The Exchanges

Q Good. That's very good to hear. All right. For people that are not familiar, just give us quick overview. What does user testing do and what's your revenue model? How do you make money?

A Sure. Well, we're a SaaS business, so we make money like most SaaS companies selling subscription software. What the platform really does is help companies connect directly with end users, customers, prospective customers to give feedback on their actual product and service. So you build an app or a website, you could use user testing to reach out and say, this is my, my demographic, my target audience. And then we give you rapid feedback. So most of the time in about two hours, You get a video back of your audience actually using your product and giving you real feedback on what it feels like to engage with your product or your service. And that's what we call human insight. Gives you empathetic, real feedback from a real person.

AI assessment note: “we're a SaaS business, so we make money like most SaaS companies selling subscription software.”

Q I see a lot, so it's hard to be impressed, but you, you rarely see a situation where someone goes from call it 40, fifty million in 20, 17 to 65, seventy million in 2018, so call it 25, 30% growth, And then actually see growth pick up with on a larger base because. Cause it's much harder with a larger base. What, what drove your ability to do that?

A I think it's a couple of things. I mean, there is a market dynamic, um, that's supporting us. I mean, product market fit goes a long way when you're trying to grow. And we are seeing a dynamic where Um, 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. Um, that is, is growing. 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 You know, buying group that we originally had, other teams are realizing the value of our product. They're saying, boy, 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 the 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, you know, 20 or 30 seats. I mean, we have a customer right now we're working with that's looking at doing, you know, 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 tha…

AI assessment note: “I think it's a couple of things. I mean, there is a market dynamic”

Q What, what is, what is driving? Well, first off, uh, what role at user testing is responsible for the upsell, right? To get better expansion numbers and what's driving their ability to close more upsell revenue.

A Yeah, this is one of the things I have a little bit of religion on and sometimes end up in debates on different kind of SAS stages with folks about, um, I have a chief customer officer who reports directly to me and they are solely responsible for making sure the customers are successful. Um, 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, they'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 and As a metric, but mostly focused on just CSAT, customer success, adoption. Um, I view gross dollar retention as really an outcome metric from doing those things right.

AI assessment note: “I have my sales team and their job is to manage the contracts and growth”

Q 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?

A Company was actually launched 10 years ago, and it started, it really is a pay-as-you-go model. The idea that you would have something you need to test it, you would come to our website, and you would pay, you know, a one-time fee to have one test run, essentially. And about four or five years ago, we started having some of the largest companies in the world coming to us and saying, hey, this is really great, but I need to do this at scale. I need to bake this into my process. I need this to be part of how I build and develop product. And that's really where our subscription product was born. And that's just, that's just taken off. And so now, you know, a vast majority of the revenue and the focus of the company has been into that subscription area, and that's, you know, kind of how the subscription business was born here.

AI assessment note: “Company was actually launched 10 years ago, and it started”

Q The second, sorry, sorry, Andy, does that mean, sorry, I don't mean to cut you off, but before you go to number two, does that mean you're going to add new customers in that segment or you think you can grow the teams that you have five people from one company and you can grow that to 50 people?

A Well, that's actually what's amazing is both of those are happening. So we believe that the leaders in customer experience today, ones that are winning markets, those companies are continuing to invest in customer experiences who are growing rapidly inside those companies. Their competitors are seeing what they're doing and realizing they're losing customer experience, and then they're reaching out to us and we're growing in those accounts as well. So we're seeing both significant logo growth and we're seeing significant growth within the logos we're at already. Uh, we see pretty massive expansion, uh, inside our accounts. Uh, you know, when I joined, you know, just in my first quarter, we had a large, you know, fortune, 50 company where, you know, we started off in one department, and we were in the process of doing a ULA with them to go across 28 departments that's just grown organically.

AI assessment note: “what's amazing is both of those are happening.”

Q what, I'm in Andy space, Nathan, I can't believe you got him on the show. You know, you know, I don't know how I'm going to make it through this, but I've got four million bucks 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?

A Yeah. 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, of a shopper than a buyer. I mean, I think, you know, we lay out a strategy and think about where do we want to go? What makes sense for us? What things are our customers in the market asking for from us? Then we do a buy and build partner around those and think about how to go service that need as best we can. You know, M&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 for them. And so I think, um, you know, it's something that we'll continue to be deliberate about and we'll do it when it matches a 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 to do? How do we buy, build, and partner to make that happen for them?

AI assessment note: “we'll do it when it matches a strategy that we're laying out”

Q thing. It forces the focus on every single month driving that usage or that behavior. Um, I imagine you've built that into the software. So it's, Kind of a no touch usage model and maybe some, there's some exec on it as well, an enterprise account executive or something. How do you drive and make sure that usage stays consistent month over month so you truly do have predictable revenue?

A Yeah, that's a great question, and it's very true, although with our product, I think part of what's unique about it is because we're delivering an experience back to our customers where they're watching someone use their product. In many ways, it doesn't scale like a data product scales. You actually have to put the time in to get the value out. So for a lot of our customers, they actually have an unlimited consumption model. What they're paying for are seats, people who can get the insights, and because they actually have to invest the time to consume the insights, That actually helps protect us from, you know, ridiculous usage in an unlimited model, um, but actually provides a ton of value to our customers because as they run different projects, they can just ramp up and use more of the product really as needed. We do have, as you would expect in most enterprise kind of SaaS models, we have a customer success team that is engaged with our customers and making sure they're onboarded correctly, that they know how to set up and run the studies. Uh, we do it like any good SaaS company. You know, we have metrics in our own product to make sure that we're seeing adoption. And it usage and that people are getting value. And if they're not, you know, we swoop in and help make sure they understand, you know, how to use the product or how to plug it into their process.

AI assessment note: “we have metrics in our own product to make sure that we're seeing adoption”

Q Okay, 40%. And how do you back into that number? Is that kind of you setting it, the board setting it? How do you get that?

A Uh, that's the number I inherited joining, but it makes a lot of sense. Uh, I, I spent, I spent a bunch of time with the co-founder before I joined, uh, really getting to understand the plan. If I didn't like the plan, I would have changed the plan. Um, but, and, and frankly, that was a slightly conservative plan because they knew that they were going to go through this, this leadership transition. It was something that our co-founder, he actually led that process. Uh, this is his second startup that's gone more than 10 years. He wants to go do some more social good in the world and control this process from the beginning. In fact, he had controlling interest to the board. Uh, more or less when he kind of made this decision. So they put together a fairly conservative plan and we seem to be now beating that plan. We beat our Q two plan by about 20%. We're on pace with our Q three plan. So, you know, feeling pretty good about making those numbers and, uh, and grow a business.

AI assessment note: “that's the number I inherited joining, but it makes a lot of sense.”

Q more, much more of a multi-pronged approach. I mean, talk about, yeah, I mean, loads of products, bunch of different upsells, ARPU expansion across the SMB customer base. You could argue it's a very different model than, than user testing. If user testing really is kind of enterprise, 50,000 dollar ACV kind of things, what was more exciting for you? I mean, why leave Acton for the user testing opportunity?

A Um, I think with Acton, what was exciting was that the company was in, I think in marketing automation, really seeing a resurgence of the technology. I'm a product guy by background, so I find that tech to be particularly interesting. A lot of the focus there was actually taking Acton from being really, really SMB, kind of month-to-month contract. What we did was move that to an annual model, started competing much more in the mid-market, competing with folks like Marketo, and really trying to get that company, frankly, kind of do a healthier place, because I think those month-to-month businesses can be pretty tough. We certainly accomplished that. Uh, we consolidated the company into Portland, which is where the company was founded. Uh, I think it had grown too fast and, and too, too low end. Uh, and so as we did that, you know, my family in the Bay Area Portland. Uh, and what I liked about user testing was this feeling I've had for a long time that a lot of the products even I use in my day-to-day life might feel like there's been good data telling them where to position everything, but it doesn't feel like a good product. It doesn't engage me. I don't enjoy using it. I mean, my click data might say, uh, I'm in the product every day, but it's not a good experience. And so when I met Darrell, the founder of user testing, we had a lunch together and he started describing what t…

AI assessment note: “what I liked about user testing was this feeling I've had for a long time”

Q And will, do you, you know, with the funding raise and with everything being cheaper, right? Will you double down on that burn rate until you're comfortable going up to three and four million even in a crisis?

A Well, what we don't do is just throw people in the, into the field. I know this is something that happens often when people lay 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. I mean, that's just not really our MO and user testing. What we do is we pretty meticulously manage and measure our pipeline. We saw massive pipeline growth last year. Our pipeline was up 75% year over year. So, you know, we look at something like that and we think, okay, I've got capacity to hire reps and, you know, feed them with, with leads. So we'll keep doing some of that. But, um, again, it goes back to things like investing in the product. Um, we're doing, we acquired a company six months ago called Truth Lab, which is about doing AI video processing. So we're processing the videos that, uh, people do on our platform and using 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, uh, and hope ARR comes at the end of it. That's just not a solid strategy.

AI assessment note: “We'll do all of those kind of based on leading indicators”

Q that allows people to launch surveys, right? Uh, survey monkey 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, uh, like questions pro, right? Like, is now the time to pull the trigger more aggressively, like for you to put your seller's hat on even more aggressively?

A I think 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. What 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. And 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. So, um, it could be, I mean, and there are, you know, I'm picking on your specific example. I don't mean to, to dive in.

AI assessment note: “I think now's the time where deals will happen in some of those cases”

Q 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 20 X forward looking revenue multiple. Let me open that conversation. Now, have you gotten emails like that? And if so, how do you respond?

A I 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. Um, I think they're pretty excited about the way we're building the business. You know, raising a funding round is, is not a typically a near term Exit strategy. Uh, so, you know, I think we're in this for, for the foreseeable future. I think our management team, our board, our investors, our employee base, I think we see a lot of opportunity for us to go continue to build the business, but I don't think, um, 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 you already know, and you're already doing a lot of business with.

AI assessment note: “I don't think those people kind of emerge from the shadows in a time”