How Greenhouse Reached 3,500 Customers and Above 100% Net Revenue Retention in 2019 (Interview with CEO Daniel Chait)

Introduction and Company Overview

Nathan Latka

00:00Hello, everyone. My guest today is Daniel Chait. He's the CEO and cofounder of Greenhouse, which builds software tools to help companies make recruiting a competitive advantage. Before Greenhouse, he cofounded Lab49, a global firm providing technology consulting solutions to the world's leading investment banks. Daniel, are ready to take us to the top?

Daniel Chait

00:15>> Let's do it.

Greenhouse Today and Greenhouse Open Conference

Nathan Latka

00:16I mean, you are in a extremely competitive space. Give us an update. You're on about a year and a half ago. Where's Greenhouse today? And is it you guys pure still are you guys still pure play SaaS?

Daniel Chait

00:25>> Yes. Still doing SaaS. Still still, you know, having a great time growing. We had our biggest, conference ever this summer, Greenhouse Open, with, 1,300 or so attendees. It was a huge part of our year, and we rolled out it? Here in New York City, we did the Javits Center, which was a big step up for us.

Nathan Latka

00:42But That's a big space that's a big space to fill. You gotta be a celebrity, Daniel.

Daniel Chait

00:46>> Those of you that don't you know, that haven't been in New York or don't know the space, like, it's where they do the auto show and the boat show. And so, you know, you come into, like, a big cavern like that, you really gotta bring it. So we upped our game. We did a a big rollout for business executives and business leaders called Talent Makers, which is kind of moving the idea of outside of HR and

01:02>> into the broader business conversation around. When you're a business leader, you need talent, and and you can't offload that to your HR team. Gotta take responsibility.

Timeline and Founding Year

Nathan Latka

01:11Yep. Very good. Now for those people that didn't catch your first episode on the program, put this on a timeline for us. When did you launch?

Daniel Chait

01:17>> Greenhouse, we started Greenhouse in 2012, January.

ACV and Customer Segments

Nathan Latka

01:20Yep. 2012. And then again, last time you came on was in 2017. You said you were serving, I mean, your price point then was around kind of $18,000 ACV. So have you held steady there or have you generally increased or decreased?

Daniel Chait

01:31>> You know, prices move up a little bit, but the thing for us that's really happened is that we've been serving increasingly larger customers. So you take an average number like that, you know, that represents a certain customer size. But we serve customers, Nathan, from 25 or 30 employees all the way up to, you know, ten, twenty thousand employees or more. So obviously, like the the involvement and the investment on both sides for a bigger engagement like

01:54>> that is pretty significant. Of course. And as we've grown and built the company, we're you just engaging with a more global business, customer base and larger organizations.

Nathan Latka

02:04So I totally understand you have all these different cohorts, which is great you're able to span that spectrum. But when you look at kind of all your customers paying today relative to obviously revenues, has the average moved up from 18? Have you driven meaningful expansion revenue across the same base?

Daniel Chait

02:16>> It has a bit. And part of that is also driven by we've rolled out new products. So last year we launched Greenhouse Inclusion, is our newest product, which is really around combating implicit bias and helping you measure the effect of your recruiting process on different groups. So customers are now buying CRM from us. They're buying, employee onboarding. They're buying inclusion and doing other things with us beyond what they traditionally have. So all that stuff in conjunction

02:41>> is really leading to larger deal sizes and kind of just more stickiness and more impact.

Nathan Latka

02:45That's good. I will dive more into those products here in a second. But first, I want to try and get an accurate number here. So was $18K kind of average? Do you think it's close to like 25, 26 now today or more?

Daniel Chait

02:54>> I don't know that I would be prepared to say.

Nathan Latka

02:56Okay. But generally, it's increased.

Daniel Chait

02:59>> For sure.

Account Management and Customer Success Structure

Nathan Latka

03:00Okay. The one way to obviously measure these increases is to look at how these new product launches have changed how your customer success reps drive retention on historical accounts, which then reflects itself in net revenue retention. Help me understand how you've, you know, who's in charge of getting your historical accounts active on new products? Or is it the AEs or the CSMs or what?

Daniel Chait

03:21>> So we have an account management team, which is a sort of combo between customer success and our AEs are really focused on new logos.

03:32>> Team for us is really in the intersection of those two, where they work with existing customers on not only renewals, but, you know, any new product sales that they want, that they wanna talk about. And so we'll have conversations that start with a CSM, a customer success manager, or a customer success director around a problem the customer is having or an opportunity they see. And then we'll pull in the account management team to do, like to

03:52>> run the sort of process and do paperwork and show product demo and have sort of new product expertise there as well. So it's a joint effort.

Nathan Latka

03:59For a lot of these CEOs that I've I've talked to recently, call it in the 50 to $100,000,000 range, a lot of them are experimenting with, adding quota to CSMs who are only driving expansion revenue. Have you taken that plunge or how are you are you doing any extra incentives for your CSMs?

Daniel Chait

04:13>> We're sort of doing we're sort of going a different direction with it. So for the account management, the ones that are focused on really these expansion sales, absolutely. They're you know, it's a it's a very sales minded team. For our customer success, we're actually moving them further, towards mission aligned metrics and less around financial aligned metrics. So if you think about Greenhouse, our mission is to help every company become great at hiring. If you're in our

04:36>> CS team, your job is to help your customers firstly become great at hiring. Ultimately, they should be renewing and buying new things and all that stuff as well, But your job is primarily make sure we're having that kind of impact. So we're aligning them much more closely around, you know, as a customer is on Greenhouse longer, are your customers, you know, Sally CSM, are your customers doing a better job of pinpointing the right talent, doing a

05:00>> better job of making hiring decisions, doing better job with delivering good candidate experience as measured through our products?

Nathan Latka

05:06Wait. Yeah, Daniel. So I was gonna say, what are you're basically, you're basically quantifying kind of your activation metrics there, but you gave high level number. Actually quantify those for me. Does it sound like, hey, Sally, the CSM at Greenhouse, does your average account place at least 300 jobs per month where there's a minority of at least 30% of women and 20% for with a new inclusion product? Like how do you actually quantify these things?

Daniel Chait

05:29>> Yeah. So we think so basically our value is in kind of four quadrants. And so each quadrant has a little bank of of metrics aligned to them. So there's a quadrant around candidate experience. And it's literally like there's a candidate experience survey that our product will automate. So the CSMs are now looking at, number one, are the customers using that product? Or is actual data are they turning on the survey? Are they collecting the data? Are

05:50>> they looking at the data? And then are the trends going up? And so

Nathan Latka

05:54Measured by number of candidates that use that per month?

Daniel Chait

05:57>> Measured by the candidate response. Basically, send a survey to the candidate. We say, hey, you just interviewed for a job at Airbnb, you know, rate us on a basically give us a net promoter score. And then the customers use that data to identify opportunities to improve. They might see a certain team within their company where managers aren't getting back fast enough, or I was asked questions that were off putting. They need that information to improve. So

06:22>> it's really about is the number going up? Are candidates saying better things about you as a company? And so look at, like, rigor using data to make decisions. Every area of their hiring funnel is measured in Greenhouse, and our CSMs are just aligning to to putting that up. We haven't yet, though, Nathan, aligned, like, confident incentive to that yet.

Nathan Latka

06:39Yep.

Daniel Chait

06:40>> That's the we're likely to on. We've got that road mapped out. So once we have enough confidence, the numbers are right and that we know the playbooks to move them all correctly, then we can align comp to it.

Nathan Latka

06:49Real quick. Name name the other three. So candidate experience, what are the other three quadrants?

Daniel Chait

06:53>> So the first is pinpointing the best. Basically, like, how quickly when I open a job can I get a list of really good candidates Okay? To interview for. So whether you're sourcing them or finding them internally or finding them through other channels. Candidate experience.

Nathan Latka

07:07Got that.

Daniel Chait

07:08>> Decision making. So are you actually making smart decisions? Are you doing it quickly?

Nathan Latka

07:11K.

Daniel Chait

07:12>> And then operational rigor. Are you actually able to use data to adapt to changing conditions?

Nathan Latka

07:17Okay. Very good. So those are your four quadrants. Now how many people total on the team today? And then we'll go into how many CSMs?

Daniel Chait

07:23>> At Greenhouse, the total company? Yeah. About three eighty.

Nathan Latka

07:26Three eighty, that's up significantly. It's almost double from 200 back in 2017. That's good.

Daniel Chait

07:32>> Said we've been busy.

Nathan Latka

07:33Well, either means you just increased your expenses significantly, or hopefully you also increased revenues at the same time. So it's a good hiring spree.

Daniel Chait

07:41>> Yes. It's a good hiring spree.

Series D Raise and Total Funding

Nathan Latka

07:43Do are you did you still have about 60 in the company, 60,000,000 raised, or did do another round?

Daniel Chait

07:48>> We raised our series D last summer. So I don't know if it was just after we talked or when it was in relation to, but yeah, we raised a $50,000,000 series D in the middle of last year.

Nathan Latka

07:59So about 110 in total?

Daniel Chait

08:01>> You got it.

Nathan Latka

08:02What are the metrics today on the Series D? So most CEOs, you and that you talk to, I mean, you seeing CEOs raised for eighteen months burn or twenty four or thirty six months burn? What do you kind of plan for?

Daniel Chait

08:11>> You know, it's kind of interesting when you talk to a Series D investor, it's very different than like the earlier stages. The earlier stages, there's kind of a dream. And, you know, you got kind of pie in the sky, and so you can kind of adjust your plan afterwards to whatever happens on the ground. At the time that you're at a, you know, company like ours and you're raising a series d, it's a lot more like

08:32>> metrics driven. And there's like a sort of operating plan in place that they're just looking at and and fueling the growth.

Nathan Latka

08:40So it's side though. So on your side, like, what other CEOs I've spoken to, they said, yeah, Nathan, we raised 50. We think that's gonna get us for the next twenty four months. At which point, we'll be breakeven again. Like like, do you mean, do you must look at that kind of stuff?

Daniel Chait

08:52>> Yeah. I mean, I think it's no I don't think that's necessarily changed. I mean, I think, you know, whatever the the time span is, you kind of estimate is, like, whether it's eighteen months or thirty six months, that's the general time frame of those business plans. The thing I will say, the reason I'm not so precise about it is the phrase of planning is really valuable, but plans are useless. Like, you don't know what's gonna happen

09:15>> in the economy or competitively, and you don't know when you're we're launching a whole set of new products. Like, you have to see how they play out. So we'll see.

Nathan Latka

09:22What I'm actually asking though is trying to get a sense of how comfortable you are sleeping at night with certain ratios of burn. So if you raise 50,000,000 and you've only planned for eighteen months runway, that would mean you're comfortable going up to 2.7 in terms of net burn million per month. I'm just trying to get a sense of of your how aggressive you are being in terms of burn.

Daniel Chait

09:40>> I think we're pretty well I think we're pretty well controlled. I mean, most of the investments that we're making are relatively controllable. So if we hire a little bit ahead of plan and let's say we don't do as well in a month or two of sales that we thought we would, you can kind of just grow through it because we're growing at a pretty decent clip. If on the other hand, like what happened this year, we're

09:59>> growing ahead of plan and you hire a few more people, the revenue is on the way. You kind of can control that a little bit. It's not like we're making fixed capital investments in, like, fifteen year building leases that we then have to hope the market buys. For example, to name other companies who may be, you higher flying.

Nathan Latka

10:15Yeah. When you so when you say I mean, obviously, fast growth solves a lot of burn questions. Right? So when you say you're growing fast over the past twelve months, when you think you'll grow how much this year in 2019?

Daniel Chait

10:24>> Yeah. I think we'll probably add, close to a thousand customers this year. I think that represents, when you when you look at the increased deal sizes, you know, approaching like 50% annual growth.

Nathan Latka

10:35Okay, that's good. Now, obviously you're probably growing more than that in prior years because you were multiplying smaller numbers.

Daniel Chait

10:42>> Math, man.

Nathan Latka

10:43What was it though? I guess so from 2017 to 2018, was it closer to a 100%?

Daniel Chait

10:48>> I'd have to go look. I'm not sure.

Nathan Latka

10:50Okay. Okay, good. I I one of the things that I was trying to understand is people talk about the three x three x two x two x two x kind of rule, but it's never actually exactly that rule. Everyone kind of has their own pattern. So I'm trying to capture your pattern before this 50% year. What was it before?

Daniel Chait

11:04>> There's these rules and there's the, like, the rule of 40 and all these, like, rules of thumb. And I don't really honestly pay, like, a lot of attention to that. I look at, like, the fundamentals of our business more like what's our ratios of, like, r and d to sales and marketing spend? Like, what's our, like, growth efficiency? And then to your point, there are periods where we'll invest pretty significantly. For example, this year we had

11:25>> a half dozen new initiatives that we launched. And so rather than looking at a big lump of burn and like, oh, we're burning this much on a rule of thumb, we actually have the ordinary run the business, which is burn which is some amount of burn and growth. And then we have targeted investments. We're opening an office in Dublin, Ireland. We're building a professional services team. We're launching and distributing an engineering team. And so there's like

11:46>> targeted investments that we've done in each of those areas that once they're made, they kind of are are are set. So it's not the same thing as, like, what's your burn rate of the company when you think about managing the business sustainably.

Nathan Latka

11:59Yeah. I'm I mean, I get that, but you you have calculated it. You just just have peeled the onion back a bit. There's your kind of burn to run the business. And then there's like your R and D burn, right? The burn that like you're taking in controlled experiments on.

Daniel Chait

12:12>> That's right.

Team Breakdown: Engineers and Sales Reps

Nathan Latka

12:13Yeah. Okay. Well, very good. Well, so break down the team for me. So three eighty people, how many are engineers today?

Daniel Chait

12:19>> Engineering teams, 90.

Nathan Latka

12:21Okay. And how many are, like, quota carrying reps?

Daniel Chait

12:26>> So the sales team is just a similar size, maybe 90 to a 100. I don't know the exact number off top of my head.

Nathan Latka

12:31Okay. But they all carry quota or or CSM? No.

Daniel Chait

12:34>> That's the that's the whole sales team. I mean, you can look on LinkedIn and figure out whose job title is what.

Nathan Latka

12:39I'm not gonna do all that work, Daniel. I care about you, but not that much. So of I mean, you're talking about, like, 20 people on your sales team with quota or something like that? Yeah.

Daniel Chait

12:46>> Twenty, thirty. Somewhere thereabouts.

Nathan Latka

12:48Okay. And are you are you so you mentioned some variable stuff you're expanding into in terms of international kind of expansion. But when you look at just growing the core business in terms of where you're expanding, is a lot of that money going towards additional headcount or no, it's towards international offices and things like this?

Daniel Chait

13:06>> I'm trying to I'm trying to understand the question.

Nathan Latka

13:08The question is where you raised 50,000,000. You wouldn't take that dilution just to take the dilution because you're a smart guy. Where's most of that spend going towards? Where are you investing it? International expansion.

Daniel Chait

13:17>> International expansion. A bunch of additional r and d both in terms of like, you know, solving for enterprise customers and building, you know, features for them, as well as continuing to innovate, building new products, investing in in in recent, you know, products that we've launched like inclusion. And then there's just a bunch of the faster as you know, like, as you're growing fast, you have burn that you have to cover just to handle your your growth.

CAC Payback Period and Unit Economics

Daniel Chait

13:40>> We have, like, a eighteen or nineteen month payback on new customers. So every new customer you get, you have to be able to fund. And so that's that's a big part of it.

Nathan Latka

13:48Yep. Is that has that payback generally gotten longer since you have more cash cushion over the past twelve to twenty four months?

Daniel Chait

13:53>> It's gotten better as, gross margins, deal sizes have have gotten better. Retention has stayed strong. So our CAC LTV is improving.

Nathan Latka

14:04Well, CAC LTV can be really good, but you can still widen your payback period. One's a measurement of time, one's a measurement of ratio. So like, so I guess-

Daniel Chait

14:12>> In my mind, I was going down the whole layer cake.

Nathan Latka

14:15Yeah, yeah, yeah. Well, so let me just role play here for, with you for a second. If you've an ACV of $20K, year one ACV is $20K. You're saying you're totally comfortable spending. What is that $25,000 to get the customer upfront?

Daniel Chait

14:24>> Like that. Yeah.

Nathan Latka

14:24Yeah. And where will most of be split across? Is there any direct paid stuff or it's mostly sales commissions?

Daniel Chait

14:30>> Very dependent on, the segment. So our smaller our SMB like small business segment is more marketing driven, and our larger enterprise business is more sales driven. This is a very typical thing. So you have a dinner at a fancy restaurant with, you know, two dozen executives, you know, that's mostly like, you know, that's about as much marketing as you can really do. Otherwise, you know, they're not clicking on, you know, ads, or shopping on, you know,

14:57>> G2 Crowd. Whereas for SMBs, like, there's a lot of that kind of automated marketing and things that we do. So it's a bit of a split depending on that. Overall, at a basket level, it's more or less at any given time, half and half sales and marketing. But again, like that, you gotta peel back the onion to understand like the workings of the different business pieces.

Gross Revenue Retention and Net Revenue Retention

Nathan Latka

15:15Ignore customer churn because you have customers at all kinds of different price points. So if we just talk about gross revenue churn over past twelve months, last time we came out in 2017, your answer was about 12%. Is it still about 12% or has it gotten lower?

Daniel Chait

15:28>> It's gotten a little bit better. Yeah. So we're probably, we're at like 90% retention, gross retention.

Nathan Latka

15:33That's pretty good. And what's expansion on top of that 30% or?

Daniel Chait

15:37>> Working towards that, not there yet.

Nathan Latka

15:38Okay. When do you think you'll break a 100% net revenue retention?

Daniel Chait

15:41>> We're we've we've got we've it we've plus a 100% net net revenue retention, but 90%, you asked plus 20 or 30%. Like, no, no, no. We're above that.

Nathan Latka

15:51Well, yeah. So I'm categorizing. So so basically what you're saying is right now you're between 10 and 20% expansion on historical accounts.

Daniel Chait

15:57>> Right.

Nathan Latka

15:58Why is it so be offended here, I mean, at your scale, that's actually pretty low. I would see most companies at this ACV and at your scale, I'm assuming north of 30,000,000 in ARR. You have like 120, 130 net revenue retention. Why aren't you there yet?

Daniel Chait

16:12>> It's somewhat to do with the market. So we came into a, you know, a pretty crappy market in the, like, applicant tracking software, like, was never like a place anyone wanted to be. And we saw this really big opportunity. So we've entered in the market. Now, as you've seen, companies like LinkedIn and Google have come into the market. I think in recognition of the fact that the market is changing, but like the dynamics were the company

16:34>> bought ATS once for not a lot of money. Maybe they renewed it over time, but like that was kind of it. And we're sort of expanding the pie and like, no, there's all this stuff you need to do to be great at hiring. And so it just takes time to change how all industry works. That's great.

Customer Count and Growth

Nathan Latka

16:47You mentioned back in 2017, you'd passed out 2,000 customers at that You mentioned you're hoping to add another thousand here this year to get 50% year over year growth. How many customers are you serving now today actively?

Daniel Chait

16:57>> I think today we're probably north of 3,500.

Nathan Latka

17:00Okay. That's pretty good.

Daniel Chait

17:00>> Probably around 4,000.

Nathan Latka

17:02Yeah. That's obviously great growth. And is most, when you look at the total revenue growth year over year, what percent is coming from expansion on historical cohorts via cross selling and things like that, your new products versus brand new revenue altogether? Do you know?

Daniel Chait

17:17>> I mean, I think it's kind of as we as we said, mean, I think you have maybe 10 or 15% of it is for expansion.

Nathan Latka

17:24Well, no. But that's on the historical cohort. That's that ignores all new revenue. I'm saying if you add you take all your new revenue you've added over the last year. Yeah. What percent of that pie came from expansion versus new logos altogether? Do you know? No.

Daniel Chait

17:39>> It's okay. That's a tricky question.

Nathan Latka

17:42Yeah.

Daniel Chait

17:42>> Yeah. Yeah. I'd have to have I'd have to have more fingers and toes than I have.

Nathan Latka

17:47All right. And then look, mean, can I do the math? 3,500 customers, 20,000 ACV, is that puts you north of 6,000,000 a month right now in revenue? Is that about right?

Daniel Chait

17:54>> It's more right than wrong.

Nathan Latka

17:57I mean, do you have eyes on 8,000,000 a month? Do you think you can do that this year or you have to wait till next year to do that?

Daniel Chait

18:03>> No. We won't do that this year.

Nathan Latka

18:04Next year reasonable?

Daniel Chait

18:06>> Sure. We'll talk to you next year.

Nathan Latka

18:08Did you raise any debt on the back of the 50 or is it pure equity?

Daniel Chait

18:13>> No. It was it was pure equity.

Nathan Latka

18:14Have you leveraged any debt for acquisitions or operations?

Daniel Chait

18:18>> We have access to debt, but we haven't drawn any.

Nathan Latka

18:21Who who I always like asking who people like using for it. Do you just do the SVB basic thing?

Daniel Chait

18:26>> Don't remember. I'd have to talk to my finance team.

Acquisitions and Parklet

Nathan Latka

18:28Okay. But you haven't used it. Yeah. Any acquisitions on the horizon?

Daniel Chait

18:32>> Nothing I'm prepared to talk about.

Nathan Latka

18:34Anything you're excited about?

Daniel Chait

18:36>> I'm excited about everything.

Nathan Latka

18:37If you did acquire, would it be for a customer base, a tech stack, or a team?

Daniel Chait

18:42>> I think it would be for, like, you could say tech stack or product vision. That's kind of like the thing. You know, because logos are what they are, but, like, if you have capabilities, that's to me the thing you should be building.

Nathan Latka

18:53Not overlapping capabilities, but new capabilities that you're buying.

Daniel Chait

18:56>> That's right.

Nathan Latka

18:56Yeah. Very good. Alright. Let's wrap up.

Daniel Chait

18:57>> Like we did when we acquired Parklet, it was about a new capability in that case, employee onboarding.

Nathan Latka

19:02Yeah. What'd you buy them for?

Daniel Chait

19:03>> Employee onboarding.

Nathan Latka

19:04No. No. Like, what was the price?

Daniel Chait

19:06>> We didn't disclose that.

Nathan Latka

19:08You didn't you didn't disclose it. Was it all cash or was it a split earn out cash stock?

Daniel Chait

19:12>> We didn't disclose that.

Nathan Latka

19:14Come on, that's an easy yes or no answer.

Daniel Chait

19:15>> Yes.

Nathan Latka

19:18All right, there we go.

Famous Five

Nathan Latka

19:21All right, Daniel, let's wrap up here with the famous five. Number one, what's your favorite business book?

Daniel Chait

19:26>> My new favorite business book is the is The Alliance.

Nathan Latka

19:29Two is is there a CEO you're following or studying?

Daniel Chait

19:34>> Is there a CEO I'm following or studying?

19:37>> No.

Nathan Latka

19:38Okay. Number three. What's your favorite online tool for building your company besides your own?

Daniel Chait

19:43>> Google Slides.

Nathan Latka

19:44Number four. How many hours of sleep do get every night?

Daniel Chait

19:47>> Six to seven.

Nathan Latka

19:48Okay. Situation, married, single kids?

Daniel Chait

19:51>> Married, one kid.

Nathan Latka

19:52One kiddo. And how old are you?

Daniel Chait

19:54>> I'm I just turned 46, Monday.

Nathan Latka

19:56Oh, congratulations. Very good. Last question. What do you wish your 20 year old self knew?

Daniel Chait

20:02>> Don't bother getting a job. Just start your business.

Nathan Latka

20:05Guys, greenhouse.io is seeing some nice growth again, helping folks recruit smarter, better, and a more inclusive way serving 3,500 customers today, call it $20,000 ACV is around $6,000,000 a month hoping to grow obviously year over year at, you know, call it thirty, forty, 50% as they look to obviously multiply bigger numbers. A $110,000,000 raised to date, 380 folks on the team, 10% gross revenue churn with about, call it, 10 to 20% expansion for a little over a

20:29100% net revenue retention as they look to cross some more of their products. Currently, eighteen month payback across most of their cohorts as they look to scale. Daniel, thanks for taking us to the top.

Daniel Chait

20:37>> Thanks a bunch.