How Lucidworks Reached 400 Customers and 100% Year-Over-Year Growth with AI-Powered Search (Interview with CEO Will Hayes)

Introduction and Guest Background

Nathan Latka

00:00Hello, everyone. My guest today is Will Hayes. He joined Lucidworks in 2013 as the chief product officer and was appointed CEO in 2014. He has over fifteen years of product marketing and business development experience. Before this company, Lucidworks, he was head of technical business development Splunk, where he's responsible for defining the company's market category and key product feature sets. Alright. Will, ready to take us to the top?

Will Hayes

00:20Sure thing.

What Lucidworks Does and Revenue Model

Nathan Latka

00:21Okay. 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 play SaaS?

Will Hayes

00:27Sure. We are actually hybrid. We do... 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. We also have SaaS offerings that we target primarily towards retail. Lucidworks at its core is that we built a search engine that combines the power of search along with machine learning and AI to really create personal experiences around data. You know,

00:51our our our viewpoint is that really in this day and age, experience that matters, the only user experience is the data experience. And so customers deploy our technology to help online shopping, customer support behind the firewall. We're helping with helping support agents and researchers find information quickly, and we really personalize that information both for the workplace and for digital shopping.

How Staples Uses Lucidworks

Nathan Latka

01:11So be specific here for a second. I know you work with Staples, right? So how does Staples use you guys?

Will Hayes

01:16Yeah. So on their business platform, when you're buying in bulk as a company like Lucidworks, 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, they're using our technology to power the search and the browsing experience along with product discovery and merchandising, and so helping you learn

01:40about new services, new products in relation to the preferences and behaviors that you've shown in the past.

Nathan Latka

01:47So they're connecting essentially all the metadata related to all their product features, the pictures, the images, all that jazz, and you're... I mean, is there... Are you doing anything that enables Staples to know, oh, it's Will viewing staples.com right now. Let's show him this toilet paper that he really likes. He likes the five ply.

Will Hayes

02:02Exactly. So because if you think about kinda where the search engine sits in 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

02:22preferences for Will, or it may be 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 inside out through an email promotion.

Nathan Latka

02:36Interesting.

Will Hayes

02:37Monitoring and capturing really is 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 scroll 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

02:56to users.

Revenue Mix: SaaS vs On-Premises

Nathan Latka

02:57And then help me understand a revenue mix. So over the past twelve months, if you look at your total revenue, what percent would you categorize as pure SaaS versus something else?

Will Hayes

03:05Sure. So there's been a huge shift in that we launched our SaaS product last year. So as my CFO and I like to say every quarter we're growing by about a thousand percent.

Nathan Latka

03:16I was gonna say it's easy to go from a dollar to a thousand dollars and-

Will Hayes

03:19Really is, and then from a thousand to a $100.

Nathan Latka

03:21Yeah. Yeah. You lead... Every board deck starts that way. Right?

Will Hayes

03:24Runaway growth, of course. It's wildly successful, but, but, you know, it's interesting is, really, I mean, that mix has caught up. And so we're at about 25% today. We think we're gonna be over 50 by the end of the year. 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, they still do a lot on

03:47prem. 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 and

Nathan Latka

03:53all still kind of the SLA though agreement there? Actually still is recurring revenue, it's just not like your traditional SaaS?

Will Hayes

03:59Absolutely. And so, you know, the Valley has done over the last few years, we run everything like a SaaS business. Even our on prem business is subscriptions, annual licenses, you know, health checks, customer success models, all of those things. It just so happens where the deployment is behind their firewall.

Why Lucidworks Waited to Launch SaaS

Nathan Latka

04:16So what, I mean, and obviously don't be offended by this, but what took you guys so long to launch a SaaS product? You know, most people that had a strong on prem presence were getting into SaaS back in like 2010, twenty eleven ish.

Will Hayes

04:27Yeah, 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

04:48surface and personalize and highly sensitive information. So again, healthcare, financial services, telco. It is changing, and in fact, 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. We wanted to go through a bit

05:12of a microservices rearchitecture before we truly launched a SaaS platform. So we waited a year when other folks in our space were kind of starting to get there. 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 SaaS tools, and so, you know, it's sort of aligning perfectly with our roadmap.

Target Customer and Average Contract Value

Nathan Latka

05:35So moving forward for the rest of this, I'd love to just focus on the cohort, right? The SaaS 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?

Will Hayes

05:48Yeah. Good question. I mean, we typically target kind of the Global 2000. So we're not interested in putting, you know, like there's these little products like Algolia or something like that where you're gonna stick something on a webpage and surf through a 100 pages or, you know, every tiny site out there or TechCrunch or whatever. You know, for us, what we're looking for is more multidimensional. And so, you know, customers of ours who have worldwide deployments

06:13of content in multiple languages, multiple geographies, multiple GDPR requirements are definitely kind of right there in our sweet spot. So our typical order size is between kind of 250,000 to 500,000 on the average with multiple customers well into the 7 figures, and these are annual licenses using that SaaS model.

Nathan Latka

06:33I mean, would you say, is it fair and accurate to say it's really difficult to get started with the Lucidworks products unless it's at least a 250,000 kind of ACV?

Will Hayes

06:42I mean, to be honest, like if you have a smaller order of problem, you know, there are other vendors that we might 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, wanna check this box and move on to other things, then, yeah, I

07:01mean, there's there's products like Algolia and Swiftype that we think do great. 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 48 ks, but somewhere in that range. It's really looking out to the roadmap of where do we kind of go from here and how do we partner together. And that's where we're

07:21most interested in getting engaged. We wanna, you know, build meaningful relationships. We're not just in here to transact and lead.

Founding, Funding and the 2015 Recapitalization

Nathan Latka

07:26Put this on a timeline. I know you took over kind of 2014, but when was the company launched? What year?

Will Hayes

07:31Company was launched in 2008 on a completely different business model.

Nathan Latka

07:36Hell of a year, by the way, to launch a company.

Will Hayes

07:37Oh, was it was it was... They they learned.

Nathan Latka

07:39Yes. Now... And you guys have capitalized yourself. So what's the updated number? How much have you raised to date?

Will Hayes

07:44Yeah. So let's see. You know, from the time that I've come in, I'm just kinda doing quick back of the math. Sure. I think we've raised about 60,000,000. 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 transition to this new model. And so we had recapped the company and, you know, kind of restructured everything as

08:06part of that transition.

Nathan Latka

08:07Wait. Sorry. Who... You're talking in 2012, the recap? The private equity round?

Will Hayes

08:14Yeah. No. I think we... Actually, that was before me. I'm talking about when I took over, we we we we did a recap around 2015.

Nathan Latka

08:21Well, 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?

Will Hayes

08:26No, no, Still venture back, just that because of the transition and the pivot of the company, we were effectively restarting the company. And so you go through a process in which you have to kind of even things out. Obviously, as I come in and I'm recruiting new teams and rebuilding, we want to have a preferred stack, which is nice and small and just getting the company sort of right sized.

Nathan Latka

08:46Yeah, Will, sorry, you're talking about like a pivot, not a financial recap of the cap table.

Will Hayes

08:51Well, it would include, you know, kind of recapitalizing on the cap table as well.

Nathan Latka

08:56Okay. Well, I guess that's what I'm asking you about then. Right? So so you you did the $50,000,000 round in 2018. And then in 2016, you had a little debt financing in 2015, there's a $20,000,000 round with Allegis. Which one of those would you consider the recap?

Will Hayes

09:08The $20,000,000 round.

Nathan Latka

09:09Oh, I see. I see. Okay. Got it. The series D?

Will Hayes

09:12The series D. Yeah. Yeah. So that kind of brought us back to a series b on paper.

Nathan Latka

09:16I see. I see. In terms of how much, like the percent of the company that investors owned?

Will Hayes

09:21Investors owned, preference stacks, anti dilution Liquidation preferences. All that kind of stuff. Yeah. Yeah. Yeah. That's the recap that I'm talking about. 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.

Path to $100M Revenue and Growth Rate

Nathan Latka

09:37Yeah. How many... I mean, what do you think you have to get ARR to to actually hit a billion dollar valuation?

Will Hayes

09:42You know, I I don't... Well, I mean...

Nathan Latka

09:44Maybe not you specifically. Maybe maybe maybe general.

Will Hayes

09:47Sustained growth. Right? I mean, the the value in in in in in in companies like ours is gonna come from the growth rate, not just the actual ARR. I'd say, you know, in the case of kind of you can look at comps out there in the market, there's people going 20x forward, there's people going 5x current. You know, for us, we're looking around, you know, where do we go from last year to this year to $100,000,000

10:11in revenue and beyond? We believe that we're about, I'd say, eighteen months away from that sort of milestone, if you will. Yep. Got some pretty exciting news that you'll hear about here pretty soon as well.

Nathan Latka

10:21So just to be clear, Will, you think you'll break the $100,000,000 mark sometime next year in terms of run Next

Will Hayes

10:26year. Yeah. Mean, would say in the next eighteen. Yeah. So next calendar year, definitely, we're only in July.

Nathan Latka

10:32That's great. That's good. So 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 next call it eighteen months, I mean, you guys... It's obviously hard to grow a company when you get bigger and bigger numbers. Are you starting kind of the 20, 30% year over year growth rate or something higher?

Will Hayes

10:49Much higher. Yeah. Yeah. We're... I mean, we've we've been in triple digit growth over the last four years. Obviously that doesn't sustain forever, but we're staying well north of 50% for Okay.

Nathan Latka

11:01So when you say triple digit, mean, over the past twelve months, you're saying you grew about... The company about 50% in terms of run A 100%. Okay, that's what I thought. That's why I said triple digit would be a 100, not 50. So a 100% year over year growth north Yeah, of that, and and don't same sustain

Will Hayes

11:12We've done a 100% for four years in a row. I'm not going back to my investors and my board and saying expect this to last forever.

Nathan Latka

11:18Of course.

Will Hayes

11:19But as we start to optimize around, it's not just, 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.

Nathan Latka

11:32Yeah.

Customer Count and SaaS Platform Adoption

Nathan Latka

11:34So me understand right now, again, we'll just talk about the SaaS portion of the business. How many folks do you now have customers on just the SaaS portion of the business?

Will Hayes

11:42That's a good question. You know, again, just Like hundreds or dozens? There are numbers. No, no, we're we're still in the dozens. Mean, we're about 400 customers total. And so, you know, on the on the newly launched SaaS platform, we're probably reaching, like, 50 if, you know, I don't I don't have the data in front of me, but just anecdotally, I could probably... I can confidently say 50.

Nathan Latka

12:03Yeah. Yeah. No. That's good. I mean, 50 folks at the 250,000 kind of ACV would put you at a 12,000,000 a year. And if that's 25% of the total business, right, that would mean you're doing call it 50,000,000 run rate overall or something like that.

Will Hayes

12:13Pretty good, man.

Nathan Latka

12:14Yeah. That's quick. Right? And then and then you said about a year ago, you were half that? Yeah. Did most of that growth come from expansion, or is it really just the success of the SaaS product launch?

Will Hayes

12:25We're really seeing a lot more in in in in in sort of new logo acquisition. I mean, expansion is a is a... Is an important part of our business, but as we've grown and and kind of grown our our our profile, as we get more referenceability, we're seeing a lot more. You know, we've been declared now leaders in Gartner and Forrester, and so all of that stuff is kind of creating more awareness, launching global offices. We

12:45just turned on Hong Kong. We've been in The UK for about a year now. So all of these things are contributive to, you know, to growth and to overall the success that we've been seeing over the last few years.

Sales Productivity and CAC

Nathan Latka

12:55How aggressive, I mean, companies at this scale, so I've had maybe 50 CEOs on that are doing between 40 and $120,000,000 in ARR and they all have kind of different most important metrics. And so like one of them is salesperson productivity, right? Is it a five X output profitability wise or seven X or 10 X? What are you optimizing for there? Do you know?

Will Hayes

13:15Mean, 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 those metrics. I mean, sales But isn't that critical?

Nathan Latka

13:24I mean, that critical? That is take to market.

Will Hayes

13:26Is 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, then the capabilities within the product, which are really about accelerating the time to value, that kind of moment. Right? And so we watch closely who's getting productive, who's getting ramped, how much time it's taking. We do a lot of cohort analysis to try to understand why certain

13:46cohorts tend to do better and quicker while others take a little bit longer. We take a very thoughtful approach. You know, I've had to make changes with people that were hitting numbers and exceeding numbers because they just weren't quite doing it the way that we'd like. We 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 taken them longer to kinda get

14:05things turned on. 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 attainment amount, and, you know, we model the business around that attainment. And so, you

14:27know, again, if we're dropping below, I believe, like, we put 80% into plan. If we were seeing that across the board come below, you know, we'd have an issue.

Nathan Latka

14:37Sorry, I don't know what that means. What do mean 80% into plan?

Will Hayes

14:40You know, you set your sales rep productivity Quota attainment. Quota attainment in your model, right? Obviously, don't want to like spend cash assuming that every single sales rep is gonna see the 100%.

Nathan Latka

14:52Yeah. Guess what I'm what I'm trying to figure out is if if a salesperson, if they hit their full quota, right? Let's say their total comp a year is $200,000. Are you generally saying that like five x or 10 x, right? So that ratios again, I'm just curious how you're modeling profitability. Oh, sorry.

Will Hayes

15:05So, okay. Yeah, yeah. I'd say we're in the roughly in five ish.

Nathan Latka

15:11Okay. Yeah. That's, I mean, that's what I've heard from others. So, So, I mean, reason I'm asking is I'm trying to get a sense of how aggressive you're being with CAC. Obviously, salesperson salary is a critical piece of that, but in order to get a $250,000 account, will you spend all that money upfront to get them for a year long payback?

Will Hayes

15:25Not all of it. No. In fact, 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 add to order value, if I can help you increase your revenue per visit, through better discovery and placement of product and services and things that people are gonna add to their carts and transact with. It's pretty straightforward, sales cycle.

Nathan Latka

15:46So what do you optimize then for CAC? Six months then, it sounds like,

Will Hayes

15:50for the payback? 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 gonna like, you know, give you more precise answers. I feel like I'm raising money right now, dude.

Nathan Latka

16:00No, 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 healthiest healthiest economics ultimately wins, and so that's what I'm trying to understand is how aggressive you're being there.

Will Hayes

16:11Yeah. Again, I mean, we're we're very disciplined in our models in terms of how we manage, you know, both cash and the business and expectations at the top line. How we put precise numbers on the CAC payback, like, that's just not an area that I'm, like, completely engrossed in.

Nathan Latka

16:26Mhmm.

Will Hayes

16:27That's that's fine. Yeah. Yeah. It's, I mean, it's it's an interesting as you see the contrast between the way different companies look at it. You know, what

16:35we're not doing is we're not

Nathan Latka

16:37By I the way, Will, just to be clear, any company that's raised $50,000,000 has a CAC target payback period. Like it is deck in when you raise from the series E investors. Like it's a key thing, right? So most people, when they raise that amount of money, they're comfortable stretching payback into the eighteen, twenty four month range versus staying conservative in the twelve month range. And what you just told me is you're less than twelve months.

16:56So that's what I'm trying to understand is you have essentially figured out a way to get customers, high value customers at way cheaper than what most people would at your stage.

Will Hayes

17:05I'll take that from your perspective as a compliment. 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.

Nathan Latka

17:18Yeah.

Will Hayes

17:19But but again, it sounds like you have a great contrast to to kinda compare what we're doing too.

Pricing and Upsell Structure

Nathan Latka

17:23Well, yeah, maybe. But you... Getting back to kinda what you're good at, which is product. I mean, you're a product guy at heart. How how many understand how you've structured pricing to drive upsell revenues? Are you upselling based off, feature upsells, or is it a utility based upsell on a value metric or seat based?

Will Hayes

17:34Really good question. So when you think about kind of the the sort of the data platform that we provide, it's a combination of 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 kinda CPU cycles around machine learning. And so typically, if I had a picture, I'd show you like a grid

17:53with 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 10 nodes, now they've added a whole new data source, thing is growing. It's pretty, I don't say predictable, but the customer kind of can understand kind of where that growth sort of occurs. Where things start to get interesting

18:11is 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 vertical line comes comes value. Right? So as you're adding more of the machine learning

18:32and the discovery and the AI capabilities, you know, the ROI will will increase over time, just because those are the things that are helping drive some of those conversions and drive some of that precision.

Churn and Net Revenue Retention

Nathan Latka

18:41And are people sticking? I mean, these product upsells enabling people to get more use out of it? What does churn look like and how to keep it low?

Will Hayes

18:47I mean, we we we are, you know, a 130% net net retention. You know,

Nathan Latka

18:51I'd What's say that onion look like though underneath?

Will Hayes

18:54When you say that onion, sorry.

Nathan Latka

18:55So 130 would be made up from expansion revenue subtracted from any gross revenue churn. So you have at least 30% expansion. Do you have no gross revenue churn annually? No, no, no.

Will Hayes

19:04That's what I was just about to say. And so we're at about 93%.

Nathan Latka

19:08Oh, okay.

Will Hayes

19:08Actual retention. So no. We're we're... I I know if it's a... There's a metric that I actually know. So we're we're in that.

Nathan Latka

19:16No. I'm just curious if you could yeah. 7% churn, 37% expansion would put you at one thirty net. I mean, that is a great number. I would say world class net revenue retention is like one forty. So that's a really nice number there. Let's wrap up here real quick with team size. How many folks?

Team Size and Office Locations

Will Hayes

19:29So we're about two fifty right now.

Nathan Latka

19:31All in California or guys spread out?

Will Hayes

19:33No, we're pretty spread out. So we've got about 100 folks here in San Francisco in headquarters. We've got another headquarter kind of for the East Coast in Raleigh that's probably got about 30 folks. You know, our engineering team's pretty distributed, kind of back to our open source roots. We'll hire the best people wherever we can find them. And then we've opened up, again, UK and Asia Pacific out of Hong Kong with about another kind of 15

19:55or so folks respectively in each office. And so, you know, we've not kind of gone nuts with growth, but we're definitely trying to keep up with the demand, particularly on the go to market side. You know, R and 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 wanna really just respond to where we

20:13think the market is showing, you know, needs and and where we think we can come in and be successful on behalf of That the

Fundraising Status

Nathan Latka

20:19last raise was over a year ago. Usually, kind of VC kind of companies like this raise once a year. Are you raising now or are you good to go?

Will Hayes

20:24We'll see.

Famous Five Rapid Fire

Nathan Latka

20:25All right, let's wrap up with the famous five. Number one, what's your favorite business book?

Will Hayes

20:29Favorite business book, Three Laws of Performance.

Nathan Latka

20:32Number two, is there a CEO you're following or studying?

Will Hayes

20:35I mean, anyone I can get content from. I mean, I Pick one. You know, admire people like Tony Hsieh, I think is probably one of my favorite guys out there.

Nathan Latka

20:43Number three, what's your favorite online tool for building Lucidworks?

Will Hayes

20:46For building lucidworks.me.

Nathan Latka

20:49Okay.

20:50Number four, how many hours of sleep do get every night?

Will Hayes

20:52Not enough.

Nathan Latka

20:53What would you say? Four, five, six?

Will Hayes

20:54I'd say five to six.

Nathan Latka

20:56Okay. And how old are you?

Will Hayes

20:58I'm 38.

Nathan Latka

20:59Married, single kiddos?

Will Hayes

21:00Married with a two year old.

Nathan Latka

21:02Social security number? No. Just kidding. Right. Last question. What do you wish your, 20 year old self knew?

Will Hayes

21:08Oh man, just be curious. That's all you have to do. Just ask a ton of fucking questions.

Nathan Latka

21:14Guys, Will Hayes, Lucidworks. Be curious. They are now serving, call it 400 customers about call it fifty-sixty of those are on their SaaS product, which now makes up 25% of their total revenue mix. Open a break, call it $100,000,000 in ARR over the next eighteen months or so, historically growing about 100% year over year. These customers again paying contract value as well into the 6 figures as they look to scale with their team of two fifty people.

21:36Again, SaaS product helping these companies with AI powered search folks like staples.com to give customized experiences to folks shopping. Will, thanks for taking us to the top.

Will Hayes

21:45Appreciate it. Thanks a lot.