How Freshworks Hit $100M ARR and 150,000 Business Customers in 2018 (Interview with Executive Chairman & Founder Girish Mathrubootham)

Introduction and Freshworks Product Suite Overview

Nathan Latka

00:00Hello, everyone. My guest today is Girish Mathur Butom. He is the founder and CEO of a company called Freshworks, one of the world's fastest growing SaaS product companies, winning the economic time startup of the year in 2016 and the business standard startup of the year in 2017. Freshworks now has a suite of products for businesses worldwide, including Freshdesk, Freshservice, Freshsales, Freshcaller, Freshteam, Freshchat, and Freshmarketer. Girish, are you ready to take us to the top?

Founding Story and the Broken TV Incident

Girish Mathrubootham, Executive Chairman & Founder

00:28>> Yes.

Nathan Latka

00:29All right. Very good. So I think a lot of people listening maybe have heard or definitely have heard of one of these products and they go, oh my gosh, one guy and one team is behind all of these things. So tell us the founding story. When did you launch the company and which of these product lines is your focus right now?

Girish Mathrubootham, Executive Chairman & Founder

00:44>> Yeah, so we started the company in October 2010, and at that time we started with only one product, Freshdesk. Freshdesk, our whole idea was, the story is coming from a life incident. I was moving back from The US to India, and I was shipping my stuff back. And long story short, when my stuff arrived my TV was broken, you know the fancy 40 inches LCD TV was broken. I tried contacting customer care since I had purchased

01:16>> insurance, but five and a half months, numerous phone calls and emails later, they still wouldn't pay my insurance money. At that point I didn't care about the money. I wanted revenge and justice, so I actually

01:29The best revenge is justice, right?

01:32>> Yeah. I actually shared my experience online on an online forum where I found a shipping company, and I posted pictures of my TV and posted my story, and the community started engaging. The next day the president of the company came and apologized, and the next day money was in my bank. So I sensed that there was a paradigm shift happening in the world of customer support. This was February 2010 when Twitter, Facebook, using Twitter for support

02:02>> was not mainstream yet. So I got this idea to build a fresh help desk which helps companies to listen to customer complaints, not just over email or phone call, but also on Facebook and Twitter and so on. So I think that was the original idea to build a fresh help desk, and we called it Freshdesk.

02:22And help me understand. You know, have Actually, me the order real quick. So Freshdesk was first and then quickly, what was second, third, fourth and fifth?

02:29>> Yeah, so Freshservice was second, Freshsales was third, and then Freshchat was the fourth.

02:36And what about Freshteam and Freshcaller?

Nathan Latka

02:38>> So it came after immediately after.

Girish Mathrubootham, Executive Chairman & Founder

02:40Oh, so Freshchat, Freshcaller, and Freshteam were all kind of together?

02:45>> Together, almost in the same week or two weeks ago.

Nathan Latka

02:47Okay. All right. So that I mean, that's, I mean, you're averaging what basically one new product line every, you know, one and a half years essentially, correct?

Girish Mathrubootham, Executive Chairman & Founder

02:54>> I don't count.

Cohort Analysis and Cross-Product Expansion

Nathan Latka

02:58Tell me how you, one of the things I'm interested in is how you're doing cohort analysis across your customer bases, right? You have six different product lines, and I'm sure you have different cohorts in each of those different product lines. Walk me through what kind of analysis you guys are doing on a quarterly or monthly basis with your executive team.

Girish Mathrubootham, Executive Chairman & Founder

03:14>> So I think the context here is, see, Freshdesk and Freshservice are not really complementary products. One is focused on an entirely different buyer, so the external customer support and internal customer support. So there is not a lot of overlap between those two. Before I answer your question, so Freshsales was the first product we got out which really could be sold into our existing customer base. And then the other four products we launched last year. So what

03:45>> we do is, again, as part of our board meetings and investor analysis, we do all this fancy, I had to learn all of this stuff like the layer cake analysis and the net expansion into new products and so on. And I think what we see as a very big opportunity for us is the fact that I think only 5% of our customers actually use more than one product, which is the fact that all the products are

04:14>> new. And so we didn't want to put a cross sell team. I wanted to do product based auto discovery. Like two months ago, I think we launched Freshworks Unified Experience with an Omnibar and a single sign on called FreshiD. So I'm a product person, so I believe that for our SMB customers I want to do product led discovery, automatic discovery of products. Like how when you sign up for Gmail, you don't sign up for Google Docs

04:44>> or Calendar or you just use them. So that's the kind of product integration we have done. And now we are starting to see that cohort of customers using more than one product move up rapidly. And we are also in the process of seeing if you can do a cross sell program across our customer base.

Nathan Latka

05:03No touch though, all in product.

05:06>> Till now everything is in product.

05:08Yep, very good. So give me an average, like across all these products. Mean, Is this mainly for the SMB? What's the average price, what would you say across these things?

SMB vs. Enterprise Revenue Split and Pricing

Girish Mathrubootham, Executive Chairman & Founder

05:16>> More than one third of our customers and our revenues already comes from larger customers. So we have 65% of our revenue from SMB customers and 35% from what we call mid market or large enterprise customers.

Nathan Latka

05:32Okay. And if people want to start with you, they want to start with fresh sales today. Arbene, you talking $10 a month to get started, a 1,000, $10,000? Where does it generally start or average?

Girish Mathrubootham, Executive Chairman & Founder

05:42>> So I think fresh sales today okay. If you wanna get started, you can get started at zero, but the average customer today faces, I think, around 1,200 annual contact

Nathan Latka

05:54Okay, got it. And now they're paying on a monthly basis though, right? Are you locking them into an annual contract?

Girish Mathrubootham, Executive Chairman & Founder

05:59>> Most of them pay on a monthly basis.

Funding History and Venture Path Decision

Nathan Latka

06:01Yeah, okay. Very good. And then breakdown, it sounds like there's some funding here because you mentioned you have a board. So how much have you raised to date?

Girish Mathrubootham, Executive Chairman & Founder

06:09>> So till now, we have raised close to $250,000,000.

06:12250,000,000. And when was the first round?

Nathan Latka

06:15>> The first round was closed October 28, 2011.

06:192000 and okay. So fairly fairly it only about one year after your launch. Why did you decide twelve months in that the right path was gonna be to go down the venture path?

Girish Mathrubootham, Executive Chairman & Founder

06:28>> Yeah, that's a very interesting question. See, there are two things. One is in a SaaS business model, the marketing costs are very front loaded. So I have to spend, let's say for example, 1,000 to acquire a customer who's paying me $100 a month. So unless I have real word-of-mouth and virality, which usually happens when you are like a new category creator. But when we started, we started with help desk which was an existing category with multiple

06:57>> players. So it was important to kind of get funding in order to pay for the front loaded marketing costs and get scale. And I think this is a question that many entrepreneurs ask me actually, should they be bootstrapping or should they get VC funded? So I think if you are in a category where there's a lot of competition and if some of your companies are already funded, it's probably a better idea to get funding and scale

07:22>> rapidly because VCs are going to look for other players in the category. If you are still bootstrapping maybe others will get funded and build a superior product quickly and scale. But whereas if you have a nice moat and if you don't

Nathan Latka

07:38>> have a lot of direct competition, then you will have enough board of moat. And if you can also manage larger customers, then you can profitably boost.

07:45Yep. And so help us understand today, you recently did a raise. What was the valuation? What have you hit in terms of ARR run rate?

Girish Mathrubootham, Executive Chairman & Founder

07:53>> So we announced that we crossed $100,000,000 of ARR and our valuation for the last funding round was around $1,500,000,000

08:02And an IPO is coming up?

08:07>> So we don't have a definite date yet, but I think that is one of the obvious choices. And again, we are excited about that because

08:18>> there has been no product company from India that has actually IPO ed. So that would be a great story for us to be one of the We love Atlassian for the kind of success that they have from Australia. They're the only multi billion dollar product story from Australia. So I think we could do that the same for a company that started out of India. So I think that's the excitement. But having said that, we are not

08:44>> on a timeline yet. We're still in the startup stage and moving to a more mature company. I think we are there in terms of revenue, but we have to be ready before we can go.

Nathan Latka

08:56Now you're in good company. Jay, president of Atlassian was on a couple episodes ago and he said the same thing, how proud they are that they were the only folks in Australia, born in Australia known for this. So I'm certainly rooting for you. Give us some more of the customer metrics here. So how many customers do you have now on across all the platforms?

09:15>> So we have more than 150,000 businesses across all of our products using our software today.

Girish Mathrubootham, Executive Chairman & Founder

09:21That's great. Okay. And if you're at about a 100,000,000 run rate today, I mean, can divide, you know, a 100,000,000 by the 150 and what people are paying you about 56 ish bucks a month on average. Does that sound about right?

09:33>> No, actually this includes our free customers also. So we don't break free and paid separately.

09:40Oh, got it. So when you say 150,000 users, that includes the free users?

09:43>> No, 150,000 businesses are using, it's not users, it's companies using our software, but since we have premium versions for some of our products, that includes some of the businesses which are using the free version.

09:56Okay, so how many are just paid customers?

10:00>> No, I think we don't disclose that breakup yet.

Nathan Latka

10:03Okay, got it. And why is that? Is that just a strategic thing or you're still working on the conversion rate?

Girish Mathrubootham, Executive Chairman & Founder

10:08>> Basically, we just want to hold it till we are ready to disclose it to public. Basically, our PR team and our CFOs advised us that keep the numbers for some more time.

10:19Yeah, probably fair. Let's shift to something else. If we don't want to talk about customer count, churn is very critical at this price point, especially in the SMB space. 60% of your revenue comes from SMB. How have you managed churn and what is your churn today?

10:32>> So I think our churn is kind of in line with best in class SaaS companies that have SMB business in terms of the SMB business. So it varies by product, probably around I would say 2% a month.

Nathan Latka

10:50That's logo churn per month?

10:52>> Yes. But our dollar based churn is actually negative because of the expansion revenue. So we have a very healthy expansion, which means our revenue churn is negative.

Girish Mathrubootham, Executive Chairman & Founder

11:06That's great. We talked earlier about expansion and how you're driving cross product expansion within product kind of usage based upselling. You also but you said that less than 5% of user base actually pay for more than two products. So I'm assuming most of your expansion right now is coming from someone upgrading inside the same product. Is that accurate?

Nathan Latka

11:27>> Yes. That is correct.

11:28And what so what price you know, when we had Brian Halligan on at HubSpot, he talked a lot about the different pricing axes they use to drive higher price, but number of seats, number of usage, number of contacts, things like that. What kind of pricing axes do you use inside your products to drive expansion revenue?

Girish Mathrubootham, Executive Chairman & Founder

11:44>> So today it is broadly only two axes. One is when the customer grows in terms of number of seats. So that is definitely one. We see in our mid market and large enterprise business, we see a lot of land and expand. So companies that start with say forty, fifty seats actually expand to 200, 500, etcetera. So that's been one axis. The other axis is we also have a customer success program where we manage our, we have

12:15>> three tiered customer success program. And for our top, we speak to customers, understand their business challenges. We actually upgrade them to higher plans if what they need is something that we have built to the higher plan, but they're not aware of it and they're not using it. So today our account based expansion is much larger than our plan based expansion.

12:35I see, okay. So I heard you say two things. You have two pricing axes in terms of expansion revenue. One is number of seats, which is fairly typical. The second is you have a team of essentially built in consultants or account managers or customer support people who will recommend additional feature upsells to customers who are not using you to your full extent. Is that right?

12:54>> Yes, that is correct.

12:55Very good. Interesting. So almost like a consultative sale.

12:58>> No, it is called customer success. So basically, their job is not primarily sales. Their job is more to help adoption and be proactive in their relationship with their customers in terms of doing quarterly business reviews and helping customers accomplish what they want with our product. During that process, if they find that the customers need to accomplish something and that particular feature is available in a higher plan but the customer is on a lower plan then they

13:27>> suggest that and get the customer.

13:30Got it. So seat based upselling and feature based upselling, two main things. Very good. Talk to me about, we talked about upselling but let's go back to the top of the funnel here for a second. So customer acquisition, what has proved most effective for you in terms of customer acquisition?

13:44>> So we really have a long tail of online acquisition as the primary. So freemium is definitely something that drives a lot of top of the funnel. And we do all kinds of online acquisitions. So we have very little outbound calling but majority of our leads are inbound and primarily through SEO, SEM. So I think different products have different splits. We have fiftyfifty, sixtyforty kind of split between paid and free or organic lead gen.

14:18And give me a general sense monthly, what are you spending on direct paid Google Ads, Facebook Ads?

14:26If you had to guess.

14:27>> I don't, probably in the millions of times.

14:30In the millions of that. So between, we'll say between a million 10,000,000 you think?

14:34>> Yeah. Maybe.

14:34Yes. Yeah. Okay. And not not more than not more you're not spending more than 10% of your revenue on on on direct paid spend is what I'm I'm trying to get out a percentage.

14:43>> And you're talking about millions

14:46>> of dollars per month. Right?

14:47Per month. Yeah. Okay, good. So maybe, who knows? Very good. And then talk to me about team today. So where are guys at? How many team members?

Team Size and Global Office Locations

Nathan Latka

14:55>> So we are like 1,500 employees and growing. So I think we're adding more. So right now it's around 1,500 across all of our offices. Where

15:05are the offices mainly? Where is the headquarters?

Girish Mathrubootham, Executive Chairman & Founder

15:08>> So we are headquartered in San Bruno, California, and the largest team is in Chennai, India, the product development team engineering. We also have offices in London, Berlin and Sydney. So London and Berlin are around 35, 40 people each. I think London is 30 and Berlin is probably 40.

15:31>> And Sydney, Australia is a smaller team, that's 60.

CAC, LTV, and Payback Period

Nathan Latka

15:34Very good. And before we wrap up here, Jiresh, with the famous five, I meant to ask you this CAC. So when you look at your fully weighted CAC, I know you're doing a mix of many different things. But generally speaking, what is your fully weighted CAC today?

Girish Mathrubootham, Executive Chairman & Founder

15:48>> So I think,

15:51>> again, it's different for different product. What we look at is CAC by itself would be meaningless. Basically I'm interpreting your question as what's more interesting for SaaS companies you have to understand both payback periods and LTV to CAC ratios. So I think each one of our products operates at say fifteen to sixteen month payback on a gross margin basis. That's what we try to be at and really LTV CAC.

16:23And sorry, an LTV to CAC of what?

Nathan Latka

16:25>> So it depends on each product, but we know the benchmark is three, so we are around that.

Girish Mathrubootham, Executive Chairman & Founder

16:31Okay, very good. So good, quick, so someone comes on and is paying you $1,200 per year, you're saying you're totally willing to spend 1,400, $1,500 to acquire that logo or that company in the first place. Very good. And talk to me about growth. So you just told us you passed a $100,000,000 run rate today. Where were you at a year ago in August or September 2017?

Growth Rate and New Customer vs. Expansion Mix

Nathan Latka

16:50>> So I think as a private company yet we are not ready to disclose some of those. I'd love to check with my team. But we are growing at, let's say very, very healthy rates, north of let's say 40%.

17:08North of 30 or 40?

17:11>> So I'm just using it as a ballpark, north of 40.

17:14North of 40. Well, that's, I mean, if you're at a 100,000,000 run rate today, growing 40% year over year is healthy for obviously that scale. So congrats on that growth. And is most of that coming from new customer acquisition or from expansion?

17:26>> So mostly new customer.

17:28Okay, that's great. Very good. All right, let's wrap up here with the famous five. Number one, what's your favorite business book?

17:36>> Execution.

17:37Number two, is there a CEO you're following or studying right now?

17:41>> The Jeff Bezos.

Girish Mathrubootham, Executive Chairman & Founder

17:42Number three, besides any of your own, what is your favorite online tool for building your business?

17:48>> No, so it used to be OneNote, but right now I'm just thinking probably I would just say my Mac.

17:58You struggle because your products, I said you can't name one of your own, but your products do so many things. It's like you don't wanna name someone that might do something similar. I have to ask you actually about that too. I mean, go into, you It's know

18:10>> it's the entire Google Suite. We are heavy users of that, the Google Docs and the help outs and stuff.

18:16Yeah. Why do you how do you get

Nathan Latka

18:18>> Right Right now my favorite tool is Zoom.

18:21Zoom. Okay. Very good. Eric will appreciate that. Was on a couple episodes ago as well. Tell me real quick. So like you just You recently launched Fresh Chat. I mean, when you look at the space in a kind of isolated way, I mean, intercom, Drift, people are raising hundreds of millions of dollars, billions of dollars in valuation. When you look at that space, why do you go, you know what? Even though there's some people here that

18:40are well funded and they're only focused on kind of messaging and chat, we're going to go after that space. How do you make that decision?

18:47>> So see, are not looking at competition and deciding. So we are looking at the entire market size and our core base. See, our focus is on customer engagement. So when I say customer engagement, like if you look at Freshservice or FreshTeam, we look at employees also as internal customers for IT team or for the HR team, the employee is the customer. So our core is about how can we make customer engagement across all where the customer

19:20>> lifecycle is. How can we win there? So in that sense, definitely today's customer wants to be omni channel. So they want to speak on chat or social or email or phone. So that explains why we had to do like caller or chat or whatever. So today's customer, we want to manage all conversation. Today's businesses want to know everything about their customer. So what we are doing is executing on our vision of how do we see the

Girish Mathrubootham, Executive Chairman & Founder

19:48>> future of customer engagement. That's what we are looking at. So whether it's AIML or omnichannel engagement or full lifecycle of customer management.

19:58Got it. All right, number four here. How many hours of sleep are you getting every night?

Nathan Latka

20:02>> Try to get at least seven hours.

20:03Okay. That's healthy. And what's your situation, Juresh? Married, single, kids?

20:07>> Well, I'm I'm married with two boss.

20:09Too little. Are they little or are they out of the out of the house?

20:11>> No. They're 14 and 12.

20:13Ah, okay. And how old are you?

Girish Mathrubootham, Executive Chairman & Founder

20:15>> I'm 43.

20:1643. Last question. What do you wish your 20 year old self knew?

20:20>> Okay. I I should have probably started sooner.

20:25Guys, there you have it. Freshworks or sorry. Well, everyone knows it for many different products now, but Freshworks, the parent company, started in 2010. Now over six products really focused on customer engagement across every platform. It all started with a broken TV. He couldn't get a freaking insurance or refund on. He said, you know what? I'm gonna build this thing myself, make the system better. They've just passed a $100,000,000 in ARR going 30 to 40 year

20:47over year, about $250,000,000 raised. Looking at potentially an IPO coming up here shortly serving over a 150,000 business logos on their platform. Economics are super healthy with the sixteen month payback period on these accounts that come on and start paying them call it $1,200 in first year ACV. Churn is below 2% logo churn per month and net negative revenue churn because of their in product expansion being at super healthy levels. Tivo fifteen hundred based in San

21:11Bruno, California, India, and other remote locations. Juresh, thank you for taking us to the

21:15>> top. Thank you.