5 Interesting Learnings in the Enterprise with SaaStr CEO Jason Lemkin

Welcome to SaaStr Enterprise 2021, our second edition of our enterprise-focused event and our, our penultimate big digital event before our first real-world event. We've been doing these digital events since COVID hit. We've had over 50,000 attendees and probably over 100,000 watch the content on social media, YouTube, etc. And it's been pretty great. And this is in fact the second SaaStr Enterprise we've done with an incredible lineup from the CEOs of Elastic and Salesforce for Service Cloud and Qualtrics and the CCO of HubSpot and so much more. The first one last year, we had the CEOs of Box and Coupa and PagerDuty. And we're gonna keep doing these digital events our own way, the SaaStr way, so that we can learn globally. But yet this September, SaaStr Annual, the 7th SaaStr Annual is finally back. We're finally back in the real world. At the very end of September, we'll be back at the San Mateo County Fairgrounds, just south of San Francisco, just north of Palo Alto. Outdoors. We'll do the first outdoor SaaStr Annual, first 100% vaccinated SaaStr Annual on over 40 acres at the fairground. It'll be fun. It'll be a little bit like a Coachella for SaaS, and we'll have tons of great speakers at it. The CEOs of Datadog, CEOs of Vimeo, CEOs of Y Combinator, president of Shopify, and so much more. And we'll also have a digital component too because we've gotten pretty good at that. But please, it's time to get back together, and if you can, if you're vaccinated and you can get to the SF Bay Area in September, please join us at saastrannual.com. So for today at SaaStr Enterprise is I wanted to take this super popular series we've done, 5 Interesting Learnings, and dig in on 3 enterprise leaders, just dig in on what we can learn as founders, as executives, as folks in the cloud on 3 of the top breakout leaders in SaaS and cloud. And I thought I'd pick ServiceNow, Palantir, and Snowflake. These are 3 leaders in enterprise, big deals, big ACVs, million-dollar-plus deals that we sort of know a little bit about, we've heard of, but most of us, if we're not in the ecosystem, we don't quite know how their business works. And let's start with perhaps what is the most impressive one, ServiceNow. ServiceNow automates a ton of workflows in the enterprise, but its roots are in managing IT and other assets, which sounds niche, but it's not. It's huge in the Global 2000, as we'll see, and it is the 4th or 5th biggest cloud company. It's worth well over $100 billion today, and importantly, it has 1,100 $1 million a year customers. So that's about as enterprise as it can get. So what can we learn from ServiceNow? That maybe all of us can apply if we're doing somewhat bigger deals. And point number 1 is that even at $5 billion in ARR, $5 billion, still growing 32%. That's pretty crazy. And let that sink in a bit. If nothing else, it's a challenge that the best companies, the best founders always find a way to grow, that there is no ceiling to growth. And for those of us that have been doing SaaS for a while, this is maybe the most shocking thing, that there isn't a ceiling to growth. We all back in the day thought Maybe $100 million ARR was as big as a lot of markets could get, maybe a little bit bigger. Maybe we'd stall out even at $40 to $50 million ARR. Maybe Salesforce would be the only really big player, but it's not. ServiceNow is huge. Shopify is huge. Zoom is huge. Salesforce is not the only folks, folks doing billions and billions, doing $5 billion in ARR. It's going to become more and more common. So it's pretty incredible what ServiceNow can do. Okay. Interesting learning number 2 from ServiceNow, as we talked about before, 1,100, 1 million ACV customers, and importantly, the count's still growing 23%. It's got $1,100 million customers. The count is still growing 23%. So let that sink in for a minute. If you're going enterprise, there's these wonderful milestones you'll have as a founder, your first $20K or $30K deal, your first $100K deal. I invested in a founder that just, just this week had their first $1 million a year deal. It's incredible. And then you think, well, if I've I've gotten one, I can get another. I can get another million dollar a year, another, but we must run out of customers, right? I mean, how many customers are there in the Fortune 500? I mean, well, 500, but there's a lot in the world. The Global 2000, S2000, and it turns out there's even more than the Fortune 500 that can pay a million a year. And ServiceNow shows that they have 1,100 $1 million plus ACV customers growing 23% a year. That means they'll soon in just a few years, in 3, a little over 3 years, come up with 2,000 $1 million customers. So look, it's hard to close big deals. The sales cycles are long, uh, you need to button down security, you need to sell to multiple stakeholders. It, it's, it's a long slog for a while, but don't let anybody tell you there's not enough of them. ServiceNow shows you you can get $1,000, $1 million a year customers if you do something that really matters in the enterprise. Point 3 for ServiceNow, and it's very interesting to see this true at so many SaaS and cloud leaders, which is A key to their growth after $1 billion AR is multiple products and workflows. We've seen this with Box. We've seen it with Datadog. We've seen it with Viva. We've seen it with Twilio, that your core product can get you pretty far, maybe all the way to $100, even $200 million in revenue, further than you'd think. But at some point, as you approach $100 million or maybe even later, maybe as you approach a billion AR, you need another product to fuel growth from your customer base. One is not alone. We recently saw this with PagerDuty. PagerDuty IPO'd as mostly a single product for SMBs at $125 million. $100 million in ARR, but as it hit $250 million, it needed multiple products to go more enterprise. And take ServiceNow, that original product we talked about in the beginning, its IT workflow product, its heart, what got it to that first $100 and even billion in ARR, it got it pretty far. Today at $5 billion ARR, it's just 62% of revenues, which is a lot, but it's less than two-thirds. And its expansion has grown rapidly. A year ago it was just 10%, now it's already 25% are all these other workflows. So, Just plan on it. Think about it. If you're going to sell to bigger customers, you will probably need multiple products. You do not need them on day one. It will be a distraction. But Box needed them. PagerDuty, Twilio, and ServiceNow. So think about it. Think about how a second or third product could add so much more value to your customers that, that will fuel your further growth. Point 4, and this is interesting, is they waited to monetize their platform. Platform, just like Shopify and Zendesk and others have. And its platform, its partners did not cross 10% of its revenue until 2019. And I get worried when I see startups trying to over-monetize partners. Wait, it's almost better to wait, become number one. Eventually all the folks in your ecosystem will want to build on the next Salesforce, the next Shopify. Think about it. Shopify has thousands and thousands of partners and almost no other e-commerce player can touch it. Adobe Magento can't touch that. BigCommerce can't touch it. Wix and Squarespace at the low end can't touch it. So be careful about throttling that back by trying to over-monetize your partners. It's where you've really got to go long. And it's interesting that again, it wasn't until 2019 that ServiceNow, well past a billion in revenue, that partners were even 10% of the revenue. But fast forward to today at $5 billion, it's 15%. So you do want to monetize those partners. Don't, don't get me wrong, but maybe wait a really, really long time. Okay, last key point on ServiceNow, then we'll hit a few bonus learnings. But now, and get granted, ServiceNow is very enterprise. It's not like some companies that we'll speak today that we've talked to that have customers small, medium, and large, but they have 99, and they're very enterprise, but they have 99% logo retention rate. So think about that for a minute. 99% of ServiceNow company customers stay year after year. Now they often sign 3-year contracts. We'll touch on that in a minute. But nevertheless, 99% logo retention. So look, most of you won't do that. For most of you, even 90% logo retention is pretty impressive in the '90s. But you can do better. Take this as a challenge. You can do better. ServiceNow is 99% logo retention. There's no reason what— wherever you are in the '80s or '90s, you can't do better. ServiceNow proves that you can. Okay, point 6. Just interesting to note, since we're talking enterprise, we'll hear different stories around professional services. Folks like Qualtrics with Zig speaking have an impressive professional services business that's profitable. So does Viva. It's probably, though, just as common that folks try to minimize the amount of services they do in-house, and that's what ServiceNow and Salesforce do. ServiceNow only gets 5% of its revenues from services, even though it's at $5 billion AR. That was a bit of a surprise for me since it's so enterprise. I assume, like Qualtrics and Viva, it would have a thriving services business, maybe 20% of its revenue that was profitable, not as profitable as software, but profitable. But no, they don't want to do services. So what they do, what ServiceNow and Salesforce and others do, and Shopify does this and does Atlassian, is they build an ecosystem and they, they have partners do those services. And that has pros and cons. But ServiceNow and Salesforce have done a great job of nurturing that, that, that, that implementation ecosystem so they don't have to do the enterprise work at the cost of not having that revenue. Qualtrics gets a 20% revenue boost by doing it in-house. ServiceNow doesn't have to deal with the lower margin and the headaches of having a bunch of basically consultants running around deploying ServiceNow. Point 7, just interesting for the enterprise. At $5 billion revenue, ServiceNow has 36% of its revenue from outside North America. That's pretty common. The average SaaS company probably has about 60% of its revenue in the US. So ServiceNow is just like that. Most folks that started here. It's just a reminder to don't let that, don't let that international revenue go, especially in the enterprise, especially when it's a lot of work to service these international customers where you may need field offices. You may need field offices even at a few million in revenue, but do it, do it, because 40% of your revenue is outside the US and you're going to want that growth. Okay, and the last point, point 8 of the 5 most interesting learnings on ServiceNow, is that new customers sign 3-year contracts and they renew for 2, a 3+2. So it's interesting, we've seen things all across the board in general. Zoom during COVID actually moved to more monthly contracts, a majority of monthly, as people just Immediately, SMBs immediately came on the platform. ServiceNow is 3 years plus 2 years. Smartsheet is 1 year even with SMBs. There's, there's no, there is a magical answer for each vendor, but there's no one answer to this. And a 3-year contract like ServiceNow certainly creates some friction in the sales process. But perhaps if you have a year sales cycle and 99% logo retention, it's okay. They are committing to business process change, massive change, and a 3-year contract may be fine. But it's interesting that Even Salesforce doesn't standardize on 3-year contracts, but ServiceNow has. It's a 3-year deal and you renew for 2 years. Qualtrics has standardized on one. Zoom is sort of all over the place and is cool with monthly. But it's a reminder that for million-dollar big contracts, multi-year contracts may be just fine. Okay, next on 5 interesting learnings in the enterprise, let's talk about one of the most, at least until recently, mysterious enterprise companies, which is Palantir. Palantir at a $100 billion-plus in revenue. What did Palantir do? Many of us were wondering, many of us are still wondering, after 17 years, what was this weird Peter Thiel PayPal fraud-inspired company with all these forward engineers and these massive contracts leasing up every single building in downtown Palo Alto? What was it doing? Is it a services business? Is it really enterprise software? What is Palantir? We didn't know. There was certainly a period of time when it seemed to suck up every great engineer graduating from Stanford, everyone in CS, and they'd overpay and just have them literally walk down University Avenue to join Palantir after graduating. It was this very mysterious thing for a while, and then it got even quieter, and then finally it IPO'd. It IPO'd at $1 billion in ARR, and a billion's incredible, but it did take it 17 years to get there, which is a massive success story, but not necessarily an overnight one. Let's talk about it. First of all, is Palantir even a SaaS company? Is it even a software company? Well, it probably is now. It is— by the time it IPO'd, it became a software company with software-like margins, which we'll talk into. But certainly historically, a lot of it appears to have been one-off builds and massive payments for somewhat customized software. But as it got to IPO, it evolved. It became more like traditional software companies. And our next one we'll look at, Snowflake, did the same thing. Snowflake had a relatively low-margin product pre-IPO, but then it got its act together. It got traditional software-type margins, and so did Palantir. Both of them took a while to have to look like a public company needs to look to go public. And it turned out for— that's okay. It turns out, take advantage of being private, take advantage of having private capital. And if that means maybe you run lower margins for a while, like Palantir and Snowflake, maybe that's okay. Maybe you even look like a services business for a while, like Palantir. That's okay, as long as you sort of transition to a normal-looking software company by IPO. So what can we learn about this mysterious company? And I'll highlight the 5 points that I think we can learn from. The first one, just a good learning for us, is that, boy, highly concentrated revenue. And this is something a lot of us think about in the enterprise. At IPO, 66% of Palantir's revenue, 2/3, came from just its top 20 customers. That is crazy. That may be the most concentrated revenue that I'm aware of in our recent batch of cloud and SaaS companies. And it's a risk. Those of you who may remember Twilio, which is obviously one of the greatest cloud and SaaS success stories of all time, when they IPO'd, Uber was one of their largest customers, and Uber churned. Uber churned, and it was identified as a risk. They're our largest customer, and Twilio still is. It's very interesting. It has a handful of very large customers that represent double digits of its revenue, and then it has a super long tail that Palantir certainly does not. But the learning from both Twilio and Palantir is this, that Look, no one loves customer concentration. It certainly produces some anxiety, but it's okay. Look, it's okay. Having one customer is clearly a problem, but Uber was a core customer of Twilio. They lost it and became a company that will be worth $100 billion. Palantir, 20 customers make up two-thirds of its revenue and it's worth tens of billions. So yes, it's a worry, but don't let concentrated revenue distract you. If you can close big deals and you can make those customers happy, just close more like that if that's your superpower. Point 2, interestingly, is that even with huge deals, even with these huge deals that Palantir signs, these 8-figure deals, deal size still increases 30% a year on average. This is crazy. We also saw this when we did a deep dive on UiPath. UiPath is very enterprise as well with 160% NRR. It's crazy. And what UiPath and Palantir show is As you launch, almost, almost, it's almost hard to get your arms around this, your brain around this, but you can maybe grow deal sizes infinitely. How could that be possible, you might think? I mean, I close a $100K deal, a $200K deal, a $300K, a million-dollar deal. Haven't I maxed out this customer account? I mean, sometimes you have. If you look at Workday, a lot of those deals are fully priced today. Those accounts don't grow often at Workday now, now that Workday is well north of billions of revenue. But it seems more often the best cloud companies find a way to keep selling more to the same customers. UiPath has and Palantir has. And what that means is fast forward 5, 6, 7 years and these initially smaller deals can become massive deals. That's what Palantir and UiPath have seen. The compounding power of 30% deal size growth in 7-figure deals is, it's just truly epic. Okay, point number 3. Is about TAM. Palantir was an early example of something now we've seen a lot post-COVID, which is people are growing even faster after a billion in revenue. HubSpot's growing even faster. Salesforce is having a blowout quarter. It's growing even faster. And Palantir accelerated to 49% growth after a billion in ARR on its IPO. It accelerated, and its government contracts grew even faster to 74% year over year. It just shows, look, you know, for almost all of us, our very first market, our initial, our truly initial TAM is often small, right? That's how we wedge in. That's how we get in. But if we build a brand, if we provide value to our customers and we have a great management team, we keep growing that TAM. Sometimes we add extra products like we just talked about with ServiceNow and others. Sometimes we expand into other verticals like government was always important to Palantir, but now it's its key growth vector. But great teams find a way to keep growing their TAM. And not only do it, the incredible thing is that, and this, this surprised again, a lot of us veterans, you can grow even faster after a billion in ARR. It seems hard to get your mind around how big cloud is, but if Palantir and HubSpot and Salesforce can grow faster at billions in revenue, there's probably nothing really stopping you at $5 million, $10 million, $20 million, $50 million in revenue. There probably isn't anything stopping you, um, other than being obsessive about finding more ways to add value to your customers. Customers. Okay, point 4, and this is sort of a tweak of what we talked about before, but we've seen this a lot, which is that existing customers fuel the bulk of the growth. And why is that? Because this compounding number. Its largest customers have grown 5x since 2012. And this is the awe-inspiring power of NRR once you get bigger. Palantir grew 49% after its IPO at a billion in ARR. But it grew its existing accounts as a whole 36%. So the majority of its growth comes from its existing account. We've seen this with Salesforce. At Salesforce, even though it's now growing 30% again, which is incredible for a company at well north of $10 billion, actually $20 billion in AR now, 70% of Salesforce's growth comes from its existing customers. And so that's what we've seen. And interestingly, and just let this sink in for a minute, Its largest accounts, Palantir's largest accounts in 2012, about 10 years ago, were $5 million. That was— that's a big deal. But today, those same customers have grown to $25 million, trending to $30 million. That's the incredible power of net retention. A huge customer, a $5 million customer of Palantir granted a decade ago, today is coming up on $30 million. Think about that. That means you really can go forever if you provide insane value to your customers. And point 5, going back to the initial point we talked about, is Palantir a software company? Well, it took a while. Even in 2019, its gross margins were only 14%. Their numbers are a little bit murky. They talk about contribution margins versus gross margins. I'm not sure I can get my arms around it. But it was in the teens. That is a services business. That's what a company that sends a lot of— that's what an Accenture looks like or folks like that that are services. That's what law firms look like. Accounting firms. So Palantir clearly, as late as 2019, well over 15 years after founding, was deep down a services firm in many ways. They're building software, but custom software services. But then they switched that. They switched that switch. And going into the beginning of '20, they went up to 40% gross margins. Then as they hit just before IPO, they're at 55%. 55% gross margins is— that's where Twilio is. So that's kind of the low end of what we call software. At some point, gross margins should be high because you just ship more and more bits. But 55% is good enough. 55% gross margin says you're a software company, not a services business, but it wasn't until 2020 that Palantir really became a software company. So maybe be who you are. If you want to do a lot, don't be scared of services. A lot of startups run away. They want to be all software. Or on a related point, until recently, a lot of software companies wanted to sign annual contracts and not have consumption-based contracts, but be who you are. Be who you are. Snowflake, which we'll talk about next and last, is almost all consumption-based. MongoDB found that even its enterprise company customers, it was easier to start monthly than with annual contracts. Twilio has done a great job starting off on consumption-based contracts for many of its customers, even its larger ones. So be who you are. And then just as you grow, you can converge on a traditional software company if you need to. And that's what Palantir did. It took its time. It took about 16 years to become a 55% gross margin software company, but it pulled it off. And it's a company worth about $40 billion today. Okay, last in our series of 5 interesting learnings in the enterprise is Snowflake, what must have been the hottest IPO of the last 12 months, what everyone was talking about, even if folks weren't always quite sure what a data lake was or what Snowflake did, but it went public and quickly rocketed to an $85 billion market cap, valued even higher than Zoom. It settled a bit lower since then, But it deserved it. It deserved it. Snowflake IPO'd at $600 million in ARR, incredible as it is, but growing 115% at $600 million. 115% with 162% NRR. This and UiPath have NRRs and growth rates that we've really never seen before in business software. More than doubling at $600 million in ARR. And existing customers growing, adding 62% more revenue each year. It's crazy. It's crazy. And we can't all be Snowflake. Most of us will not grow 150% at $600 million. Most of the cloud leaders today didn't, and they're doing just fine. But there's a lot actually we can learn from Snowflake. So even in the enterprise. So number 1 is that 93% of their revenue is consumption-based. Yet it still has a SaaS multiple. And let's slow that down for a minute because I think one thing a lot of us have learned, especially over the last 24 months as more and more cloud companies have gone public, is revenue doesn't all have to be under this traditional per-seat license and it doesn't all have to be truly recurring as long as it recurs. So what do I mean is, yes, Snowflake is— 93% of its revenue is consumption-based. Only 7% is under fixed contracts. And in fact, they can only recognize the revenue as this consumption occurs. They don't smooth it. They have rollovers. Yes, they bill in advance, but they have to true up the numbers. And so it's not what we used to love, what we were trained by Salesforce to do, which is, which is charge folks for seats even before they even use them. That was the classic Salesforce model to have this hyper locked in, latched in per seat model. Datadog's the opposite. They're like, yes, as you scale, you're going to prepay a lot of it annually sometimes, but it's consumption based. That's how you're going to pay. Twilio showed us it works, and Datadog shows it works. And what it really shows is, um, do pricing the way your customers want to pay, make them comfortable. Um, and with Twilio, what we saw when we talked with Jeff Lawson, um, at the last Big SaaS Revengers, he's like, most Twilio customers prefer to pay consumption because they're part of the cost of revenue that they forward bill, they forward bill to their customers. So it's— so if they're going to end up building Billing a client $1 a minute, paying Twilio $0.02 a minute or whatever it is, is very natural. It's very aligned. And did it— Snowflake's not the same, but the customers want to pay on consumption. We've seen the same thing with Datadog. Most of Datadog's customers want to pay consumption. That's how their developers want to pay it. With Fastly, it's been mixed. With Shopify, it's been mixed. But if your customers want to buy in a consumptive model, let them, let them. And the real key from that, Snowflake shows us is if the ARR is as high as subscription model, Wall Street doesn't care. 162% ARR. I don't think Wall Street cares if it's under a contract, if it's written on paper, if it's an email, if it's a pinky promise. 162% ARR is what creates these crazy multiples in SaaS. Okay, point 2 with Snowflake. Gross margins. We just chatted about this a bit before with Palantir, but Snowflake has a lot of costs. It is a data lake, and that's significant compute and storage costs. And so its gross margins were not high historically, but again, going into IPO, going into hundreds of millions of ARR, the gross margin approached 60% and they're projecting almost 70% for next year. So it's a reminder that, again, get your house in order in the early days. If you want to give away professional services, if you want to run lower margins in the early days, just get it done so long as you get bigger, especially as you approach IPO, you have the same sort of margin and other structures as basically everyone else. The third interesting learning from Snowflake, it's just a reminder that world-class NRR does not have to come down, not really. So Snowflake's NRR is at a stunning 162%. Each, for each $100, again, of existing customers, they pay $162 next year. Now let's come down a bit. It was a jaw-dropping 189% in 2020, and it's come down a bit, but that may be looking at the data that may be more an anomaly of how folks upgraded because it's been pretty consistent in that 160 range since then. No matter what, it is a reminder that as you approach almost any amount, 10 million, 20 million, 100 million, 1 billion ARR like Snowflake, your NRR does not have to come down. And it's a reminder that if it does, maybe it's a flag. Maybe you're falling behind competitively. Maybe you're not staffing up as much in customer success as you thought. It's a reminder that these accounts can grow forever. Now, because of the nature of products like Snowflake, you may not see 162% NRR. Maybe you see 120%, 110%, 130%, 140%, but aim for it to stay that high or increase for essentially forever. Point 4, just a small one from Snowflake about going global. But interestingly, again, in part because of the nature of the product, they've been slow to go global. And even as late as 2020, 90% of the revenue was in North America. Today, it's It's still 85%. So we've seen this all over the place. There are folks that have started outside of the US, like Monday and Wix, that often have the majority of their revenue outside the US. There are folks like RingCentral, for telephony reasons, that were slower to go outside of the US. And there's folks like Snowflake that have a reason. But wherever it is, chase it, grow it, lean into wherever your customers are. And the last interesting learning from Snowflake is just around the long tail. Snowflake on its surface is very enterprise. They have 65 $1 million a year customers, and they're the fastest growing of all. They're growing 110% year over year. So very enterprise, but they're fueled by 3,500 smaller customers in this long tail. The overall customer base is still growing at a stunning 84% at almost a billion in ARR, at over $600 million. So slow that down for a minute. A lot— what we see with a lot of folks is that sometimes the customer account slows down, slows down as you approach $30, $40, $50, $100 million in ARR, but it doesn't need to. Snowflake's customer count is still growing 84% at $600 million in revenue. And to make that work, you want a long tail. You want thousands of customers loving you, trying you, and buying you, even if the end goal is to get as many of them as possible up to a million. So pretty cool with Snowflake. We're not all Snowflake. It is an outlier, right? And we are not all outliers, but we can learn from outliers in terms of KPIs and goals that we can aspire to emulate. So keep 3,500 customers happy. It can happen. Those small ones can grow into large ones in the enterprise. Even if they start small, they can grow with 160% NRR. It's crazy to see that at Snowflake and UiPath. You can grow 100% at $600 million ARR. Well, maybe we all can't do that like Snowflake, but what it means is there may be no natural ceiling for most of us. We can get better, we can grow our TAMs, we can increase, and Snowflake should inspire us to really, really never slow down.