How Lucidworks CEO Michael Sinoway grew Lucidworks to $47M revenue and 400 customers in 2024.

hello everyone my guest today is will hayes he joined lucid works in 2013 as the chief product officer and was appointed ceo in 2014 he has over 15 years of product marketing and business development experience before this company lucidworks he was head of technical business development at splunk where he was responsible for defining the company's market category and key product feature sets all right will you ready to take us to the top sure thing okay so for the rare human that has not heard of lucidworks tell us what the company does and what's the revenue model are you guys pure place ass sure we are actually hybrid we do uh we deploy our technology on-prem and when i talk a little bit about the use cases that would make sense given the sensitivity of data that we work with um we also have sas offerings that we target primarily towards a retail um lucid works at its core is that we've built a search engine that combines the power of search along with machine learning and ai to really create personal experiences around data um you know our our viewpoint is that really in this day and age the only experience that matters the only user experience is the data experience and so customers deploy our technology to help online shopping customers support behind the fire while we're helping with helping support agents and researchers find information quickly and we really personalize that information both for the workplace and for uh digital shop so be specific here for a second i know you work with staples right so how do staples use you guys yeah so on their uh on their business platform uh when you're buying in bulk as a company like lucy works as a customer of staples so if i'm purchasing office supplies equipment be it you know large physical goods like printers or having to go refill cartridges and paper and all the things that we use in and around the office um they're using our technology to power the search and the browsing experience along with product discovery and merchandising and so helping you learn about new services new products in relation to the preferences and behaviors that you've uh you've shown in the past so they're connecting essentially all the metadata related to all their product features the pictures the images all that jazz and then you're i mean is there are you doing anything that enables staples to know oh it's willviewingstaples.com right now let's show him this toilet paper that he really likes he likes the five ply exactly so because if you think about kind of where the search engine sits and that whole kind of interaction we are actually capturing all the user intent we're monitoring their behavior when they look for something when they click on something add it to the cart check out and so we're processing all of those signals that we're capturing and we're using that to build personalization models and so we know it may be that you know these are the preferences for will or maybe that you know will bought printer cartridges six weeks ago and we know there's a propensity to refill every six weeks so let's promote that item to will both on the site in a mobile application or maybe we even send that insight out through an email promotion interesting monitoring and capturing really it's the telemetry data right all the data that's sort of surrounding the interaction some of our customers for instance will go down to the point of like how long did you mouse over a certain item before you clicked on it or before you scrolled past it we can take all those signals and make sense of those signals through machine learning and use them to find better precision and personalization and targeting of content to to users and then help me understand a revenue mix so over the past 12 months if you look at your total revenue what percent would you categorize as pure sas versus something else sure so um there's been a huge shift um and that we launched our sas product last year um so as my cfo and i like to say every quarter we're growing by about a thousand percent i was gonna say it's easy to go from a dollar to a thousand dollars and it really is and then from a thousand to a hundred yeah yeah yeah yeah you leave you ever every board deck starts that way right on away growth uh of course it's wildly successful but uh but you know what's interesting is um really i mean that mix is caught up and so we're at about 25 today we think we're going to be over 50 by the end of the year um when you look at our two solutions right one for the digital workplace helping kind of personalize content for employees and large organizations like morgan stanley and other kind of global organizations um they still do a lot on prem so that's why we still support the on-prem software as much as it's a pain in the ass and we've got to worry about hardware provisioning and networking well is there still kind of the sla though agreement there it actually still is recurring revenue it's just not like your traditional sas absolutely and so you know that as the valley has has done over the last few years we run everything like a sas business even our on-prem business is subscriptions um annual licenses you know health checks customer success models all of those things it just so happens where the deployment is is behind their firewall so what i mean and obviously don't be offended by this but i mean what took you guys so long to launch a sas product uh you know most people that had an a strong on-prem president were getting into sas back in like 2010 2011-ish yeah you know in our space both the volume of data that we deal with and the sensitivity we do a lot of healthcare a lot of financial services these are sort of the late majority when it comes to adopting technologies like cloud most of them are just now starting public cloud initiatives and so the focus of our go to market was both around sort of highly complex organizations with massive amounts of information that they needed to surface and personalize and highly sensitive information so again healthcare financial services telco it is changing and in fact you know a year ago you couldn't even mention the word cloud inside of a bank literally you'd be thrown out now most banks that we're engaged with are starting pilots with various public cloud providers private clouds and so the world is shifting so for us it was really about just timing the market correctly um you know we wanted to go through a bit of a micro services re-architecture before we truly launched a sas platform so we waited a year when other folks in our space were kind of starting to get there um but now we're full steam ahead and we're even seeing the more legacy use cases and the legacy kind of industries if you will are starting that sort of late majority adoption of things like public cloud and sas tools and so you know it's sort of aligning perfectly with our roadmap so moving forward for the rest of this i'd love to just focus on the cohort right the sas cohort that you guys are working on and so with that in mind give me a general sense of what you're targeting here what's your sweet spot in terms of what the average customer is paying per year to use the tech would you say yeah um good question i mean we um you know we typically target kind of the global 2000 so we're not interested in like putting you know like there's these little products like algolia or something like that where you're going to stick something on a web page and surf through 100 pages or you know all you know every tiny site out there or tech techcrunch or whatever you know for us what we're looking for is more multi-dimensional and so you know customers of ours who have worldwide deployments of content in multiple languages multiple geographies multiple gdpr gdpr requirements are definitely kind of right there in our sweet spot so our typical order size is you know between kind of 250 to 500 000 um on the average with you know multiple customers well into the seven figures and these are annual uh licenses using that market i mean so would you say is it fair and accurate to say it's it's really difficult to get started with the lucid works products unless you can unless it's at least a quarter of a million kind of acv um i mean to be honest like if you have a smaller order of problem you know there are other vendors that we might really we might refer you to right it really depends on not exactly where you are today but what is the roadmap of all the problems that you're trying to solve if you're saying look i've got a simple search problem on a simple site i want to check this box and move on to other things then yeah i mean there's there's products like algolia and swift hype that we think do great um when you're looking at like you know large government deployments large global enterprises even if we're biting off that small piece like we'll do transactions that you know typically not below like a 48k but somewhere in that range um it's really looking out to the road map of where do we kind of go from here and how do we partner together um and that's where we're most interested in getting engaged we want to you know build meaningful relationships we're not just in here to transact and leave put this on a timeline i know you took over kind of 2014 but when was the company launched what year company was launched um in 20 2008 on a completely different business hell of a year by the way to launch a company oh it was it was it was they they learned yes now and you guys have capitalized yourself so what's the updated number how much have you raised to date yeah so um let's see uh you know from the time that i've come in um i'm just kind of doing quick back of the math sure i think we've raised about 60 million um you know at the time the company was founded actually as an open source support and services company entirely different model i was sort of brought in as part of the the transition to this new model and so we had recapped the company and you know kind of restructured everything as part of that wait sorry who you're talking in 2012 the recap private equity round yeah no i think it was actually that was before me i'm talking about um when i took over we we we did a recap around 2015. well i guess what i'm asking there what do you mean by recap you had a private equity firm come in and buy up a bunch of early shareholders or no no still venture back just that you know because of the transition and the pivot of the company we were effectively restarting the company and so you go through which you know you have to kind of even things out obviously as i come in and i'm recruiting new teams and rebuilding um you know we want to have a a a preferred stack which is nice and small and you know just getting the company sort of right size yeah will sorry you're talking about like a pivot not a financial recap of the cap table well it would include you know kind of recapitalizing on the cap table as well okay well i guess that's what i'm asking about then right so so you did the 50 million dollar round in 2018 and then in 2016 you had a little debt financing in 2015 there's a 20 million round with allegis um or which one of those would you consider the recap the 20 million dollar wrap oh i see i see okay got it the series d the series d yeah yeah so that kind of brought us back to a series b on paper i see i see in terms of how much like the percent of the company that that investors owned investors owned preference stacks anti-dilution liquidation preferences all that kind of stuff yeah yeah that's the recap that i'm talking about and again that put us in a position to grow the company from where we were then to you know today where you know we're well on our way to a billion dollar valuation yeah how many i mean what do you think you have to get ar2 to actually hit a billion dollar evaluation um you know i i don't well i mean maybe not you specifically maybe maybe maybe in general sustained growth right i mean i the the value in in in in companies like ours is going to come from the growth rate not just the the actual ar um i'd say you know in the case of of kind of you can look at comps out there in the market there's people going 20 x forward there's people going 5x current um you know for us we're looking around you know where do we go from last year to this year to 100 million dollars in revenue and beyond we believe that we're about i'd say 18 months away from that sort of milestone if you will yeah um we've got some pretty exciting news that you'll hear about here pretty soon as well so just be clear will you think you'll break the 100 million dollar mark sometime next year in terms of run rate next year yeah i mean i would say in the next 18 yeah so next calendar year yeah we're only in july that's great um that's good so so when you when you come in and take over as the you know as obviously leader you're setting strategic goals every year so in order to hit kind of that milestone in the next call 18 months i mean are you guys it's obviously hard to grow a company when you get bigger and bigger numbers or you start getting kind of a 20 30 year over year growth rate or something higher much higher yeah yeah we're um i mean we we've been in triple digit growth over the last four years uh obviously that doesn't sustain forever um but we're staying well north of fifty percent okay so when you say triple digit i mean over the past 12 months you're saying you grew about fifth the company about 50 in terms of right 100 okay that's what i thought that's why i said triple digit would be 100 not 50. so 100 percent year over year growth north america we've done 100 for four years in a row that's that's not i'm not going back to my investors in my board and saying expect this to last forever of course but you know as we start to optimize around it's not just you know again top line but we're looking at margins we're looking at sort of the health of the mix of the revenue the cac there's a lot of metrics that we start to optimize for as we get to this stage yeah so how i guess help me understand right now again we'll just talk about the sas portion of the business right how many folks do you now have customers on just the sas portion of the business that's a good question um you know again just like hundreds or dozens there are numbers no no we're still in the dozens i mean we're about 400 customers total um and so uh you know on the on the newly launched status platform we're probably reaching like 50 if you know i don't have the data in front of me but just anecdotally i could probably i could confidently say 50. yeah yeah no that's good i mean 50 folks at the quarter million kind of acv would put you at a 12 million a year that's 25 of the total business right that would mean you're doing call it 50 million run rate overall or something like that pretty good at math yeah it's quick right and then uh and then you said about a year ago you were half that yeah did most that growth come from expansion or is it really just the success of the sas product launch we're really seeing a lot more and and and sort of new logo acquisition i mean expansion is is an important part of our business but as we've grown and kind of grown our our profile as we get more reference ability we're seeing a lot more you know we've been declared now leaders and gartner and forrester and so all of that stuff is kind of creating more awareness launching global offices we just turned on hong kong we've been in the uk for about a year now um so all of these things are contributing to you know to growth and and to overall the success that that we've been seeing over the last few years how aggressive i mean look companies at this scale so i've had maybe 50 ceos on that are scaling call it between you know doing between 40 and 120 million bucks in ar and they all have kind of different most important metrics and so like one of them is sales person productivity right is it a 5x output profitability-wise or 7x or 10x what are you optimizing for there do you know um i mean you know at the top of my head i'm spending a lot more time in what we're building and how we're taking it to market and then and then those metrics i mean but isn't that critical is i mean isn't that critical that is take to market is is critical i think what i looked at productivity more for is the impact of both how we're enabling which ties back into the way we're positioning and telling our story and the capabilities within the product which are really about accelerating the time to value that kind of aha moment right and so we watch closely who's getting productive who's getting ramped how much time it's taking um we do a lot of cohort analysis to try to understand why certain cohorts tend to do better and quicker while others take a little bit longer um we take a very thoughtful approach you know i've had to make changes with people that were we're hitting numbers and exceeding numbers because they just weren't quite doing it the way that we'd like we've kept people around that weren't quite you know making it yet because they're doing all the right things and we like the foundation and it's taking them longer to kind of get things turned on um and so you know there's no simple answer to you know you can't just look at a spreadsheet and determine who's performing and who's not there's a lot of detail that goes behind it as the health of the business is concerned obviously as we bring in more capacity we look at a ramp time we look at an expected sort of um attainment amount and you know we model the business around that attainment and so you know again if we're dropping below i believe like we put 80 percent into plan um if we were seeing that across the board come below we you know we'd have an issue sorry i don't know what that means what do you mean 80 to plan um you know you you set your sales rep product attainment and a quota attainment um in your model right obviously i don't want to like spend cash assuming that every single sales rep is going to seat a hundred percent yeah i guess what i'm what i'm trying to figure out is if a sales person if they hit their full quota right let's say their total company or is 200 grand are you generally saying that like 5x or 10x right so that ratio is again i'm just curious how you're modeling profitability oh sorry so okay yeah yeah um i'd say we're in the roughly in the five-ish okay yeah that's i mean that's that's what i've heard from others so yeah yeah so i mean the reason i'm asking is i'm trying to get a sense of how aggressive you're being with cac obviously sales person's salary is a critical piece of that but in order to get a quarter million dollar account will you spend all that money up front to get them for a year-long payback not all of it no in fact i mean we have a pretty efficient sales cycle i mean we're selling use cases that people know they need and the roi is clear right if i can help you increase your ad to order value if i can help you increase your revenue per visit um through better discovery and placement of product and services and things that people are going to add to their carts and transact with it's a pretty straightforward sales cycle so what do you optimize then for cac six months then it sounds like lower uh for the payback um i i can't i don't know the number off the top of my head it's really i mean i've got an entire operational side of this business that is going to like you know give you more precise answers i feel like i'm raising money right now dude no no i mean the reason i'm asking is because some people would say in this space whoever can spend the most money to get the customer will win the customer right so whoever has the healthy healthiest economics ultimately wins and so that's what i'm trying to understand is how aggressive you're being there yeah um again i mean we're very disciplined in our models in terms of how we manage you know both cash and the business and expectations of the top line um how we put precise numbers on the cac payback like that's just not an area that i'm like completely engrossed in that's that's fine yeah yeah it's i mean it's it's it's an interesting as you see the contrast between the way different companies look at it you know what we're not doing is we're not i mean by the way will just be clear any company that's raised 50 million dollars has a cac target payback period like it is in the wait isn't the deck when you raise from the series e investors like it's a key it's a key thing right so most people when they raise that amount of money they're comfortable stretching payback into the 18-24 month range versus staying conservative from the 12-month range what you just told me is you're less than 12 months so that's what i'm trying to understand is you have essentially figured out a way to get customers high-value customers that way cheaper than what most people would at your stage i i'll i'll take that from your perspective as a compliment uh but you know again when we're looking at the overall health of the business we're just trying to determine exactly what it takes to acquire a customer grow a customer time the next deal and again optimize for that kind of tcv if you will yeah but again it sounds like a great contrast to to kind of compare what we're doing too well yeah maybe but yeah getting back to kind of what you're great at which is products i mean you're a product guy at heart how do you understand how you've structured pricing to drive upsell revenues are you upselling based off like feature up cells or is it a utility-based upsell on a value metric or seat based really great question so when you think about kind of the the sort of data platform that we provide it's a combination of of obviously the the overall size of the corpus so how much processing compute and storage do we need to manage in order to serve up this data and then the enrichment which are really kind of cpu cycles around machine learning and so typically if i had a picture i'd show you like a grid with the x and the y that you know we can start to grow data volume and that will lead to some sort of upsell and that tends to be mechanical right they roll out five nodes now they're at ten nodes now they've added a whole new data source thing is growing it's pretty i'd say predictable but you know the customer kind of can understand kind of where that growth sort of occurs where things start to get interesting is as you start to add along the dimensions of machine learning and you start to increase features and operations that way that can also kind of increase the overall kind of bill of material if you will and so you know we're looking for applications and use cases in which where we can grow both obviously right now you know with with that that uh vertical line comes comes value right so as you're adding more of the machine learning and the discovery and the ai capabilities you know the roi will will increase over time um just because those are the things that are helping drive some of those conversions and drive some of that precision and are people sticking i mean are these product upsells enabling people to get more use out of it what does churn look like and how to keep it low i mean we we are you know 130 percent net net retention um you know what onion look like though underneath when you say that onion right so so 130 would be made up from expansion revenue subtracted from any gross revenue churns so you have at least 30 expansion do you have no gross revenue trend annually no no we was that's what i was just about to say and so so we're at about 93 oh okay actual retention so no we're i know if there's a there's a metric that i actually know so in that no i'm just curious yeah seven percent churn 37 expansion will put you at 130 net i mean that is a great number i would say world class never knew retention is like 140 so i mean so that's a really nice number there um let's wrap up here real quick with team size how many folks so we're about uh 250 right now all in california is spread out no we're pretty spread out so we've got you know about 100 folks here in san francisco and headquarters we've got a small another headquarter kind of out for the east coast in raleigh that's probably got about 30 folks um you know our engineering team is pretty distributed kind of back to our open source routes we'll hire the best people wherever we can find them um and then we've opened up again uk and asia pacific out of hong kong um with about another kind of 15 or so folks respectably in each office and so you know we've not kind of gone nuts with with growth but we're definitely trying to keep up with the demand particularly on the go to market side um you know r d we're always finding areas to make new investments but we're not looking to like triple the size of our engineering org just because we have cash or whatever that might be we want to really just respond to where we think the market is showing you know needs and and where we think we can come in and be successful that last race was over a year ago usually the kind of vc kind of companies like this raise once a year are you raising now are you good to go we'll see all right let's wrap up with the famous five number one what's your favorite business book favorite business book uh three laws of performance number two is there a ceo you're following or studying um i mean anyone i can get content from i mean i think one you know admire people like tony shea i think it's probably one of my favorite guys out there number three what's your favorite online tool for building uh lucidworks for building lucid works trust the company yeah okay number four how many hours i sleep to get every night not enough what would you say four five six say five to six okay and how are you i'm 38. married single kiddos married with a two-year-old social security number no just kidding last question what do you wish your 20 year old self knew oh man just be curious that's all you have to do just ask a ton of questions guys will hayes lucidworks be curious they are now serving call it 400 customers about call it 50 60 of those are on their sas product which now makes up 25 of their total revenue mix hoping to break called 100 million bucks in ar over the next 18 months or so historically growing about 100 year-over-year these customers again paying you know contract values well into the six figures as they look to scale with our team of 250 people again sas product helping these companies with ai powered search folks like staples.com to give customized experiences to folks shopping well thanks for taking us to the top appreciate it thanks a lot