5 Interesting Learnings from Samsara at $500M

a company called Samsara that you probably have not heard about, but it has rocketed from zero to $500 million ARR in 6 years. Um, pretty incredible. And I want to do a deep dive because there's a bunch of interesting things about Samsara that— and it's a company you probably haven't heard of, but I think we can all learn about it. Um, by way of background, uh, Samsara is ultimately a product that tactically does fleet management. It manages fleets of vehicles, although folks in this space position themselves as IoT, Internet of Things companies, and that's certainly true. Samsara can track many different types of objects, but really its core customer is still around fleets. It's an old space called fleet management software, but connectivity to the internet and the ability to develop next-generation hardware and other solutions has remade this space that used to be dominated by old companies like Fleetmatics that Verizon bought for $2 billion and several others. And The founders of this company had done it before. They had found a networking company called Meraki that they sold to Cisco less than a decade ago for over a billion, which at the time seemed like a lot of money. And they took that networking experience and wanted to apply it to mobility and fleets, and they've done it. And this time they've built a company that's worth far more than 10 times their last exit and making the founders billionaires, as we'll chat about. And look, sometimes we learn more from companies that have had a few bumps. Samsara really didn't. They founded it together and 18 months afterwards they launched and boom, it was a rocket ship. Now, there have been challenges underneath it and they've needed to go upmarket and build multiple products that we've talked about, but $0 to $500 million in 6 years, growing 72% at $500 million in ARR. And wow. And interestingly, for a product that isn't viral, it has a magic number, an LTV over CAC ratio of over 8. So this is a pretty darn good business model. We'll see that helps in terms of the cap table. The founders own a lot. Okay. So let's go through 5 interesting things and 4 to 5 bonus points. So number 1, and this is a theme we've talked a lot about in the series, but boy, it's reinforcing to see it, is that to get big, to get past $100 million and now to $500 million and then $1 billion in ARR from Samsara, they really needed multiple products. Now, Samsara claims a whole suite of products and they do have it, but there's two that really matter and they're related. One is for traditional telematics and fleets and other vehicles, and one is for video around it, and they're different. But what's interesting is that they both do over $200 million. So both of them contribute over 40% of the $500 million plus in ARR. And imagine if Samsara had just stuck to its initial application, it would be less than half its size. It is interesting that its two core products are about equal and that they've learned how to sell them both together, essentially doubling in many ways the effective price point. And I think that's what a lot of people are going to see, especially folks that sell to SMBs. And we'll talk about— Samsara has gone more enterprise, but it certainly has tons of SMB customers. You probably need multiple products even easier earlier with SMBs because the deal sizes are smaller. And, and Samsara is an example. It has two core products. So I don't think you generally need to think about multiple products at $1 million, $5 million, even $10 million ARR, but probably even after that, you need to start planning, and Samsara did, which is how can you sell to your same happy customers at least 2 products to really grow into the 9 figures and beyond. 2, interesting for folks, Samsara has software, but it also has hardware component, hardware component that goes into these vehicles, and it's not cheap, and yet Samsara has 72% gross margins. This will be more interesting to folks that have some experience with these blended hardware-software models, but few of them get 72% margins. And how do they do it? Well, to some extent, they finance some of this hardware, which partially gets it off their books, but they also do something which is work, but which is common in their niche, which is they have customers sign 3 to 5 year-long contracts, and that lets them guarantee they can amortize these hardware costs over up to 60 months. Look, SMBs and smaller customers usually don't like to sign 3 to 5-year contracts, but they're able to get them to do it because they understand that they're getting hardware for it and it needs to be amortized. So it is an interesting reminder that you can achieve 70-plus percent margins in these hybrid SaaS and hardware models. Okay, point 3, interesting around going global. Fleet management, I know a bit about this space. It has very localized regulatory and other requirements. Deploying fleet software and fleet tracking in Europe is very different than the US and very different in parts of Europe and very different outside of the US. And so it's interesting that at $500 million in revenue, Samsara gets 90% of its revenue inside of the US. It's just barely going global. It was only 7% in 2020 and only 10% today. So look, one of the biggest boosts that most of us in SaaS can do is get up to that traditional 20 to 30, even more, percent of our revenue outside the US. I mean, most US, at least most English-speaking countries, if you develop a great product, will eventually adopt you. You'll take off early in the UK and Australia and others, and if you localize your product more, but it's not always true. The more regulatory requirements, we see this a lot in fintech, we've seen it at Build.com and others, and we see it here at Samsara, getting through these localization and regulatory issues is hard, even for extremely well-funded startups. And while I assume that in 4 to 5 years Samsara may be be well over 20% or even 30% of its revenue international, it's barely 10% at $500 million in ARR. Okay, fourth point is just interesting how Samsara breaks out how much headcount it has in sales. So Samsara has 1,500 employees doing $500 million in revenue. That's reasonably efficient, but 700, 694 to be precise, but 700 are in sales. 700 are in sales. So That's very interesting. And its average core customers are between $5K and $20K. These are folks you need to do inside sales and maybe a little low-end field sales with, but almost half their company is in sales at $500 million ARR. And that's a good metric to think about if you're going to do a sales-driven SME or SMB motion. You may need as much as half your company in sales. And 700 out of 1,500 is quite a bit. For Samsara. Point 5 is just interesting around metrics. It's interesting around metrics. And Samsara is a sophisticated app, it's a complicated app, and they've gone more upmarket. And what they've done— and most companies going public do a little bit of fiction— is they define who their core customer is. And you'll see folks like Zendesk, who we love, kind of ignore churn in the 1 to 4 seat range. We see this with Monday and others. And what Samsara has done, a little bit of a cheat, is They say, hey, look, our core customers are the ones that are $5K and up. That's where we're going. We're going more and more upmarket, bigger and bigger deals, which we'll talk about next. And these tiny customers, these $1K to $5K ACV customers, customers that pay under, even under $100 a month, are half their customers by number, half of their 25,000, but only 7% of the revenue. And, you know, this is something we all have to think about as we grow. What do we want to do with our long tail? And Sometimes in applications where we can leverage the long tail for community and leads, the Mongos, folks like that, Datadog, our long tail is incredibly important. And even though Datadog's long tail, its smallest and free users are a small amount of revenue, they can grow into big customers and they're very important for companies like Datadog and Mongo, but frankly, they're not that important for Samsara anymore. They've outgrown their smaller customers And so you'll have to think about this. Do you want to outgrow your smallest customers, or is there power in the long tail? And Samsara has basically said, the small ones are half by number, but they're only 7% of our revenue. We're not going to call them core, and therefore we're not even going to reflect them in our metrics. Okay, so a few extra bonus points. Six is just verticals. And Samsara may disagree, I still think that Samsara is mainly an incredibly impressive fleet management play, but not only do they have two core products, Vertical expansion has been interesting. So transportation, if you think about it, is the core of the core for fleets, but they have expanded aggressively in verticals. And while transportation is their largest vertical, it's only 23% of their revenue today. Retail, 17%, construction is their third, field services, utilities and energy, manufacturing, and more. And it's just a reminder that even if your product does one core thing, having vertical specialization, having teams that are good at different industries and expanding your industry footprint can be one of the great ways to grow. And so Samsara is at $500 million in ARR, but if they only had focused on sort of the most obvious applications for their product transportation, they'd be $100 and something million revenue, only $500. So think about aggressively invest in verticals that can be material, especially they can basically use your same product. Samsara is an example of more verticals equals a lot, lot more revenue. Number 7, just to check in on NRR, such our north star metric. In SaaS and cloud, Samsara has pretty good NR. I mean, it's great. It is enough to drive this company to billions in AR, but it's sort of mid-pack for the best SaaS companies. It's 115% overall, which is pretty darn good for SMEs, and 125% for their $100K+ customers, which is their biggest engine of growth, which we'll talk about next. Samsara doesn't have a lot of million-dollar deals or big deals, but $100K is really where they want to go and get out of these $1K to $5K deals. And the 125% NRR is consistent. That's where you should aim for $100K+ deals and 115% overall. So probably blends to 90 to 100 for those tiny ones that they call non-core. And that's pretty typical. And that's why they want to move away from them. Okay, point 8, just going to the one before is, um, Sensar has been a rocket ship, again, $0 to $500 million essentially in 6 years. Um, but these $100K customers are its future. And so it's just an interesting case study. Of going S, S, M, E, small, medium, and larger customers, and having thousands and thousands of small businesses, but, but Tempsa has outgrew them. It's the $100K customers. And literally at the start of 2020, they had 9,200K customers. So it took them a while. They weren't closing $100K customers literally every single day just in 2020. Fast forward today, they have 715. Now they're closing 2 a day from 1 every 2 a week. So from 2 a week to 2 a day, that's pretty impressive growth of 100K customers. And if you're like Samsara, what's interesting is you may need to get there, but they didn't have to start there. They grew into their 100K customers as they got better, they expanded their functionality, they expanded their sales team. 2 final points. Point 9, we hit on briefly before, but just want to hit into it again. These 3 to 5-year non-refundable contracts with SMBs. Look, we see this in super enterprise stuff. ServiceNow does it with its, with, you know, well over $1,000, $1 million ACV deals. Salesforce tries to get you to do these multi-year contracts. Marketo does. But we don't see it that common with the mid-market and smaller customers. But in this industry and in industries where you pair hardware and software, it makes a lot of sense. I invested in a company somewhat similar to Samsara more plug-and-play that did just SMBs, and they did not have these long-term contracts, and it really created a lot of stress around the hardware costs. The hardware costs were only about $80 per customer, but if a customer is paying you $20 or $30 a month, you know, that adds another 3 to 4 months to your payback, and if you don't have a guaranteed contract, it's stressful in general. This hardware cost was stressful, and the amortization over time is stressful. So notwithstanding that, I think we're all moving to more customer-centric contracts, more utility-based pricing. Longer-term contracting for SMBs can make sense if there's fixed, significant fixed costs. They'll be okay with it, and Samsara proves you can build a rocket ship with multi-year contracts with SMBs if there's a fair and valid reason for it. Okay, last point, point 10, is more about the cap table. Now, the Samsara founders were second-time founders. They had a unicorn the first time when a unicorn was rare. There weren't 1,000 unicorns back then. And so they took advantage of that fact to raise more money earlier from Andreessen. And then they took a— but they also took advantage of the fact that they built an efficient model. They built a model that wasn't viral. It wasn't on its own, but they built a very efficient sales and marketing engine. So they really only raised 2 rounds. Okay. One from Andreessen and one from General Catalyst. And we can't all pull that off. Look, you need— capital's like oxygen. You've got to— your job as founders is to feed your company oxygen. But it is interesting if you're able to skip a round or two, an early theme on SaaS, and this is what Samsara did, what is the outcome? Well, each of the co-founders owns 25%, Andreessen owns 18%, and General Catalyst, the other investor, owns 10%. So both of— each of the founders owns more than any of the VCs, and together they still own half at IPO. That's incredible. It makes them billionaires many times over. And look, it's not all about the money, and all of these economics are profound, But dilution's an interesting journey. Samsara is an example of if you're fortunate enough for the stars to align, if you're fortunate enough to build an efficient model, and for them, if you're fortunate enough to be second-time founders that can push up the valuation and therefore raise more in each round, boy, you can still build something that's very sales-driven with only 2 funding rounds, maybe almost 1.5, and the founders can still own half or more at IPO. Pretty cool. So congratulations to everyone at Samsara. Boy, just an epic ride, and we'll check in again at a billion.