How Pantheon Reached Tens of Thousands of Customers on $50M Raised with a Website Operations Platform (Interview with Zack Rosen)

Introduction and Background

Nathan Latka

00:00Hello, everyone. My guest today is Zack Rosen. He pioneered the first large scale Drupal website for the Howard Dean campaign in 2003 and then cofounded the world's first Drupal development shop CivicSpace. He then went on to cofound a successful Drupal development shop Chapter Three and also co founded Mission Bicycle. What started as a professional website development epiphany, we're doing it wrong, evolved into an all in one platform after he and a few trusted colleagues got

00:23together and started solving problems. We're going to jump into Pantheon today. Zack, are you ready to take us to the top?

Zack Rosen

00:27Sure.

What Pantheon Does and How It Generates Revenue

Nathan Latka

00:30All right. So tell us about the company. What's Pantheon doing? How do you generate revenue?

Zack Rosen

00:34Yeah. So we are a website operations platform for WordPress and Drupal. So we host websites, but our real value is our developer tools. We're built for marketers who wanna iterate really quickly on the websites.

How Pantheon Differs from Wix, Squarespace and Weebly

Nathan Latka

00:46Got it. So how are you different than like a WordPress or Weebly or Wix or Squarespace?

Zack Rosen

00:52Yeah. So website industry is very large industry. It's about $200,000,000,000 a year. So So as an industry, we spent more money on our websites than anything else, more than digital advertising. And there are a few different segments of products. So on one end of the marketplace, have the Wixes, Weeblys, Squarespaces. And those are built for companies where the business owner typically is building the website themselves. So you're choosing a template, buying domain name, and then launching

01:20a website in a couple hours. So those are not our customers. So we work with companies where they have professional marketers on staff and the marketers are designing and building the website to drive the business. And then it was an enterprise part of the marketplace where you have customers who spend upwards of $3, 4, 5,000,000 on a a single website location.

Nathan Latka

01:40Okay. So you're playing only in the enterprise space then and it's a SaaS We're

Zack Rosen

01:45much more in the mid market.

Revenue Model and Pricing Range

Nathan Latka

01:47Okay. Okay. Is revenue model wise, is it a pure play SaaS model?

Zack Rosen

01:51Yeah. It's all SaaS.

Nathan Latka

01:52Okay. So like, I mean, on average you are paying you a grand per month or what? What's the average would you say?

Zack Rosen

01:55It's a wide range. So it ranges from, you know, a few $100 a year, you know, $20, 30 bucks a month up to we have customers in the millions.

Nathan Latka

02:03Okay. Got it. But so, I mean, are developing in terms of your engineering resources for a $20 a month customer versus a million dollar a year customer, very different product roadmaps. I mean, where are you generally focused SMB or the million dollar plus range?

Zack Rosen

02:17It's actually, you'd be surprised. So the core product is the same for our million dollar customers as our $25 a month customer. And it's because we built it for web teams. So the commonality is that the smaller customers are serviced by agencies. So the agency has a web team that's building dozens of websites or hundreds of websites that can service customers at that scale. And then the larger customers, websites are bigger and have, you're right, there

02:46are some product differences. There's security compliance, scalability, performance, all that kind of stuff that they have. But it turns out folks who have small businesses care about performance as well. So it's essentially the same product.

Nathan Latka

02:59But there's a reason someone's paying you $30 a month versus $30 a month, right? Is it mainly like number of seats on the team? Is it an SLA agreement? I mean, is it? Yeah,

Zack Rosen

03:08it's a good question. So it is a combination of number of sites, traffic of the sites, and then support requirements around the sites.

Nathan Latka

03:16Okay, fair enough. Got it. Good. Let's go back here and get more of the backstory. So what you're your launch company officially in?

Origin Story and Getting to Market in 2012

Zack Rosen

03:23So we got to market in 2012 and it came out of the consulting work that we were doing. So we specialize essentially in DevOps for large scale website projects. So we help rebuild The Economist and projects for the NBC where they pay upwards a million dollars just on the DevOps infrastructure. And we did that all by hand. We give it back to the IT teams at the end of it. And typically the customers really did not have

03:48the skill sets internally to manage the infrastructure themselves. IT teams typically, they have the skill sets to manage servers SLAs around them. But when you get in the world of website DevOps, you have CDNs, caching, APM, a whole LAMP stack. And then you have dev environments, test environments, deployment systems, caching systems. It's a very long kind of skew of technologies that you have to master. So what we would see the pattern would be basically that the

04:17website developers themselves would have to do the DevOps because the IT teams just didn't have that background, which wasn't any fun for them. So it'd be like, Hey Jen, the only one we trust to deploy changes, guess what your new job is, you're now going to deploy everyone's changes, which is pretty miserable for Jen. So eventually the light bulb went off. Did that project about a half a dozen times.

Nathan Latka

04:41What was the consultancy revenue before you started thinking about SaaS? When you're doing 2,000,000 a year, 5,000,000 a year, 1,000,000 a year?

Zack Rosen

04:47Yeah, it's around 5,000,000.

Nathan Latka

04:485,000,000 a year. Okay. And then in 2012, you said we need to productize this.

Zack Rosen

04:54Yes. A little before that, we need to productize this and turn it into a SaaS service. And so we incubated it inside the web agency for a little bit and then took from there.

Team Size and Office Locations

Nathan Latka

05:04Yeah, it's a smart way to do it. You've got a built in customer base with your agency customers. Now, are you at today in terms of team size?

Zack Rosen

05:12Pantheon is about 150 people.

Nathan Latka

05:14Okay, based where?

Zack Rosen

05:16Many of us are in San Francisco, but we have to be global. So we have a couple offices around the world and we have folks in every... Essentially every continent.

Nathan Latka

05:25You're you're you're in San Fran though?

Zack Rosen

05:27Yeah. We're based in San Francisco.

Funding History and Use of Capital

Nathan Latka

05:28Okay. Well, then I I have a thing. I know the answer to the next question, but I'm gonna ask it anyway, maybe you'll surprise me. A bootstrapped or have you raised capital?

Zack Rosen

05:35We raised capital.

Nathan Latka

05:36Yeah. Of course. So how much have you guys raised to date?

Zack Rosen

05:39It's all public, so about 50,000,000.

Nathan Latka

05:41Okay, 50. And where, I mean, the first round of capital, what year was that and what you use that primarily on?

Zack Rosen

05:47So that was back in 2011, I think we closed our seed round. It was invested mostly in the product. It took us a while

05:54to get to market. It took a couple

05:56of years because from the get go, we knew we didn't want to be constrained with the typical kind of problems that hosting companies run into. So the way most of our competitors do this is they put you on a basically a VM. Then if you have a virtual machine.

Nathan Latka

06:14Yep.

Zack Rosen

06:15But if you want to iterate on your website, develop on it, you safely, you want to have a different dev environment. So then they would have to spin up a second VM. And then when you actually deploy the website in the live environment and deal with lots of traffic, you'd probably want a cluster with high availability. And then you end basically the skew of servers. And so you end up running, if you're running at our scale,

06:40in the tens of thousands of servers you'd have to manage. Then scaling between them is very complicated. They're all a little bespoke, so it's hard to manage them at scale. So we knew we wanted something an order of magnitude more efficient. And so we took the time to build what we saw was kind of the right way of doing it, which is to do it on a containerized platform. So we were the only ones who have

07:03a multi tenant operations platform for Drupal and WordPress, where we can scale you really smoothly in containers from a tiny website that pays in the $20 a month range to very, very large websites that get many millions of visitors. And the other piece of it is we knew we wanted to work with... So we think that the way actually most marketers build a website is completely wrong.

07:28The way most websites get built is you have essentially a website relaunch project where you don't like your current website, so you go in and hire, the marketer goes and hires an agency to do a big rebrand or to redo all the messaging and information architecture. The design phase on those projects is typically like three to six months. And then you have to develop, which might be another six months of time or a year of time.

07:55And by the time you launch the website for most large organizations, you're a year or two years into it. And then when marketers launch a website and it feels, website they want feels outdated already. And that's because, you designed it two years ago. And then for most companies, the killer is that the website gets there. And you maybe got 60% of the things right in the website you launched before you ran into budget. But the 40%

08:19that's wrong kinda stares you in the face for months and months and months. And then people get really angsty about it and then kinda repeat the process.

Nathan Latka

08:26Yep. So so Zack, let's let's get... Just because we're running short on time here. So the... You built the product 2011 to seed round. You're engineering, you're engineering. When was your first customer contract closed? Was it 2012 or 2013 or?

Zack Rosen

08:38I mean, 2012. It was

Nathan Latka

08:392012. And was that customer, one of your agency customers as well?

08:45No. It wasn't? Yeah. So how'd you get them?

Zack Rosen

08:49Well, we were very plugged into the ecosystem. And so from the very, we did a lot of customer development back in the day. So back then,

08:58interviewing folks who we

09:03basically people from the Drupal ecosystem who we knew were running DevOps problems. We read them and then we'd say, Hey, if we had a service that existed theoretically, would you be interested? And if they said yes, then three months later we'd ask them to actually start paying.

Customer Count and Churn Philosophy

Nathan Latka

09:18Yep. Makes good sense. Now what have you scaled to today in terms of total customers?

Zack Rosen

09:22Oh, we're in the tens of thousands of customers.

Nathan Latka

09:24Okay. And just to be clear, that's that's customers, not like free users?

Zack Rosen

09:27Yes.

Nathan Latka

09:28Okay. Now obviously, thing with SaaS companies is churn. So what's your churn today and how do you manage it?

Zack Rosen

09:34We've been lucky that our customer base actually grows on its own. And it's because we sell to customers where they're building many websites. So a lot of it times as agencies or as enterprises.

Nathan Latka

09:49Yeah, well, so Zack, that didn't answer my question. So churn wise, what's your churn? Like you're saying no customers ever left you?

Zack Rosen

09:54Oh, we're not gonna disclose that.

Nathan Latka

09:55Okay, why don't you talk about churn? It's obviously critical in any SaaS business.

Zack Rosen

09:59Yeah, we're just gonna talk about our primary metrics.

Nathan Latka

10:01For what?

Zack Rosen

10:02I just don't wanna talk about primary metrics.

Nathan Latka

10:05Okay. So we... Yeah. Instead of talking about whatever you're currently at, tell me more about how you think about churn in general at a high level.

Zack Rosen

10:11Yeah. Yeah, so I mean, we have a very low gross churn rate and it's because we work really hard to make the product work for customers and we put a lot of energy into that. So enterprise customers, we have a dedicated team that makes sure that essentially they're going to be successful on the platform. And then for our agency partners, we put a lot of energy in basically training them and becoming their default platform for website

10:39operations. Once that happens, we're quite sticky. And then the other side of it is that it's also very expansionary because agencies will grow with us, enterprises will grow with us, they'll be with us for many years.

10:53You know, enterprises are essentially always launching new websites and we'll get that business.

Nathan Latka

10:57You have some good historical data, you know, four or five plus years. I mean, on average, and this is very back of the napkin, but on average, what do you assume these customers are worth to you over their life? Generally north of what?

Zack Rosen

11:06Well, it's a very it's a very large range. So some of the customers it's, you know, in the low thousands and some it's in the millions.

Nathan Latka

11:12Yep. For the folks that are the SMB kind of the low... I imagine no touch sales, what is the thing you have to get them to do in the first week to make sure they stay sticky for a long period of time?

Zack Rosen

11:20Yeah. So a lot of them are are from agencies. So the key for them is actually learning the product. So... And and training them on the

Nathan Latka

11:28Wait, Zack. Sorry. Just to understand. You'll have agencies spending their time, energy, and effort to sign up a $30 a month customer?

Zack Rosen

11:35Yeah, and we're happy to help them do that because

Nathan Latka

11:38Why would they do that though? There's not much money as a kickback or anything.

Zack Rosen

11:41No. The agencies use it because of the service. So they really want the software product itself. Essentially, run an agency or do you have you kind of work with agencies?

Nathan Latka

11:51Yeah. I mean, we interviewed about almost 1,500 B2B SaaS founders. A lot of them come out of an agency then they build the SaaS product. But I mean, agency... Typically when there's a business model where it's a reseller program, like HubSpot's probably a famous example, we just had Brian on, the price point is high enough where the agency can get a kickback, so they're incentivized to do it. I don't see how you have that incentive structure

12:10with a $30 a month price point.

Zack Rosen

12:12So we do have some of

12:14those incentives, but it's not

12:15the reason most agencies work with us. So the agencies work with us because... So imagine you're an agency and you have to build a lot of websites for different customers. If you don't use Pantheon, what you have to do is set up your own website operations. So, you have to make sure every developer has a developer sandbox to make sure that they can deploy changes to live websites safely without breaking things. You have to make sure

12:38the websites are online.

12:41And traditionally what that means is basically your tech leads, so the most senior developer has to actually go in and build all these services yourself. So you're stitching together like GitHub and DigitalOcean and New Relic, And you can't bill for that time, it's very frustrating. And your clients don't care. Your clients don't care how you tune NGINX or what your deployment system is. But you have to do it because you have to actually serve your clients.

13:07You don't have one client, have dozens of clients. So what we do for those agencies is we replace all of that with a free service. So instead of them having to spend any time managing website operations or even pay... Agency with 10 developers will spend a couple $100,000 a year on this stuff they can't bill. So we we can actually make that profitable for them. So we we can save them a couple $100,000 of lost billable

13:29time, and a lot of headache, because if this stuff breaks, it rolls back on the... On usually the founder to go fix.

Payback Period and Burn Rate

Nathan Latka

13:36Yep. Sorry, just because we're running out time, last quick questions here and quick answers if you can. Payback period, do you try and optimize for any kind of payback period as you're growing?

Zack Rosen

13:45Yeah, well, again, it's a wide range of customers.

13:49If they're worth millions, we're fine. Can absorb a large CAC and we work within the typical SaaS constraints depending on the size.

Nathan Latka

13:58Well, just to be clear, it doesn't matter if it's a small $30 a month customer or a $10,000,000 a month customer because the payback, you're willing to spend more or less depending on the size, so it's actually a ratio. So do you try and stay below six months or twelve months? How quick do you like to get your money back?

Zack Rosen

14:10Well, also depends on expansionary it is. So we're not incredibly focused on juicing our payback right now because we know if we can get an agency or an enterprise on board, it's gonna be very expansionary over time. I mean, we we we do care about it. We optimize, you know, marketing channels and sales methods and all these kinds of things. We wanna stay within constraints, but it's not like an overriding focus.

Nathan Latka

14:30Can you give me a general range? Is that gonna be twelve to twenty four months? Is that fair?

Zack Rosen

14:33That's a private number.

Nathan Latka

14:34Okay. Tell me... I mean, many people are gonna listen to this and go, of course he can do that. He's raised $50,000,000. He can afford to bleed cash. That's what they'll think when they hear you say that.

Zack Rosen

14:46Okay.

Nathan Latka

14:48So are you bleeding cash?

Zack Rosen

14:53So we burn cash. Yeah. I mean, we raise money to grow the company.

Nathan Latka

14:57Yeah. That's what I wanna try and get a sense of. When we have folks on that have raised a $100,000,000, $80,000,000, it's it's very valuable to try and understand how they think about burn. So if you don't talk about payback, it's hard to kinda get in your head and understand how you think about burn.

Zack Rosen

15:12Yeah, so I mean, we're focused on building a very large profitable business over time. The issue in our marketplace, is true in many marketplaces, is it's a $200,000,000,000 a year market. And there are seven or eight companies who are well north of 100,000,000 run rate. So for us to achieve what we wanna do, which is to build a large independent platform, we're gonna have to grow pretty quickly. And so yes, we're gonna sacrifice cap cost and

15:40payback cost to a certain extent, certainly more than a bootstrap company would to achieve growth.

Nathan Latka

15:45Yeah. Zack, by the way, that's valuable. I mean, the the... I'm I'm not I'm not saying this is a I'm saying you you have the ability. You've created growth. You have a great story. You have a great team that enabled you to raise the capital at a great valuation, and you can afford to wait twenty four months to get paid back on the CAC. That's an asset. I'm just curious how aggressive or not aggressive you like

16:01to get, but I think we've we've talked about that enough. So

Zack Rosen

16:04Yeah. We're we're well within the kinda typical SaaS constraints. I mean, if you look at the public market numbers, they kinda set the guidelines.

Growth Rate Discussion

Nathan Latka

16:10Yep. Take me... Last question here. You said you like to invest this money and grow quickly. Generally, what are you growing at year over year? Are you... You know, you're getting into big numbers, so a 100% year over year growth gets harder.

Zack Rosen

16:20It's a it's a private number.

Nathan Latka

16:21What what do you aim what do you aim for? You don't have to talk about what you actually did.

Zack Rosen

16:24I mean, companies that get later stage, when companies go public wanna stay within the 25 to 45, 30% range year over year, we're earlier stage than that, so we're going faster.

Nathan Latka

16:37Okay. Got it. So can can we can we say a minimum is 30 and a max is a 100? That's a big enough range to say vague.

Zack Rosen

16:43It's a pretty big range. Yeah.

Nathan Latka

16:45Yeah. Okay. Good. Alright. And then look. I mean, you gave me minimums earlier, 10,000 customers, and you have the... Your smallest ones paying $30 a month. You're doing definitely well north of $300,000 per month at this point, correct?

Zack Rosen

16:57Oh, yeah.

Famous Five: Books and CEOs

Nathan Latka

16:58Okay, good. All right, let's wrap up here with the famous five. Number one, what is the last business book that you read?

Zack Rosen

17:04Oh, man.

17:08I'm trying to give a good recommendation. So, reread this book. It's my favorite business book of all time. It's a very weird book. The Toyota Production System, which was written in 1980 by a gentleman who created... Essentially is single most responsible person for the lean manufacturing system.

Nathan Latka

17:28Interesting. Number two, is there a CEO you're following or studying, Zack?

Zack Rosen

17:33Yes, many.

17:36I'm trying to give you a useful answer. So, I mean, company I admire a lot because we know them pretty well. We share the same first and main investor, Group is SendGrid. So their CEO, Sameer, I think the world of, he's a super sharp guy and what the company they built and the way they've gone to market is really impressive. And there's a lot we had to learn from them.

Favorite Online Tool and Personal Life

Nathan Latka

18:01Number two, what's your favorite online tool for building the company?

Zack Rosen

18:06Online tool. Man, I use Dropbox Paper a lot. It's pretty fun.

Nathan Latka

18:11Okay, number three. How many hours of sleep are you getting every night?

Zack Rosen

18:15Depending on the night. I have a two year old, Six to eight hours.

Nathan Latka

18:18Six to... Okay. Not bad. And now just one kiddo or or more?

Zack Rosen

18:21Just one.

Nathan Latka

18:22Okay. And what's your situation? Married, single?

Zack Rosen

18:24I'm married.

Nathan Latka

18:24Alright. And how old are you, Zack?

Zack Rosen

18:26I'm 34.

Advice to Younger Self and Closing

Nathan Latka

18:27Alright. Last question. What do wish your 20 year old self knew?

Zack Rosen

18:34That's a good question.

18:40Yeah, I think what I've come to appreciate the most over the past decade, especially in the venture tech world, and if you have a lot of

18:49listeners who are bootstrapping their companies, I have a ton of admiration for that. I mean, first three companies I built were all bootstrapped.

18:59But the thing about the venture tech world, is kind of a secret sauce is it really functions mostly on a mentorship model, which you don't appreciate from the outside. So I would tell my 20 year old self to

19:15invest more in surrounding myself with people who have been there, done that, and can teach me. Because they're definitely out there. They're happy to grab coffee and tell you all their secrets if, you ask them nicely.

Nathan Latka

19:27There you guys have it from Zack. Invest in the mentor network earlier on. It's a little secret in the venture tech space. After doing a lot of consulting work, having a lot of success with his agency, growing about $5,000,000 in revenue. Twenty twelve started early prototyping on Pantheon. Launched it now today has raised over $50,000,000 has 150 folks in San Francisco and other remote locations. Again, helping folks scale what they're doing on their websites faster, more

19:50aggressively, and more efficiently. It's obviously a huge market. They've got well. They've got tens of thousands of customers, so a minimum statement would be definitely north of 10,000. They've got customers paying a minimum of 30 all the way up to millions of bucks in terms of annual contract values and $30 a month, so you can just multiply $30 times 10,000 and say they're definitely north, and I think probably well north of $300,000 per month in revenue

20:13with very low gross churn. Zack, thank you so much for taking us to the top.

Zack Rosen

20:17Thank you.