SaaS Interviews with CEOs, Startups, Founders
Was Selling Majority to Vista The Right Move? Gainsight Customer Success Platform Hits $100m ARR, 1,000 Customers
06 Sep 2021
Chapter 1: What is the main topic discussed in this episode?
I don't know what it is. You probably know better than me.
Chapter 2: What significant growth did Gainsight achieve in recent years?
I mean, you went from 2019, 67 million run rate to 2020, $100 million run rate.
I mean, that's pretty healthy growth. It's good growth. It's good growth. Totally. Yeah. And so the business is going well.
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Special guest today, my guest is Nick Mehta with Gainsight, customer success software aficionado leading the company launched many years ago. Customer success company is the brand today, a five-time Forbes Cloud 100 recipient. Their team is now nearly 700 people who have created the customer success category that's currently taking over their SaaS business model worldwide.
He's been named as one of the top SaaS CEOs by the Software Report three years in a row. Nick, you ready to take us to the top?
Awesome to be here, Nathan. Thanks so much.
You know, we were joking about football last time you were on, I think back in 2018, 2019. The Washington football team, my team, has passed Dwayne Haskins on to you guys. I will say, don't get too excited. I'll just leave it at that, okay?
He's doing okay in the preseason, surprisingly, so I don't know. But yeah, he seems like you can't count on him, so we'll see.
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Chapter 3: Who is the special guest and what is their background?
But why do people have CSM teams? They have CSM teams to improve net retention in their company. They want to keep their customers. They want to get them to spend more money. They want them to be bigger advocates. That's net retention. The number one valuation driver in SaaS is net retention. And we want to be the company to help businesses improve net retention.
Now, to do that, it's not just about the CSM team. You need the sales team to learn how to sell new things to your customers. The product team needs to build products that are easy to adopt and use from the beginning. We went from a single-product company to now portfolio products that we call customer cloud.
Customer cloud. I think there are four key things here. There are success, engagement, experience, and expansion, right?
Yep. So customer success, which is where we started, scale your CS team. How do you not have to throw people at it? There's customer experience. Measure how your customers feel about you in terms of surveys, NPS, in application through email, and then really deep and natural language processing to understand What are the themes that are coming up? Are people upset about your pricing model?
Are they really happy with the sales experience? Number three, revenue optimization. That's all about now that you have these great, successful clients, how do you get them to spend more money? So forecasting your renewals, driving expansion, identifying the cross-sell opportunity in your accounts.
And then finally, product experience, which says, okay, the most important thing is to make your product awesome because everything else doesn't matter if your product isn't awesome. So in the app, you drop in a small amount of code.
onboard your users more easily, get them to try out new features, get feedback from the user in the application, and give them in-app support to guide them to the right experience to get them the most value out of your product.
And Nick, when you're thinking of these new product lines to go into, I now understand the net dollar retention figures, like the driving force, it sounds like, between your sprint cycles on the engineering side. But there are, as you know, multi-billion dollar companies doing just like one of these things. I mean, look at Pendo, for example, in product engagement, right?
How do you decide what wedge to launch with in the product engagement category and then decide what order of operations is in terms of what you develop next on the product side in that category?
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Chapter 4: How has Gainsight expanded its product offerings over time?
Yeah, we're close to, I think, about 1,000 customers now, a little bit more than that. But the ASP has gone up a lot too. So sort of, as you know, Nathan, one of the things that happens when you have multiple products is you actually can drive a lot more spend from your clients as well.
So this is something I want to go deeper on because this is net dollar retention. We're going to get meta.
Meta. Meta, meta.
You like how I see what I did there? Meta, meta, meta. So you were back then, you told me that average ARPU was around $8,000 or annual ACV about $100,000. I imagine you've significantly expanded that at this point.
Yeah, it's higher than that. As we get bigger, it's a little harder to disclose all the metrics now because you can imagine, for obvious reasons, we have to be a little more careful. But yes, it's significantly higher than that, which means other people are both buying more of our core products, CS, but also more of those other products as well.
Nick, let me ask you an interesting question here. If you could not add any new customers, no more new logos, you could only sell more seats and more products to your current logo base, how much could you grow over the next year?
Well, you know, it's interesting that if you look at our business, there's a few factors that drive very natural organic growth. There's more CSMs in the world every year. And so that naturally drives growth of our CS product, right? And then most of our customers, about 17% of our customers have our PX product today. That means there's 83% still to go buy it.
So you can go drive more sales there. We have these new modules, revenue optimization, customer experience, and then we're launching more and more products modules both organically as well as, at some point, probably some other acquisitions. I can't give you an exact number, but it's significant. There's a lot of opportunity in our base for sure.
Then if we combine all the new customers you're going to add here in 2021 plus the expansion from historic ones, you don't have to give me a flat number, but what do you think percentage-wise you guys will grow at this year?
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Chapter 5: What role do Customer Success Managers (CSMs) play in business retention?
And so one of the things we do a lot of is look at primary data. For example, Bain Consulting Group did a study for us and found that CSM teams are growing about 30% a year overall. That includes some that are growing super fast and some just getting started. There's a lot of data out there that helps us understand what our growth rate should be long-term.
Well, again, it's a hot space. Now, you sit on all this and on other companies. For someone listening right now that's maybe trying to scale and go between $10 million in revenue up to $50 million in revenue, what is like world-class net dollar retention for that size company in SaaS?
Yeah, totally. And by the way, one thing about net retention is there's kind of two big variables.
Chapter 6: How does Gainsight define and measure net retention?
One is like your operations, meaning your sales and customer success and all that. That's my world. The other one is your business model. So there's some companies that have a consumption-based business model. So Snowflake, 180% net retention, right?
If you're like a classic kind of software seat model, don't compare yourself to Snowflake because honestly, they'll just make you feel bad because that's a different business model. So in consumption, you see companies with 150, 160, 170, 180%. In sort of more your classic subscription, $110 is very good. $120 is really good. $130 is awesome, right? And so that's kind of the range.
If you're more of an SMB player, meaning selling to small businesses, $100 is good. HubSpot, I think, is about 101, and that's amazing. They're doing a great job. You need to put yourself in the right comparative set. We actually published a report on our website of all the public SaaS companies in terms of net retention and also what their valuation multiple was.
The point was to show there's a big correlation between net retention and valuation. But when you look at it, you should eyeball and think about the companies that are like you.
Nick, if someone's listening right now going, oh, I want to maximize valuation and the highest valued companies are ones like Snowflake that are almost, they're not really SaaS. They're more like a utility line. It's utility pricing. Shouldn't everyone be moving away from SaaS and into utility-based pricing?
Shouldn't every basketball player that is starting on the court be LeBron James, right? And the reality is some are born to be LeBron James, some aren't. I would argue that there's some businesses that actually naturally lend themselves to utility-based pricing.
So if you're starting a company from scratch, I do think the companies that are utility-based, product-led growth, consumption-based pricing are the best businesses largely. And by the way, I'm saying that Gainsight is not one of those.
So I'm not- You are not. Yeah, yeah.
I'm not, you know, and we have very good business, but definitely the outlier businesses mostly are in that sort of product-led growth, consumption-based pricing, et cetera. But you have to sort of say, what are you, right? If you're selling enterprise software that is like sold to the CHRO and it's like a three-year contract. You're not going utility-based pricing anytime soon.
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