The Exchanges

Q Customer cloud. I think there's four key things here. There's success, engagement, experience, and expansion, right?

A 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 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.

AI assessment note: “Yep. So customer success, which is where we started, scale your CS team.”

Q Well, again, it's a hot space. Now what you, you sit on all this data on other companies for someone listening right now, that's maybe trying to scale and go between ten million in revenue up to fifty million in revenue. What is like world-class net dollar retention for that size company in SaaS?

A Yeah, yeah, totally. And there's, by the way, one thing about net retention is there's, there's kind of two, two big variables. 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, a 180% net retention, right? Don't compare. If you're like a classic kind of software seat model, don't compare yourself to Snowflake because honestly, it'll just make you feel bad because that's a different business model. So in consumption, you see companies with a 150, a 160, a 170, a 180% in, in sort of more your classic subscription, you know, one, one 10 is very good. One 20 is like, is really good. One 30 is like awesome, right? And so that's kind of the range. If you're more of an SMB player, meaning selling to small businesses, a hundred is good. HubSpot, I think, is about a 101, and that's amazing. They're doing a great job. And so 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 look, think about the companies that are like you.

AI assessment note: “in sort of more your classic subscription, you know, one, one 10 is very good.”

Q a SaaS business, thinking about NDR, um, your own business. I mean, you launched in 2012. You shared this last time on the show. I think you guys raised up through 2017, about a hundred ninety million bucks. One of the big changes though, between the last time we chatted and now is you did a deal with Vista Equity in November of 2020. Why did you do that deal?

A Totally. So we, you know, uh, at that time we'd been doing gainside about eight years and it'd been amazing and You know, we reported that we had crossed a hundred million of AR and all that. So lots of amazing, awesome, super lucky. Um, and everyone listening that's an entrepreneur knows that, um, if you, you know, if you really believe in what you do, it's a long journey, it's a marathon, it's not a sprint. And I really believe what we do and we think we can build something really big. And so I wanted us to be aligned for going long and, you know, being a long-term independent company. And Vista is kind of showed up in this new category where they're not really private equity anymore and they're not your classic VC. They're investing in companies that are trying to be these like long-term growers, not, you know, Gainsight's never since the early days been a snowflake or UI path to one of those, you know, 500% growth, right? That's just not who we are because we're kind of creating a new category, but we have a very good growth and very actually now good and great economics and everything else. And, you know, Vista really wants to invest in companies that are building for the long term. And so we were excited about that. As you know, Nathan, when you run a team, part of it is our team's been doing a long time. So there's an awesome opportunity to For people to take care of the…

AI assessment note: “have an investor that's excited about the long term, have our team be taken care of”

Q And why was the capital needed? I mean, why couldn't you bootstrap this?

A Yeah. In enterprise SaaS businesses in general, because you sell, you have a longer sales cycle and you have to build a sophisticated product. Typically they do take a lot of money because you have to spend a lot of money up front and you get those customers to pay you over time. I think it's even more so When you're creating a new category, we created this category people call customer success, and there's a whole new job associated with it that we've helped to kind of popularize. When we got started, it was a brand new category. So you have to do a lot of stuff to make people aware of the category in our case, to get people to hire customer success managers, build the product. So building a category is definitely expensive, but hopefully it'll pay off.

AI assessment note: “In enterprise SaaS businesses in general, because you sell, you have a longer sales cycle”

Q Interesting. Okay. So what's your most effective upsell module? Is it number of seats?

A Yeah, it's seats, but it's really seats driven to use cases. So when people buy gain site, just like probably many products that are listing now, they buy it initially for their CSM team, but then the salespeople want to know what the CS team is doing. So we might buy sell seats to them or the product team wants to know, Hey, how do I make my product better? And by the way, that's a good segue. We also launched new products because we've now built a suite. We call the overall suite customer cloud. And the idea is we want to make every department customer centric. So we built a product. That's all about helping product teams build more customer centric products. Sales teams sell a more customer centric way. So now we have different kind of products for different functions within the company.

AI assessment note: “Yeah, it's seats, but it's really seats driven to use cases.”

Q And what is, I mean, how aggressive today, right? You're staged and kind of company. How aggressive are you being to drive growth in terms of burn? I mean, you happy burn in a 1,000,002 million a month or give me a general sense of where you're at.

A Yeah, I think it's in that rough range that you just said. We are aggressive, probably not, you know, if you kind of plotted everyone, we're not at the extreme of aggressive, but we're not yet at breakeven, right? But I think it's all, as you know, very well, it's all about just understanding where you're going to be growth wise, what that burn is, what's your customer lifetime value. And very specifically, you know, we want to get to the point where, you know, next couple of years, when you look at us, you probably familiar with the rule of 40, where you take the growth rate minus the burn rate as a fraction of revenue. And a lot of the best companies have that metric be above 40. We're, you know, we would like to get to that point where we're, if we're burning money, it's because we're going super fast. And if we're not going super fast, we're making money, right? And that's, that's the ultimate balance everyone wants to get to.

AI assessment note: “Yeah, I think it's in that rough range that you just said.”

Q 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, product engagement, right? Like 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, on the product side in that category?

A It's a great question. And we, when we, when we decided to go to a multi-product, the first thing we got into was PX, the product Experience area. And there's great companies in there, Pendo, Walkme. They're all very good companies. What we heard from our clients over and over again, when we asked them, if we had a magic wand and we could do one thing to help drive net retention to your company, every CS leader said product, every single one, the number product, better data about how people use the product, better engagement in the product, better feedback from the product. And so we found a great company that hadn't really launched yet called Apptrinsic. We bought them integrated into our suite. And what we're seeing from our clients is they don't want a disconnected experience between what the CSM is telling the customer, what the salesperson telling the customer and what's happening in the product. They want all of that connected together. Companies like Adobe, Splunk, Autodesk, they want all of that stuff tied together versus being silos. So it's, you know, there's great point companies in the space that they do other things that we don't do, but we're the only company in the world that can really link together CS product and sales to improve net retention.

AI assessment note: “What we heard from our clients over and over again... every CS leader said product”

Q Now churn is obviously critical in any size company. You actually have it yourself, but you also, this is what you help people manage as well. So if I'm going to ask anyone these questions, it's going to be you. So if you look at your past 12 months and you look at gross revenue churn, what has it been for you and how do you try and mitigate it?

A Yeah. So we, we don't report exact numbers, but we've had in the gross retention in the nineties, so very good gross retention. And, uh, generally speaking, our customers have been willing to partner with us for a very long period of time. And that's been very consistent over the last, you know, four or five years. The reason I think that's happened is obviously with every business, it starts with your market and your product, right? You got to have the right market value prop and product. And obviously we've iterated a lot on that. And then on top of that, we of course have our own customer success methodology. And by the way, we're not perfect. We just like all of our customers are constantly learning. One of the things we've tried to do is be more prescriptive with our customers. That's when I think I tell every CS person, it's not just about doing what your customers tell you to do. It's not about being nice. It's about actually helping them get to where they need to be. So with Gainsight, we realize that we're the experts of customer success. We need to create a methodology on how you should use Gainsight. What are the best practices? We turned that into a table. If you remember high school chemistry class, we're going to go back in time for a second. Remember the periodic table of elements?

AI assessment note: “we don't report exact numbers, but we've had in the gross retention in the nineties”

Q Nick, let me ask you sort of an interesting question here. If you could not add any new customers, No more new logos. You can only sell more seats and more products to like your current logo base. How much could you grow over the next year?

A Well, you know, it's interesting that, that, um, it, uh, 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, 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 to customer experience, and then we're launching more and more modules, both organically, as well as at some point, probably some other acquisitions. So I can't give you an exact number, but it's significant. There's a lot of opportunity in our base for sure.

AI assessment note: “I can't give you an exact number, but it's significant.”

Q Walk me through that story. How'd you get your first 10 customers? Be specific.

A Well, it's funny. I think that's probably quite similar to a lot of folks where it's a lot of just like friends that are willing to try out your stuff. You get, you meet somebody, they meet somebody else. So for us specifically, we were fortunate that one of our first customers was Marketo, which probably many of the listeners know marketing automation software, not part of Adobe. At the time, it was a few hundred percent company, and actually, the person that ran Customer Success at Marketo was so enamored with what we were doing that he ended up joining us as one of our first executives. His name is Dan Steinman. He's still with us today. And so we ended up basically hiring somebody from the field that we were selling to, which was a very powerful thing. Can't recommend it enough if you can have somebody in your company that's been in the shoes of your buyer. So Marketo ended up being one of our early, early customers. A number of other companies, Exactly, which is a company that went public, was taken private by Vista, It wasn't one of our first 10, but probably one of our first hundred was box. It's probably one of our first big customers and kind of marquee names. And every one of those, it's interesting how tightly connected the customer network is, you know, so the Marketo folks know the exactly folks knew the box folks. And once you have success one place, it helps buil…

AI assessment note: “one of our first customers was Marketo... the Marketo folks know the exactly folks”

Q Interesting. And so next question on that, right? Obviously you're managing burn, right? You mentioned Zach Lee, you mentioned Reggie. Why haven't you sold the Vista yet?

A Well, I, I hear about the experiences that actually I will say Vista is tremendous. Like people, uh, private equity firms kind of get a bad rap, I think, but I think some of the progressive ones like Vista have done a great job of still allowing growth, even inside the kind of private equity world. Vista actually is a great partner to gain sight. A lot of private equity firms have gotten to the point where they realize a lot of the value in their portfolio is about getting customers to spend more money, right? So you think of a C-Vat, you think of an exactly So much of the value Vista is going to get is getting that net retention rate up. So Vista has been a great partner to us in getting Gainsight into a lot of their portfolio. We have a lot of respect for the private equity firms in terms of, you know, who we partner with. We have amazing investors right now, you know, Battery, Bank Capital Ventures, Bessemer, Salesforce, Lightspeed, Insight, Summit. And so we're very happy with our investors, but we have respect for all the PE firms out there.

AI assessment note: “Vista actually is a great partner to gain sight... We have amazing investors right now”

Q So then if we combine all the new customers you're going to add here in 2021, plus the expansion of 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?

A Again, these are the kind of numbers, unfortunately, I'm such a transparent guy. I love sharing that stuff. But now as you get, you know, further along, you know, for disclosure reason, we can't share that stuff like we used to. Um, but, um, what I can tell you is that we think that we grow in some ways. Gainsight is a derivative off of SaaS, right? So as more companies go into SaaS, I mean, honestly, Nathan, you're the person for me to talk to because all these people you're documenting and interviewing and your great list that you build, All those companies at some point are like, God, we got to focus on net retention. We got to do this thing called customer success. Who knows customer success? They get to gain sight. We've been fortunate to be the leader in the space. And so there's this natural tailwind for our business, um, which has been really, really cool. But one thing, just piece of advice for entrepreneurs. I think that as you know, if you're in a new category, the question Nathan's asking is actually a really hard one because you can't just go to some industry report, right? Nathan, like that's something that In an existing category, you go to some report that says, oh, the market is growing by X. But if you are the market, if you're creating the market, you don't, nobody else knows except you. And so one of the things we do a lot of is look at primary data. Like fo…

AI assessment note: “for disclosure reason, we can't share that stuff like we used to”