SaaS Interviews with CEOs, Startups, Founders
1401 UserTesting CEO "We're at $65m in ARR Now, Hoping to Break $80m by EOY" across 3000 paying customers
26 May 2019
Chapter 1: What is the main topic discussed in this episode?
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Joined user testing in 2017, actually just a couple months ago here in 2018, but the company user testing was launched in 2008, really driving human-centered insights, right? You put up a project, they'll go through a flow for you, you get to watch them, hear them, they give you great feedback.
Now serving over 3,000 really enterprise customers, 33,000 there in the long tail, doing between 60 and 70 million bucks in terms of ARR, hoping to grow about 40%. year over year between the end of 2017 and the end of 2018. They've raised $74 million. Economics underneath are super healthy. 84% gross revenue retention annually. That's 115% on a net basis.
So healthy expansion, which allows them to be aggressive with CAC, paying up $1.50 to call it $1.70 for a new dollar of ARR, which puts payback period in the 19-month range. Has a team of about 250 people, 120 sales, marketing, onboarding, based between San Fran, Atlanta, and other remote locations, especially the inside salespeople that are out on the road.
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple of hundred thousand dollars to 2.7 million. I had no money when I started the company.
It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode. Hello, everyone. My guest today is Andy McMillian.
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Chapter 2: What is UserTesting and how does it help companies?
We think the arrow of big data is upon us, and that's great. It's really nice to have a lot of data about where people are clicking or what they're doing on your site or in your app. But we also think data isn't a replacement for actually having empathy for what real people are doing.
So we have a lot of customers who have a big data strategy where they're using something you mentioned, full story, as an example. So they might be using full story to track all the clicks of the people at their website. But what they also want to do is say, hey, we're thinking about maybe making a change to our global navigation. Let's get some real feedback for
some real people we can watch use the site and hear what they're experiencing and see what they're doing. In fact, I think it was in his most recent shareholder letter, Jeff Bezos of Amazon said, you know, data is not a replacement for the customer. I think that's really what we're trying to do is bring that human experience feedback that human loop back into the conversation.
So it's really an and, you know, you want great data. You also want to have empathy and see what real users are going through when they use your site or your app or your product.
And walk me through, you know, you have a lot of different, I imagine, customer cohorts, but on average, what is a customer paying you per month to use the software?
It varies a ton. We go all the way down having individual developers or product people who are using our product, maybe a single developer building an Amazon site, but up to the largest companies in the world. A large company is typically spending anywhere from 50 to a couple hundred K on an annual basis to have their UX research team and their designers on our platform.
Yep. And would you say, I mean, would you say the average is more towards 50 bucks a month across your customer base? Or actually, no, it's really more enterprises, enterprise sale at $50,000 ACVs paid up front annual plans?
Much towards the latter, although we have a mix of both.
Okay, got it. Fair enough. And kind of put this on a timeline for me. I know you just joined the company, but when was the company launched?
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Chapter 3: What differentiates UserTesting from automated feedback tools?
Right. So you're just saying expansion is already healthy. Our bigger opportunity is to make gross even stronger. Peel back that onion for us right now. What is gross churn revenue for you annually right now?
Yeah, we're at about 84% gross retention. That's not horrible either. Yeah, especially because we still have a large number of SMB customers. I think that segment is just naturally tougher. There's more acquisition, expansion, companies that go out of business. SMB is just naturally a tougher space, whether you're Salesforce or you're a tiny SMB SaaS company.
Always have a challenge in the SMB segment than in other places. But I think that's a really big opportunity. And that's something that I have found repeatedly. When I speak at SaaS conferences and things like that, one of my big areas as a CEO is to think about the fact that you don't want to incent your post-sales team on net retention. Let your sales team go sell the upsell.
They're the sellers. You want a post-sales team that gets up every day and just says, my job is to make customers successful. My job is to make customers get value from what we're doing. And so we, frankly, haven't been lined up that way. We've made that change since I've joined, and yet we still have very good gross retention numbers.
So I think there's a lot of upside for us to even do better there.
Yes. Few last questions around economics, and we're running out of time, so we'll go quickly through these. But talk to me in terms of a CAC. What are you willing to spend to acquire one of these new customers in your enterprise cohort?
Yeah, I'm a little more liberal on this than most. I'm willing to spend $1.50 to $1.70, but all that's based on this idea of having really high gross reduction.
Yeah, and just to be clear, you're willing to spend $1.50 to $1.70 to get one new dollar of ARR? That's correct. Yeah. So break that down for me. Payback period wise that you're you're happy. I mean, that would be pushing what is 18 month, 20 month payback period in some cases.
That's right.
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Chapter 4: How does UserTesting's pricing model work for different customers?
We have about 3,000 customers.
Oh, 3,000. Okay. I read when they did the press release for you joining as CEO, it was 35,000. So is it 35,000 users, but 3,000 paying customers?
It's 35,000. If you think of the long tail of the SMB space and the page you go customers, it's about 3000 in the subscription business, which again, drives the bulk of our revenue. We still have a page you go business where people can come and sign up for a $50 test.
It's not really our enterprise product, but I still think it's very able to make sure that we're servicing those kinds of entrepreneurs and people that are starting an app or a business.
Yeah. Okay. Got it. That makes perfect sense. So just to be clear, those, those extra call it 33 ish thousand. Those are people paying, you know, 49 bucks a month for 15 videos. That's right. I see. I see. Got it. Okay. And then 3,000, that's really true SaaS. Very good. And last question.
I give that number specifically. We don't come on and say, look, you know, our average, you know, customers and enterprise customers paying us a couple of hundred K a year. And then, so we have 35,000 customers. I think, you know, people listening at home would do that math and think this does not add up.
So 3,000 in that subscription base, 35,000 is kind of a long tail of, of smaller companies that use our product, which is great too. I think that's an important part of the SaaS business model.
Yeah. No, I did that math. And I said, I'm in the wrong business. Andy's cranking 125 million bucks a month. This something's not adding up here. So this makes more sense. Can you give us a general sense of ARR range you're at today?
Yeah, we're between 60 and 70 million in ARR.
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Chapter 5: What is the history and evolution of UserTesting's business model?
Number one, what's your favorite business book?
My favorite business book is The Goal by Eli Goldratt.
Number two, is there a CEO you're following or studying right now? Mary Barra of General Motors. Number three, what's your favorite online tool for building your business besides your own?
You know, I'm a Google inbox fanatic. I'm really hoping Google doubles down on that product because I love it.
Number four, how many hours of sleep are you getting every night?
About six, but it's probably a rough number because I have a two-year-old, so I'm up pretty early most days. One kid or more? I have nine and seven-year-old boys as well. I have a two-year-old little girl. Three kids.
Three kids. Married? Yes. And how old are you, Andy? 41. 41. Last question. What do you wish your 20-year-old self knew?
I wish my 20-year-old self knew that I was not as wise as I thought I was and to get a lot more experience at that age with my eyes a little bit more wide open.
Guys, there you have it. Has a lot of experience in SaaS at scale coming from Acton. Joined user testing in 2017, actually just a couple months ago here in 2018, but the company user testing was launched in 2008, really driving human-centered insights, right? You put up a project, they'll go through a flow for you, you get to watch them, hear them, they give you great feedback.
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