an awesome opportunity

11:56>> for people to take care of their families vis a vis liquidity and stuff like that. And I'm sure that resonates with people listening because you're going long time and you got to take care of people along the way. And so the idea of being able to have an investor that's excited about the long term, have our team be taken care of and then kind of double down basically for the next phase of growth, which is what

12:13>> we're doing now.

Nathan Latka

12:14Many would argue if they compared the $100,000,000 in AR that you had to the $1,100,000,000 valuation, that that multiple was a steal for Vista when you compare it to like what Gong just raised, which you know, which Why is what you announced at was your multiple higher?

Valuation Multiple and Timing of the Deal

Nick Mehta

12:29>> Yeah, it's interesting. It's funny. I think it will be a steal for Vista. Actually, I think our business has done really well in the last six months. So I'm actually excited to be a steal because I think all of us will make out well. I think some of this is, you do.

Nathan Latka

12:41>> Mean, no, you worked your ass off for eight years. You want to maximize price.

12:43Why didn't you feel like you did a good job maximizing?

Nick Mehta

12:46>> I think that, I mean, being open with you, do we did in November and the markets soared between November and March or April. So, like you can't intellectually, honestly, I would have gone up a little bit more during that timeframe. So, there's probably some of it and the timing wasn't, it could have been better on that front. But honestly, in the grand scheme of things, it doesn't matter that much to me. I think the thing that

13:05>> for us was like, how do we build a 5 or $10,000,000,000 business? I do think that our business, again, I'm trying to be transparent. Our business was not like growing 70 or 80% a year, you know, or Gong is growing, I don't know, a 200%, thousand percent. I don't know what is. You probably know better than me.

Nathan Latka

13:20I mean, you went from 2019, 67,000,000 run rate to twenty twenty, a $100,000,000 run rate. I mean, that's pretty healthy growth.

Nick Mehta

13:25>> It's pretty good. It's good growth. Totally. Yeah. And so the business is going well, but we weren't at that like a 100% growth. And so we were like, okay, you know, this is a great partner for the long term. I have a lot of friends who are Vista CEOs who love working with them. Also, one thing I think, you know, this is when you do a deal with a Vista type firm, it's a 100% common. So,

13:42>> it's actually kind of hard to compare apples to apples to a classic venture deal where there's a preferred. So, wouldn't, I think optically, it's hard to compare that valuation to others. But these are good questions. I mean, you always think about these as entrepreneurs. I will say for me, though, long term, it's just how do we build a really big company and drive value for our stakeholders? And honestly, everyone we all do more than enough in

14:04>> terms of financially well along the way. And so now it's just a question, how do we make this great for all of our stakeholders?

Nathan Latka

14:09Nick, we don't mind too deep on the Converse Preferred stuff. I forget. Did you publicize what the size of the checklist from Vista at the 1.1 or just the valuation of one

Nick Mehta

14:16>> point Just the valuation because the way that those things work is that they're basically buying out your existing shareholders, not totally, but basically your existing shareholders will keep some and then sell some. And then your existing employees will keep some and sell some or sell all or whatever. So, that's the way it works. So, I mean, Vista wrote a very big check into this. So, this is very different than a venture round because they put a

14:39>> ton of money on Gainsight at a good valuation. So, but great question, Nathan. These are the things you wrestle with as an entrepreneur, for sure.

Nathan Latka

14:46Yeah, yeah, yeah. I mean, it was public in the press. There was a majority. I believe it a majority buyout, right?

Nick Mehta

14:50>> Majority. Exactly. Totally. Yeah.

Hiring Aggressively with Vista's Backing

Nathan Latka

14:52So people can do their own math. 1.1 valuation. They bought a majority. You can be sort of guest check size there. Now, Nick, it sounds like all of that, though. I mean, there was enough left there after where a bunch of that went into the business.

Nick Mehta

15:03>> That's right. There's money into the business and there's money. And we're going to be more. I mentioned, you know, over time, probably do more acquisitions and stuff. So that's a big part of it, too, is somebody that can really invest. In fact, we sometimes when you think of like one of these big investment firms, you say, oh, the company must get focused on costs and cutting costs. We we are so we started the year at 700

15:21>> employees. I need to update my bio. We're already at 900. We'll end the year way past probably like 1,100 or something. So we're hiring more people this year than we have in our history. And so it's going to be, yeah, they're really doubling down. It's the one thing I'd say maybe as a closing because then we're almost out time. The world of funding is changing so much. I'm sure you see this too, Nathan. Like it used

15:41>> to be you have like private equity and then growth equity and venture capital. Everything's blurring together and it's a great time to be an entrepreneur. For everyone listening, good luck. I hope you get a good some good luck on your side as well and take advantage of this crazy time.

Why Gainsight Did Not Acquire Chorus

Nathan Latka

15:53Nick, we've got sixty seconds left here. I'm going to put this as a capital question. You have Vista behind you. Vista raised $14,000,000,000 fund. They better deploy capital. They find an operator like you. You just announced a partnership with Gong, but Chorus just went off the market to discover or Why wasn't Gainsight acquiring Chorus and bringing that in house using Vista Capital?

Nick Mehta

16:12>> Great question. We First of all, that would've too early. We just did this Vista deal, so we weren't ready for that. Second of all, we're not really trying to get into the sales tech area. Of course, awesome company. Gong is a great company. We're working with Gong. It's great. We definitely want to integrate those technologies. We have a lot of other areas we're focused on that are not that today, but that's a good question. I have

16:30>> a lot of respect for ZoomInfo. You've had Henry on your show, think as well. Right. And so good luck to them.

Rapid Fire: Books, Tools, and Advice

Nathan Latka

16:36All right, Nick, let's wrap up.

16:37>> Number one, favorite book.

Nick Mehta

16:39>> Godel Escher Bach. It's a very nerdy math book.

Nathan Latka

16:42Number two, CEO you're following or studying.

Nick Mehta

16:47>> Rachel Carlson is a good friend and CEO of Guild Education, which is changing the way employee reeducation is done. She's inspirational.

Nathan Latka

16:55New $3,500,000 or $2,500,000 fund you guys set up to support that, I think, right?

Nick Mehta

16:59>> Yeah, that's right. We did this kind of retraining effort together. Thank you.

Nathan Latka

17:03Three favorite online tool besides your own.

Nick Mehta

17:06>> I would say, I got to say like it's so cheesy, Slack, not just the obvious reasons, but because I think Slack really gives CEOs so much visibility as you scale. And I'm so obsessed with the details of Gainsight. And with 900 people, it would be very hard to do it without Slack.

Nathan Latka

17:22How many hours of sleep do you get every night?

Nick Mehta

17:25>> Eight hours, my friend. I sleep. I sleep.

Nathan Latka

17:28Married, single, kids?

Nick Mehta

17:30>> Married, three kids.

Nathan Latka

17:31Wow.

17:32>> And how are you, Nick?

Nick Mehta

17:33>> I'm 44.

Nathan Latka

17:34Last question. What do wish you knew when you were 20?

Nick Mehta

17:37>> Buy Amazon stock.

Closing Summary and Wrap-Up

Nathan Latka

17:41Guys, customer success company, Gainsight, launched in 2012. They grew to about $67,000,000, $70,000,000 bucks in run rate, raised, call it, $190,000,000 before doing a deal with Vista last year. They broke a $100,000,000 run rate at a $1,100,000,000 valuation. Now Nick can focus on long term with a great partner, over 900 folks on the team now, over a thousand customers, helping you guys, SaaS companies, everyone else drive net dollar retention with the suite of tools they're building out.

18:05Nick, thanks for taking us to the top.

18:06>> Awesome. Thanks, Nathan.

18:09One more thing before you go. We have a brand new show every Thursday at 1PM Central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU, CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every Thursday one

18:34p. M. Central. Additionally, remember these recorded founder interviews go live. We release them here on YouTube every day at two p. M. Central. To make sure you don't miss any of that, make sure you click the subscribe button below here on YouTube, the big red button and then click the little bell notification to make sure you get notifications when we do go live. I wouldn't want you to miss breaking news in the SaaS world, whether it's

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19:17are saying. Sign up for that @nathanlatka.comslack. In the meantime, I'm hanging out with you here on YouTube. I'll be in the comments for the next thirty minutes. Feel free to let me know what you thought about this episode and if you enjoyed it, click the thumbs up. We get a lot of haters that are mad at how aggressive I am on these shows, but I do it so that we can all learn. We have to counter

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