How UserTesting Reached 3,500 Paying Customers and Raised $100M While Growing About 40% a Year (Interview with Andy MacMillan)

Channel Intro

Nathan Latka

00:00You're gonna love this interview. Just got done editing it. I'm glad I got it live for you. I'll be in the comments for the next thirty minutes hanging out answering any questions you have. In fact, leave a comment below about data points or what you think is gonna happen to the company, and I will respond to every comment. Additionally, if you're just loving the content, click the thumbs up, and I will go and check out your

00:18profile as well and give your videos some love as well. In the meantime, enjoy the interview.

Guest Introduction

Nathan Latka

00:25Everyone. My guest today is Andy MacMillan. He brings twenty years of enterprise SaaS experience to usertesting.com. As a former former product executive at Oracle and Salesforce, he saw the critical role that customer centricity plays in creating great experiences. Andy, you ready to take us to the top?

Andy MacMillan

00:40Absolutely.

Product Overview and the COVID-19 Moment

Nathan Latka

00:41Alright. So so we're in kind of unprecedented times obviously with this kind of virus crisis. UserTesting is in an interesting spot because, well, many people would would would wonder, does this hurt or help you in terms of what you provide online? So give people the quick kind of product overview and then, you know, what are you thinking about literally in this moment right now, markets crashing, what's gonna happen?

Andy MacMillan

01:01Yeah, it's an interesting way to think about it, I guess. We are a product that helps people understand and view the experience often of their digital products. So if you wanna kind of virtually look over the shoulder of your user and understand, what's it like to do mobile banking or to use your mobile ordering app or to do whatever that might be, that's what our customers use our platform to do. This has been an interesting moment

01:23in time for us, like most folks we've moved to kind of a work from home remote stance for our employees, but a lot of our customers are now reaching out to us and saying, hey, one, we're standing up more and more digital channels to help people who are maybe in a shelter in place or whatever it might be that they're dealing with. It's also interesting from a product and marketing messaging perspective. I actually believe most people

01:45and most brands are trying to be empathetic and do the right thing and reach out to their customers and help. But even that is a hard tone to get just right, where you don't want to seem opportunistic like you're taking advantage of a pandemic to push your product. At the same time, you might be sitting there thinking our product could be really helpful to people this moment. And just like our company, we're going through that, we're

02:04reaching out to healthcare systems and everyone else and saying, hey, can we help you make your messaging clear and kind of help with the emergency? People trying to strike that balance. And so we're seeing a lot of customers use our platform to test their messaging and test their content to really understand how it's received by their end customer.

Customer Count and Business Model

Nathan Latka

02:20And just so I wanna get more about kind of how you're handling this from your own perspective as well. Will churn spikes happen? How do you change your burn plans? What are your investor calls sound like over the past three days? We'll talk about that in a second, but give people a benchmark context here. So, how many customers are you now serving today? Is it all pure play SaaS?

Andy MacMillan

02:38So it is all pure play SaaS. We started the company years ago. I was, I joined two and a half years, two years ago now. But the company started twelve years ago. It was originally a pay as you go business where you could pay to get a single video. For the past five years, it's been entirely a subscription based SaaS platform. About 35,000 people have ever tried the product or used it as a pay as you

02:59go model. We have about 3,500 SaaS customers that are paying us on an annual subscription base.

Nathan Latka

03:0410% conversion is not bad, Andy. Looks pretty good.

Andy MacMillan

03:08Yeah. It's a it's a great business. I'm very proud to be a part of it.

Nathan Latka

03:123,500 and then help me understand kind of pricing. Last time you told me average, you know, the company is gonna pay you $22 a month based off how many tests they're running with you. Is that still about accurate?

Andy MacMillan

03:22It is for kind of an SMB customer and then we scale way up. I mean, we're doing, you know, supporting massive research teams and design teams at some of the largest tech companies in the world that might be spending, you know, over $1,000,000 a year with us.

$100M Funding Round from Insight Partners

Nathan Latka

03:33Okay. And have you changed anything about your cap table structure or still about $74,000,000 raised?

Andy MacMillan

03:39We actually just raised a round. We're doing this interview, we're recording it, we're gonna do a press release in two days.

Nathan Latka

03:39Okay.

Andy MacMillan

03:39But we just raised a $100,000,000 from Insight Partners, and have yet to announce that publicly, but pretty excited to have raised that.

Nathan Latka

03:53Yeah. Well, and it sounds like we'll probably release these around around the same time there. Give me timing on that. Was the money wired and the deal done prior to, know, with the Wuhan news and the spread of coronavirus being, know, mainstream news?

Andy MacMillan

04:11Yeah. We closed, I wanna say three weeks ago, four weeks ago. So really before it hit The US. I mean, it's just been kind of an interesting, it feels like a fast evolving story, but if you go back, I mean, was December when we were first starting to hear about the challenges in some parts of the world. But yeah, we closed the round of funding before there was really a significant US impact to be known or

04:32even really the impact of the global supply chain that we saw happen.

Team Size, Engineers, and Sales Reps

Nathan Latka

04:35Yep. And then this is obviously gonna be rapidly changing as you figure out how the best way to use. I mean, you're in a very fortunate position to be on this kind of cash heap now. You can really do some serious damage with it, especially if you look at, you know, everything else is being cheap right now. What's your team size there though? How many people?

Andy MacMillan

04:51We're about 500 people.

Nathan Latka

04:53And how many engineers?

Andy MacMillan

04:55Probably 80 out of that.

Nathan Latka

04:57Okay, and any quota carrying reps?

Andy MacMillan

05:00Yes. We have SMB, mid market, enterprise, and global account teams that support

Nathan Latka

05:00How

05:05many total people carry reps or carry quota?

Andy MacMillan

05:08I think we're at 55 right now.

Nathan Latka

05:10Oh, wow. Okay. Fairly significant. That's good. Okay. So with those kinds of benchmarks, and again, I mean, by the way, from a growth perspective, that sounds pretty healthy, right? So if you've got 3,500 paying customers at, you know, still around that $2,000 ARPU, I mean, that puts you at about 7,000,000 a month. You were at 5... By least 5,500,000 a month about, what is that? Nineteen months, eighteen months prior when you last came on, does that

Revenue Growth: 25% to 40% and Accelerating

Nathan Latka

05:34sound about right?

Andy MacMillan

05:34Yeah, we're growing pretty rapidly. The business, last time we spoke about eighteen, nineteen months ago was growing about 25% a year.

Nathan Latka

05:41Okay.

Andy MacMillan

05:42Very healthy business. We've really seen it pick up. Think in many ways, we're riding this wave of people being focused on customer experience and understanding their customers and building customer empathy. So, we're gonna cross a 100,000,000 in ARR probably mid this year, growing about 40%. So we're actually speeding up as we get larger.

Nathan Latka

06:01Yeah, Andy, again, I'm not a guy to, you know, give softballs or a lot of compliments to founders, know, I see a lot, so it's hard to be impressed, but you rarely see a situation where someone goes from, call it $40,000,000 to $50,000,000 in 2017 to $65,000,000 to $70,000,000 in 2018. So call it 25 to 30% growth and then actually see growth pick up with on a larger base because it's much harder with a larger base. What drove your ability to do

06:28that?

What Drove Growth Acceleration

Andy MacMillan

06:29I think it's a couple of things. I mean, there is a market dynamic that's supporting us. Mean, product market fit goes a long way when you're trying to grow. And we are seeing a dynamic where two things are really happening. One, our core audience was originally these folks called UX researchers, people that are part of a product team that are kind of understanding the usability of the product, understanding the flows and things like that. That is

06:52growing. So companies are investing in our core audience of buyers and they're therefore buying more of our product. We're also seeing this trend where outside of that core buying group that we originally had, other teams are realizing the value of our product. They're saying, we should watch and see what it's like for people to use our product. They want to build that empathy and customer intuition. So we're seeing product teams, design teams, marketing teams, getting on

07:16the product, running their own tests, understanding their customers more closely, more deeply, and really scaling. So where our largest customer a couple years ago might have had 20 or 30 seats. Mean, we have a customer right now we're working with that's looking at doing over 10,000 seats with us, because they want to see everyone in the company who builds or markets or designs the product, be able to have that direct interaction and see people using the

07:39product. And so I think those two things combined, have really created kind of a perfect storm for growth for us.

Nathan Latka

07:45You touched a little bit about your ability to drive expansion revenue on a per seat basis. I want to loop back that here in a second. What's gross revenue churn like, look like over the past twelve months?

Gross Churn, Retention, and Net Revenue Retention

Andy MacMillan

07:54We've actually seen improvements on gross revenue churn as well. We're at about 86% right now retention, so call it 24... Sorry, 14% gross churn.

Nathan Latka

07:54Yep.

Andy MacMillan

07:54And again, we sell in all segments, you see, you know, higher numbers in the SMB segment.

Nathan Latka

08:09But that's a weighted that's a weighted average across all... Because it's revenue churn,

Andy MacMillan

08:09Yeah.

Nathan Latka

08:09Dollar based. When you... Okay. So then add back expansion revenue dollar base, how much?

Andy MacMillan

08:16Little over a 100%, but we're starting to see that really tick up as these no more seats are deployed.

Nathan Latka

08:21That's net that's net or just the expansion piece?

Andy MacMillan

08:24That's net.

Nathan Latka

08:25Okay. Got it. So you are churning 14% on a dollar basis. You're adding, call it 14, 15%, gets you above a 100%, and you're seeing that expand.

Andy MacMillan

08:25Yeah.

08:32And both of those are picking up.

Nathan Latka

08:34Okay. Well, hopefully, just the expansion. You know, churn picking up, you know.

Andy MacMillan

08:37No. No. The net... I mean, the gross and the net are both going.

Nathan Latka

08:39They're both getting better.

Andy MacMillan

08:40Yeah. Yeah. That's right. That's right.

Nathan Latka

08:42What is driving... Well, off, what role at UserTesting is responsible for the upsell, right, to get better expansion numbers and what's driving their ability to close more upsell revenue?

Customer Success vs. Sales Structure

Andy MacMillan

08:54Yeah, this is one of the things I have a little bit of religion on and sometimes end up in debates on different kind of SaaS stages with folks about. I have a chief customer officer who reports directly to me and they are solely responsible for making sure the customers are successful. They don't sell them anything, they don't upsell them anything, they are just get in there and make sure that every dollar a customer spends with us,

09:15they're getting incredible value from. Then I have my sales team and their job is to manage the contracts and growth and expansion and everything like that. So I pay the sales team for net new logos, I pay them for growth, I pay them for upsell, I pay them for cross sell. And I have my customer success team solely focused on gross dollar retention as a metric, but mostly focused on just CSAT customer success adoption. I view

09:40gross dollar retention as really an outcome metric from doing those things right.

Nathan Latka

09:45Okay, you guys have really valuable benchmarks here. Going back to the current situation, you now have, again, let's say you know you have a $100,000,000 cash in the bank. You could look at what's currently happening in a couple different ways and I'll be evil here, right? So people can throw throw tomatoes at me instead of you. You can look at this and say, wow, I've been waiting for this moment. It's been a bull market for the

10:07past eleven years. Everything's been overpriced. Everything's cheap now, right? I should go invest aggressively. Again, I'm taking off my emotional empathetic hat where there's people dying, right?

Andy MacMillan

10:07Yeah, yeah.

Nathan Latka

10:07The other side of this is, you know, we... I'd actually don't know when it's gonna end, so I'm gonna hold on to as much money as possible to make sure that UserTesting is good on burn for the next three years if we add no new customers.

Andy MacMillan

10:31Right.

Nathan Latka

10:31Which path are you taking?

Leaning Into Growth: International Expansion and Teston

Andy MacMillan

10:33We're definitely leaning into growth, mostly because what we're seeing is our customers saying to us in this time, we need this help, right? We need to use your product to talk to customers, we need to understand their preferences and how they wanna be communicated with. And so, us building out our field capacity and kind of leaning into that, I think only makes sense for us in the market and it's probably the healthiest thing to do for

10:54the company. So, we're gonna continue to grow. We are seeing a lot of interest in international expansion as well. We opened our first office overseas last April. So, what now, eleven months ago, hired our first employee, we're already at 42 people in Edinburgh, Scotland. That's growing like crazy, makes it more than 10% of our revenue now internationally.

Nathan Latka

11:15Oh, wow.

Andy MacMillan

11:16We'll be looking to acquire internationally as well. One of the announcements we'll be making by the time

11:22this is live, is we're acquiring a company called Teston, which is based in Norway, allows you to test in a couple of different languages that we don't yet support on our platform. So I think that demand is going to continue to be there, especially as more and more companies think about how are they going to focus on digital means of communications and connecting with their customers and kind of this new model. We think that demand is

11:44just gonna push us forward.

Nathan Latka

11:47How did you find... So if someone's listening right now going, you know what, I'm in Andy's space, Nathan. I can't believe you got him on the show, you know, know, I don't know how I'm gonna make it through this, but I've got $4,000,000 in ARR. I think it might be something Andy wants. I'm bootstrapped, I'm a sole decision maker. How are you thinking about what companies to acquire if you go do a bunch of acquisitions?

Acquisition Strategy and M&A Philosophy

Andy MacMillan

12:05Yeah, I mean, it's always interesting when people reach out and I think sometimes there can be some serendipity in that, but I'm a little bit more of a shopper than a buyer. I mean, I think, you know, we lay out a strategy and think about where do we wanna go, what makes sense for us, what things are our customers in the market asking for from us. Then we do a buy build partner around those and think

12:23about how to go service that need as best we can. You know, M and A sounds easy the day you announce it, it's hard work and you need to be thoughtful about it. You think about, you're not just impacting your own customer base and your strategy for your own platform, you inherit and now the stewards of another customer base that you need to take equally good care of and make sure that there's a good path forward

12:42for them. And so I think, you know, it's something that we'll continue to be deliberate about and we'll do it when it matches the strategy that we're laying out and what our customers are asking us for more so than, you know, seeing something that looks as a, you know, we're not buying depressed assets and beefing up a balance sheet or financial engineering growth in the company. We're really focused on what do our customers need the solution

13:02to do? How do we buy, build and partner to make that happen for them?

Nathan Latka

13:05Yeah. Okay. Let me let me give you some real examples here. Let's say that you know, because you've run surveys across your user base, that you could pretty effectively upsell a product that allows people to launch surveys. Right?

Andy MacMillan

13:05Sure.

Nathan Latka

13:05SurveyMonkey is too big. You've done the sprint analysis with your CTO. You know it would take you about six months to build your own product internally. Let's say there was a company like QuestionPro. Right? 30,000,000 top

13:30line, 4,000,000 EBITDA. Vivek has basically bootstrapped the company.

13:35Like is now the time to pull the trigger more aggressively? Like for you to put your sellers head on even I more

Andy MacMillan

13:42think now's the time where deals will happen in some of those cases. But you know, from our perspective, a lot of it still goes back to that. Are we creating in the market? I mean, some of the companies you mentioned like SurveyMonkey or Qualtrics, they're great partners of ours. We spend a lot of time going to market with them. A lot of our customers are looking to really deploy enterprise class tools to go engage with customers.

14:02And so, you know, again, every acquisition is sometimes stepping into a partnership area as well, where maybe partnering is what the customer really wants. And so I don't think about how do I just collect a small amount of that revenue from my balance sheet? I think about what makes sense for our customer base? How do we over time build a lot of value for them? And very often that's playing in ecosystems, not just buying them up.

14:21So, it could be, I mean, and there are, you know, I'm picking on your specific example. I don't mean to dive

14:26into

Nathan Latka

14:26No, the real want, I want to do that on purpose.

Andy MacMillan

14:28Yeah, yeah. But but there are, you know, there are sometimes things you look at and think, hey, our customers really do want us to go do this next thing. International expansion is a good example of that for us. And we will look at, you know, in some cases, we'll build features that help us go do that. In some cases, you know, we might acquire those.

Nathan Latka

14:42Mhmm. Mhmm. Has there... Have you... I doubt heads of corporate BD are thinking about this right now, but if they are sitting on a pile of cash, they've been waiting to invest. They might come look at companies like you and say, maybe Andy's feeling the pressure. Maybe I can get him at something under a 20x forward looking revenue multiple. Let me open that conversation now. Have you gotten emails like that? And if so, how do you

15:01respond?

Andy MacMillan

15:02I think the companies that we would probably get those kinds of emails from, we already spent plenty of time with and have strategic partnerships and go to markets around. I think they're pretty excited about the way we're building the business, you know, raising a funding round is not typically a near term exit strategy. So, you know, I think we're in this for the foreseeable future. Think, our management team, our board, our investors, our employee base, I

15:24think we see a lot of opportunity for us to go continue to build the business. But I don't think, you know, at the size and scale we're at, I don't think those people kind of emerge from the shadows in a time like this. I think they're the people that you already know and you're already doing a lot of business

Nathan Latka

15:36Yeah, last two questions. Again, you're obviously not gonna have issues covering your burn through a time of crisis because you just raised so much money, but prior to the raise and prior to the crisis, when you looked at what you're burning per month, I mean, you comfortable burning million, 2,000,000 per month as you invested in growth?

Andy MacMillan

15:50Yeah, absolutely.

Nathan Latka

15:50Okay.

Andy MacMillan

15:50And that's probably right somewhere in that window is probably right about where we were. But again, on our CAC payback and all that kind of stuff, it's a good investment to be to be going and acquiring customers at the rate we've been acquiring them.

Nathan Latka

16:00And what... Do you... You know, with the funding raise and with everything being cheaper, right? Will you double down on that burn rate to you comfortable one of three and four million even in a crisis?

Pipeline Growth and Disciplined Hiring

Andy MacMillan

16:09Well, what we don't do is just throw people in the... Into the field. I know this is something that happens often when people laid... Raise late stage venture rounds. It's like, well, let's just double the sales team and hope for the best and then we'll fire half of them that don't make it. Mean, that's just not really our MO at UserTesting. What we do is we pretty meticulously manage and measure our pipeline. We saw massive pipeline

16:28growth last year, our pipeline was up 75% year over year. We look at something like that and we think, okay, I've got capacity to hire reps and feed them with leads. So we'll keep doing some of that. But again, it goes back to things like investing in the product. We acquired a company six months ago called Truth Lab, which is about doing AI video processing. So we're processing the videos that people do on our platform and

16:51using machine learning to help our insights come out more quickly. So we're making investments in the product, we'll be making investments in international expansion. We'll do all of those kind of based on leading indicators, where I'm confident that I can grow the business comfortably and not just, you know, throw money at hope, and hope ARR comes at the end of it. That's just not a solid strategy.

A $10M Net New Bookings Quarter and the IPO Outlook

Nathan Latka

17:10Have you had a quarter yet where net new bookings passed that 10,000,000 mark?

Andy MacMillan

17:14Yes.

Nathan Latka

17:15Oh, very... That just happened last quarter?

Andy MacMillan

17:18Did that in in q four, and we'll probably do that again in q one. We'll see interesting quarter right now, obviously.

Nathan Latka

17:18Very.

Andy MacMillan

17:18So far, you know, we've seen a mix. We've seen some people who are holding their budgets a little tight and saying, maybe we'll buy next quarter. And so, you know, you get some deal slippage, but at the same time, as I said, we've seen this demand where we have customers calling us up and saying,

17:37we had a bunch of stuff we were gonna do in person events and we wanna move all of that onto your platform, so we can connect with our customers. It's So We'll pretty much balanced out for us at this see what happens.

Nathan Latka

17:48Question, IPOs. A lot of people looking at direct listings, you can't really have this conversation or even think about it until you're at $809,120,000,000 bucks in ARR and you know, Zoom's case 300,000,000 ARR. How do you think about the public markets?

Andy MacMillan

18:00I'm a huge fan of the public markets. I think it's a great way for companies to create value overall in the world. I think most great brands are public companies. I love the idea of being a public company at some point, but I don't think it's in the near term for us having just raised that round. I would think, you know, we've got twenty four, thirty six months or something before we'll get real serious while thinking

18:20about that.

Famous Five

Nathan Latka

18:21Alright, Andy. Let's wrap up with the famous five. Number one, favorite business book.

Andy MacMillan

18:24Favorite business book is The Goal by Eli Goldrath.

Nathan Latka

18:27Number two, is there a CEO you're following or studying?

Andy MacMillan

18:30I'm a huge fan of Eric Wan right now at Zoom. He's amazing.

Nathan Latka

18:33Number three, what's your favorite online tool for building your company?

Andy MacMillan

18:37I live and die in Google. So I'm I'm a big Gmail, Google assistant, everything.

Nathan Latka

18:42Number four, how many hours of sleep do get every night?

Andy MacMillan

18:44I do seven hours a night.

Nathan Latka

18:46That's great.

18:47And situation married single kids?

Andy MacMillan

18:49I've got a wife and three kids, two boys 11 and eight, and a three year old little girl, and they're all at home right now as we're sheltering in place.

Nathan Latka

18:56As I say, we got this whole interview and there was screaming, no doors opening, no daddy daddy, so that's a win.

Andy MacMillan

19:03Yeah, I'm actually in the garage working on a ping pong table in front of a green screen, so you know, we're all making it work.

Nathan Latka

19:08Wait, can you tilt your camera so we can see

Andy MacMillan

19:10I certainly can, look I got some hockey sticks and stuff over there, and there's a baseball bag.

Nathan Latka

19:16Is so cool. I love that.

19:18Alright. How old are you, Andy?

Andy MacMillan

19:21I'm 42.

Nathan Latka

19:22Last question. What do wish your 20 year old self knew?

Andy MacMillan

19:25I wish my 20 year old self knew to probably focus as much on relationships as gathering knowledge. I think at this point in my life, I've realized it's all about the people.

Nathan Latka

19:35Mhmm. Guys, there you have it. UserTesting. Time of crisis. Interesting place. $100,000,000 just raised. Andy, congratulations there. But not only that, just on raising. They're also driving real revenue growth. In fact, they're growing more year over year than they were on smaller numbers. So call it $60,000,000 to $70,000,000 bucks in ARR call it eighteen ish months ago. Now breaking past $80 to $85 ish million. ARR hoping to pass the $100,000,000 mark on the next call it two to three quarters. We'll

19:56see what happens there. Again, serving... This is great. Serving over 3,500 customers who are now doing, you know, potentially way more digitally in a time where you can't meet face to face. Economics look super healthy. Right? 14% gross revenue churn annually, more than that in terms of expansion, so greater than a 100% net revenue retention as looking to to scale their team of 500 folks, 80 engineers, 55 sales reps. Andy, thanks for taking us to the

20:19top.

Andy MacMillan

20:19Thank you so much. Enjoyed it.

Nathan Latka

20:21Do you guys know I fight like heck to get these data points for you from these CEOs that rarely do these kinds of shows? If you want more shows like this, make sure you subscribe right now. We're trying to get 10,000 YouTube subscribers by the end of September here 2019, and it would mean the world to me if you clicked now to subscribe. Additionally, I've got two more great interviews for you. If you want more data

20:45points from the world's leading SaaS CEOs, click and watch