Why Klaviyo is the $1B ARR SaaS Company You Don't Know Yet with CEO and Co-Founder Andrew Bialecki

our best marketing is like viral marketing. It's word of mouth. It's people just talking to each other. Yeah. So it doesn't mean, it doesn't mean that like the marketing programs you run aren't important, but you want that basis where you've got customers and then partners. You know, so we often felt like when we go to market, we actually, by the time anybody from Klaviyo talks to you or you ever see an ad from us or anything, you should have talked to your peers. You've talked to some of the platforms that we work with. And if they're all saying Klaviyo, By the time you talk to us, you're like, oh yeah, I'm like already predisposed.

Please welcome to the stage Jason M. Lemkin, founder and CEO at Saastr, and Andrew Bialecki, co-founder and CEO at Klaviyo. Welcome, Andrew Bialecki from Klaviyo. Thank you for coming.

Yeah, thanks for having me.

So I want to, there's a lot I want to do. I guess we have a few minutes, so that's good. But, uh, let me go back a little bit in time to frame it for the audience. So. I think Klaviyo is the most awesome SaaS company you don't know enough about. I know it's hard, but, and I'm going to walk through it. Everything's pretty epic about Klaviyo. Nothing's perfect. And I know you're going to be direct about challenges. Let me step back. Maybe the thing that's most inspirational to me is in 2018, I invested in a company that Andrew knows called Gorgeous. They were at $10K in MRR, $10K in MRR. They're a good partner. And I got, I knew that this sort of the e-commerce B2B ecosystem, I invested in Algolia in 2014 and they went into, so I knew it, but geez Louise, after I invested in Gorgias, I, everything I heard was Klaviyo. People love, I've never heard more customer love than Klaviyo. And I want to dig, the number one thing I want to dig into is why. And I know Andrew will be honest and analytical about it because Klaviyo, I'm going to oversimplify, Andrew, you can, you can explain it in your own words, but Klaviyo is email, SMS, and more marketing for e-commerce. That, that's. That's maybe too of a, too of a bread and butter look and tell us more, but people love it. Like grab you on the street by your neck kind of love when like, I don't know that email marketing is the newest category.

Is it? It's been around a bit. Yeah.

So I want to dig into it, but I want to, before we get there, let me ask you a meta question. And I know this is going to feel like an analyst call. I apologize. Right. Cause I, but, but the slides are good. Right. $900 million-ish of ARR. Okay. Growing 35%, 112% NRR from SMBs and 14% free cash flow margin. Is there a downturn?

Not, not for us. Uh, yeah. So I mean, uh, well, first of all, for folks that don't know, so what does Klaviyo do? So we, we offer marketing and importantly customer data software for B2C businesses. You know, when we started, I was always fascinated by this idea of if you think about how businesses interact with their customers, you know, in a B2B world, which is what I'd grown up before, you're used to this model of you automate a lot of stuff, product-led, but fundamentally you still, you have, you have sales folks, you have customer service folks. So there's always this, like, there's this person that can be the intermediary between the customer and the business. In consumer, that just doesn't work. You know, if you go buy a pair of Nikes, Nobody's calling you to find out like how you liked them. So everything has to get automated. And when you talk to those businesses, what we realized was, my gosh, like they're, they really want software to deliver like an awesome experience. And the reality is you have all this consumer data, all this first-party data, but a lot of people just weren't doing anything with it. But they, there was no software that did that. You know, when Klaviyo started, the status quo was, okay, well, I'll use this spreadsheet. I'll try to segment out my customers. I'll upload that into, you know, my newsletter tool. And maybe if, you know, if I have time, like I'll, I'll try to send out some like segmented campaigns. And so the reason that we got all this love in the early days was everybody said, look, I have all this information. I just want to put it to work. I want it to be connected to, you know, the other software I use. And we actually asked them like, well, what software matters? They all said marketing. And so we said, okay, well, that's what we're going to do then. We're going to build the one kind of platform. That allows you to store all that data, put it to work in marketing. And then for the first time, people, you know, all of a sudden they're like, well, I have this idea. I've, I don't know, I have all these customers that have bought, you know, jeans from me, but they've never bought any of my shirts. And we're like, yeah, that's fine. That's like a 5-second thing. And they were like, oh my God, it used to take me weeks. And so all of a sudden that was easy. And then we layered in other stuff that I thought was kind of almost like gamified a little bit. But if you remember back in the day in marketing software, and I still get this question now. Folks come up and say, oh, so I know you do something around email. Can you tell me what a good open rate is? I'd be like, open rates? Who cares about open rates? I mean, don't you care about dollars and customers? And so we just built in things because we had access to all the data to say, actually, we can just tell you what of your marketing is working or not. And what was crazy to us is for a lot of these B2C businesses, they were used to this with their advertising. You know, if you, if you run ad campaigns on, you know, Google or Meta or even Amazon, You know, they're like, yeah, of course I know what the ROI is. But a crazy thing was when they were doing, you know, first party marketing, they had no idea. So I think a lot of that, you know, initial customer love was just, here's some basic pain points and we're like, all right, we're just going to totally solve these. And then that's what'll build a groundswell.

So to, and to oversimplify the 10x feature in the early days was being able to almost, to almost to be able to automate segmentation.

Yeah, we had this, we had this belief that like, you know, we knew that people were, they're doing it at a database or a spreadsheet or all this kind of stuff. And we literally built out, we had Klaviyo.com/recipes, which was just a bunch of ideas on segments you could run. And we're like, if you have this idea, like if you think one of these is good, you can sign up, connect your data, and we'll do it in like 2 minutes. And that was just a major lead gen engine, you know, and all sorts of people just loved that. And you're right, that was like the first killer feature.

I mean, if I'm going back in time and I want to talk about the present and the future, if I'm going back in the early days, probably MailChimp's the biggest competitor back then, right? And cool app, but segmentation is rudimentary at best, right? You, you maybe you have to, you could create like groups or manually do some sort of picklists and maybe do a little geo, but to be able to connect that to your data and it was probably impossible, maybe impossible today, but probably then was literally not even on the roadmap, right?

Right. So yeah, one of my favorite things to do as, you know, as a product person, every time it's like studying a product category, it's just go use whatever people are using and try to do, you know, whatever, like the kind of the more bleeding edge things and just see how hard they are.

Yeah.

And it was always fascinating. It's like, it was like, oh my gosh, it's like, right. It's barely possible. And we said, okay, well, if we just make that one thing a lot better, then I bet people will love us for that.

Yeah. And I mean, SMBs just, they don't have anyone to do this.

No, there was, I mean, the other thing too, the other thing we learned too about consumer businesses, you know, interesting, like, you know, we, we talk a lot about like low-code, no-code as kind of productivity, but for a lot of consumer businesses, what we found is, you know, if you're especially, um, you know, let's say if you're starting a, you're going to set up a new product, a new retail product, a lot of those folks, I mean, they typically come from a product background. Hey, I'm good at, um, either kind of like sourcing products or manufacturing product, or maybe I'm good at, you know, marketing. I have some, I'm good at building a brand. But nowhere in there is there a developer. So there was always this sense that, you know, what does it mean to do this without any developers? I actually remember like when we, when we first built Klaviyo, we had built all these APIs to connect data in and, you know, like every good app, we're like, yeah, we built APIs. I mean, now just go get your developer and like, you know, connect into our system. And we actually very quickly realized there was this great, not just like product play, but actually like almost go-to-market play. Of, oh my gosh, if we go build the connectors. So at the time we had this idea of we'll kind of be the, you know, the Zapier, like we'll kind of bundle some of that functionality in where we'll have the connectors and, uh, we'll do that for all these major platforms. It'll save our customers so much time. And so it became a big competitive advantage. And then actually we were able even to pivot that into, hey, we can actually go work with those platforms, you know, and show them what we're— they're doing. I bet they'll be interested. I bet they'll help us drive more demand. So there was this awesome thing that happened in the early days where it gave us better product market fit in terms of like helping populate our database of all sorts of stuff, as well as gave us some obvious partners to go work with.

So, and I kind of had this on the next slide, but you start off as a database, build a bunch of APIs, trying to be sort of agnostic to where, and then when did the Shopify hit? Like when did that just blow everything else out of the water?

Yeah. So like when you go back in time, when Klaviyo started, we actually, I mean, we launched on Hacker News, like everybody did back in, you know, early 2010s. And, uh, and when we initially were trying to sell it to other startups, we're like, oh yeah, hey, you've got people signing up and you want them to convert. Like, we'll help you with that. Um, you know, I had a friend that had a Shopify business. Uh, he was selling quilts on the internet. I was like, okay, but so it was built a pretty sizable business doing this. I said, hey, so I think this might be applicable. Like you've got a lot of repeat customers, you know, you've got all these different patterns. We can help you affinities, all this kind of stuff. And he's like, oh yeah, totally. I've been looking for something like this. And so we said, okay, well, we'll help you, you know, basically, again, he was not very technical. And so we said, okay, well, huh, that's interesting. Like, what do you use to run your business? He said, oh, I use this thing called Shopify. It's kind of new. I said, okay, that's great. Like, well, how are their APIs? And thankfully they had like, you know, well, we had spent so much time looking at applications and we found all, you know, so many pieces of software. Like now APIs are kind of like a given, but back then it was not like, you know, it was all very Um, but they were very, uh, very developer forward. And I remember we, you know, we, you know, we helped build a little connector with them and, and I realized like, my gosh, like there's actually a lot of these Shopify businesses. Hey, maybe there's a thing here. And, uh, you know, after we found the first 5, 10, you know, kind of other Shopify brands, we went back to the Shopify team and said, hey, I think we might have something here. And I give them a lot of kudos. They, you know, they're, I think a lot of companies when they do, you know, developer partnerships, A lot of them are kind of like, well, what's in it for us? And it's a little bit of an afterthought, but that wasn't the case at all for Shopify.

Yeah.

They were like, no, no, we really want people to build around us. And when they had seen what they built, they said, oh, that's awesome. How can we help promote? And we actually found that with a bunch of other, you know, software platforms. And that was, it was actually a big part of how, you know, you think about how you get the initial flywheel going of like getting folks to, you know, drive awareness. And that was a big part for us is we would go to these platforms. You know, the Shopifys, the Stripes of the world and say, hey, we built this thing. We think it's actually great for your customers. Will you help us do some co-marketing? And obviously that took off.

Yeah. I remember back in the day, a major platform, we spent like 2 months being a launch partner on their platform. They said they'd help us market. And then I asked later, what, what happened? They're like, oh, you didn't see the tweet?

Right.

That's what I got was one tweet from a junior product manager. That was how much push we got after what seemed like a huge amount of engineering effort at the time. Totally.

I actually think there's, I think it's a, it's a competitive advantage if you're you're building a product, if you can get other folks to build around it, because I mean, now this is happening to Klaviyo where we have folks building in and around our ecosystem. And you know, one of the things we talk about a lot as a team is our goal is not to, you know, monetize those develop— like develop— our goal is like we want to build a bigger and bigger ecosystem. And actually what we're finding is like folks that build around, it's like we have now a lot of customers are like, oh yeah, I found out about you because this other person was talking to me about what they built and they said it works really well with you guys. So We might as well come over. So there's, there's these really great, like flywheels that you can build, you know, if, you know, if you invest in that, you know, for your company.

And I should know this, but today you're not monetizing your partner ecosystem at all. There's no, there's no toll to integrate at all.

Yeah, no, no, no. We're definitely, we are in expand mode there of, um, like I'll give you an example. I was talking to, I was talking to somebody earlier this week who, um, who has built a, you know, if you, if you want to advertise on streaming networks, there's now APIs and everything to do that. And so they built a product on top of Klaviyo that's like, hey, you've got all this data. We can help. You guys can provide the targeting and we'll provide the distribution. And it seems like, wow, that's amazing. That's awesome. So now we just look at it as a big competitive advantage where if somebody says, hey, I'm thinking about, you know, my customers, my marketing, obviously we do a couple of the channels, but if you want a solution for TV advertising, it's like, well, we don't have anything for that. But now we do, right? That's the, you know, the power of an ecosystem.

Is there, since Shopify was such a boost, and I want to come back to that early story, are you using that experience to lean in even more with your partner team? How are you thinking about that at your stage? Like, how are you incenting your ecosystem?

Oh yeah. So yeah, I mean, we think about it a couple different, you know, different ways. I mean, there's folks that are, you know, if you think about Klaviyo, we like to think we're the brain for consumer business. So we've got all this data. Like, if you imagine you could measure, uh, imagine you could remember everything about all of your family, your friends, every last little detail, right? What they ordered for dinner when you went out last week, right? Did they like it or not? I mean, imagine you had all that granularity for everybody in your orbit. Like, that's really powerful. So how do you put that to work? So we think about both— there's folks building applications on top of Klaviyo. So we really try to incentivize that and give people patterns on how to, you know, then how to get distribution and, you know, grow into our ecosystem. And also additionally, we found is like for other verticals, you know, one thing I've always found about like, you think about businesses that are focusing on B2Cs, 2/3 of the global, the US economy is consumers spending money with businesses. So it's a massive part of the economy and we're helping those businesses. You know, as we think about other use cases, so like not just retail, but services, hospitality, et cetera. What we're finding is there's actually, we can do the same thing we did with Shopify. There's lots of opportunities where these other folks are effectively, they're they're sort of there, you know, where you book your reservation or where you buy something, but then they want to, they want to partner up with somebody that can help put that data to work so that those folks, like, you know, it could be the guest of a hotel, like, you know, when you go to a restaurant, like everybody's trying to make those experiences better. And so that we can naturally partner up with those folks. And I think actually like the Dropby has become a great template for how we like to go do that with, you know, other, other software companies. Yeah.

One question I ask folks. It's when they start to get to the Klaviyo scale or bigger is can someone build a $100 million app on your platform? Yep. You built a billion-dollar app in part on Shopify. There's others. There's multiple folks that have built 9-figure apps on Shopify, Salesforce. It's a moment, right? And it takes scale, but is it, I don't know, is it possible to build $100 million? Could I be all in on Klaviyo and get to $100 million today or in 5 years?

Oh, definitely. I mean, we definitely—

what's the cheat code? If I want to do that, what's the cheat code to getting to $100 million? What could I build for Andrew and team?

Yeah.

I can get $100 million from Klaviyo.

Well, I think it's, you know, like good, good product development. I think actually one of the things that we're, we've tried to be maniacally focused on over the last 12 years since we started, just stay really close to, uh, you know, your customers and the kind of the problems that they have. And like, we go back to this, you know, hey, I want to do more personalization, that being the big burning thing and say like, okay, we're going to figure out how to solve that. If you think about Klaviyo, we're expanding on a bunch of different directions. We're known, you know, most of our customers today, they're mostly small businesses. There's now a growing part that are enterprise businesses, but that's, that's an area that we're growing that we, you know, we're looking for help and like, there's definitely like breadth in terms of the functionality we want to offer there. Um, you know, we're also growing internationally. There's a lot we're doing there. And then we're also growing out, you know, into other use cases and other verticals and use cases, both meaning beyond just marketing and messaging. How else can you improve the customer experience? And then obviously beyond, um, you know, where we have a lot of customers in retail, like what does it look like beyond that? So I, you know, for our app ecosystem, my gosh, there's so much white space there. And something that we talk about internally, we can't, we know we can't build all of the functionality our customers want. You know, our, our roadmaps, our backlogs are very, very, very deep. And that's actually why we're so invested in an ecosystem is like, okay, well, if we want to get to all those things quickly. We have to enlist like others to help us do that. And the nice part is, is we don't think of this as zero sum. Like I think there's, there are already, we have businesses that are doing tens, if not close to $100 million that are great partners of Klaviyo. And I think, I mean, I think that's right. Then the mark of a real platform is, can you have multiple businesses like that that can get to $100 million or even a billion?

Yeah, I think it takes a while to figure it out. Right. But, but I think when you have that, then you can get the whole room to build just on Klaviyo, right? Instead of doing 100 applications. So there's a couple of things I want to talk about. I think we hit this, the old days, finding your ICV niche. Although two things I want to touch on just before we go past it. That's a funny one.

Yeah, I guess I'm a big fan of like taking pictures along the way, although I wish some of them were private.

Yeah. Yeah. Just one thing on this, because you brought it up because we, the help from Shopify developers in the early days. Now Shopify is a very different company today. I don't know how big it was back then. Right. a 50th of the size probably, right? But you, you went to them, they didn't find you in the early days and they helped boost you in the early days. Like what? Because that's what everyone wants, right? They want to be able to find someone at Klaviyo or Shopify or wherever. And it's hard, right? So what, tell us just a little bit about that story, the help you got and why it worked.

Like, why did it work? Yeah.

Yeah.

Yeah. So if you're, I mean, you know, when you're, when you're building a product, you're thinking about like, okay, well, how do I get more distribution? How do I go to market faster? You know, for us, I think great partnerships, you need both, both, uh, both sides have to, there has to be something in it for, uh, for everybody, right? So we often think like, I've used this like rope, like if you're going to keep it tight, you need both sides pulling on it. So I also think, you know, when you're building partnerships, you should expect to have to do a lot of the legwork yourself when you start. I think sometimes it can sound good. It's like, yeah, we'll kind of, we'll discuss this. We'll agree in principle. And then. Magic will happen. It's like, yeah, that's not really how it works. So to give you a little insight, like how it worked for us, I mentioned we found Shopify merchants were a great fit for what Klaviyo was offering. Awesome. We spent a bunch of time, you know, with our product building in, making it easy to import data, export data, right? So there's kind of bidirectional sync. We built a bunch of, you know, all kinds of basic stuff, like kind of, you know, templates so that folks could get started really quickly. And then we, we, I haven't, we have this point of view, my co-founder and I, that if you could get 10 or 20 people that were just raving fans, like if you go to any company and you say, hey, I've got 10 or 20 of your customers and they absolutely love our products and it's truly genuine, like here, here's the list, you go call them up, go talk to them. I mean, everybody's going to stop and look at that. And so we just had this belief that if we go do that, then when, by the time we went to them, rather than saying, it's like, hey, you should trust us and believe in us, we'd say, look, don't take our word for it. The proof's right here. And so that's actually the way it evolved. And actually, you know, um, like, we gave them a lot of credit for being very open to developers. In the early, early days, getting to the first couple dozen, a lot of that was legwork that we had to do. Now, once we got to that critical mass, we then started to solve, you know, I had this, I had this thesis, we had this thesis. That my bet was like at Shopify, there were folks that were calling into their support team and asking them questions like, hey, I'm curious about how to send an abandoned cart, or hey, I have this idea for personalization in marketing. What, what product would you recommend?

Yeah.

And that this was like a real pain point for them.

And that's what everyone wants is to be that vendor, right?

Right. Totally. And so we just had this belief that they had to answer that question. And so everybody's like, if they didn't have a good answer, I mean, imagine being the person that's you know, doing customer service and you're like, uh, I don't know, I'll get back to you. Like, that's a, that's not a good experience. I don't want that. So we had this belief that if we could just say, hey, look, we've got these great, um, we've got these super fans and then we could share that information back to the Shopify team. Literally the folks on the front line, their sales team, their customer support team would say, oh yeah, like, this is great. In fact, what it turned out by the time we had started working with Shopify partner team, I think they told us, they're like, oh yeah, we already have our customer support team recommending you because they realized it made their job easier. Yeah. Um, so once you get that kind of, you've got that momentum, then it's a fun thing started happening. They said, okay, well, hey, is there some way that we can, you know, can we market you out to, you know, Shopify was very early to this idea of like, we're going to have an app store. And they said, hey, we've got to promote some, we've got to, we've got to, we've got to suggest some apps.

So I was going to put Klaviyo in there.

This is one of the ones that seems to be working. Uh, and that was great. I think that really helps with like, and then we would do things where we, you know, we'd do small events together. Um, but anyways, I think it all starts from the, you have to get in there and really make sure that, you know, work backwards from what that company wants to see. If they, you know, if you bring to them 10 or 20 customers that are just super fans of your products, of course you're going to take that, you know, that call. And actually the reverse is happening to us now. When I talk to our customers, one of my favorite things to do is, hey, what are the other apps you really like? And so you mentioned things like Course, that's actually how I came to know them. It's like, oh man, a lot of people are using this and love it. There must be something good going on here. And that's a great way to, you know, figure out where the, what the partners are that you want. Yeah.

We think, you know, sometimes as founders it can be frustrating. We're like, oh, Shopify or whomever has favorites. Right. But you got to look at it from the other side. Like they need to make those recommendations. They want to win that deal. And if they need marketing or SMS or something, they can't Give you a list of 80 vendors. Like, that's bad. That's a bad— so the simplest thing is to say, use Klaviyo. Like, to have a 500— an army at Shopify, and it's not just that they're favorites, they're solving a problem, right? And you— there's only going to be maybe 2, if you're lucky, they'll mention 2 names, right?

Yeah. And definitely on that, you know, on that point, like, what I've found when working with, um, you know, other companies on partnerships, actually, well, the good companies actually don't really care about the economics and the finances upfront because they're like, look, if this, if there's no product-market fit, if our customers don't love this, what's the point? I don't want, I would never want to sell them something that customers don't love. So actually the reality is, is like, if you want that kind of, you know, favorite, you know, status, the best way to do it is to just bring the proof points. And actually I've, what I've found is all the great product companies are actually like, yeah, those are the companies we want to do business with. Um, you know, versus one where it's like there's some commercial arrangement.

Yeah. So some, and then I want to fast forward to the present and the future, but some interesting things I learned. What's the 10x feature? The 10x feature was in part this auto segmenting the base. So it just worked elegantly, right? Yeah.

The two things that we thought were the killer features for us was this idea that, hey, if you, you know, I remember walking into, you know, our customers, you know, offices, we meet up with them. I'd say, if you have an experience for a customer you want to deliver, like there's, You have an idea of like, I know I have a pocket of customers that look like this and I want to build creative and design that looks like this. I said, no problem. You can do that. And you can literally do that. If you have that idea on your walk to work, by lunch, it's done. So like that was killer feature number one.

And then by lunch it's done.

Yes. Right. It's like, if people were just like, boy, that usually takes weeks. And I was like, yeah, yeah. With us, you're going to just going to be done. Right. You're going to be experimenting. The second thing was I've always felt that, you know, in consumer land, we're better at like gamifying things. I think sometimes in B2B land, we forget that. Using software should be fun. Uh, it's not just supposed to be a grind. And so for us, one of the things was this, this idea of being able to measure how you're doing and show, you know, the marketers that were using our products in dollars. I remember there's, we made this decision about, you know, a year or two in where we said, you know what, we're not going to show any more open or click rates. Like you have to go, you have to go click 5 times to go find them. All we're going to show you is the dollars and the number of the amount of revenue that say that campaign you just sent drove. And almost overnight, people were like, whoa, that was, that, that, that made $50,000?

Yeah.

Well, that's, that's better than the one I sent last week. Why is that? All of a sudden they were way more interested. And what was fascinating, I started to talk to folks and they're like, oh yeah, we set a goal for our team. They need to drive, I think somebody said, they need to drive $100,000 in Klaviyo bucks. I was like, okay, well, we can come up with better than Klaviyo bucks, but like, that's what, that's their goal for the next month. I said, okay, we're really onto something when people start to set, you know, KPIs and goals around things. So that is really, that measuring that really made a big difference because it was so normal in advertising, but it just wasn't a thing that people were doing, you know, directly ties to revenue and e-commerce directly ties. Right.

Right. And it's not, it's hard to lie or fake it because it's in Klaviyo, right? Yeah. So, and then one other thing from the old history that, that's super interesting. It's that, then that's also the power of going deep. In a vertical rather than horizontal. Because if you're horizontal, you're never going to build that, are you?

Right. It would be much more challenging. I mean, the other, you know, the other nice thing is, you know, the, one of the benefits we got of, I mentioned this, like, we built the, like, data connectors.

Yes.

I often find, like, you know, if you, if you build a set of APIs and there's a set of, you know, there's data that you want integrated into your platform. I actually, when we started, there was, it was kind of poo-pooed. It was like, uh, you, you give like an intern that project. It's like something, but we thought is like, no, this is core to what we do. A nice thing that happened was because we were the ones pulling the data in, we knew exactly the shape of the data. So when it came to measuring things like conversions, we're like, yeah, that's easy. So sometimes if you're building a very, you know, say you're building a more abstract product, um, I think it's actually nice to build a layer on top of it where you provide some schema or some context because you can actually make it a lot more valuable to the user. And it's actually, it's not very hard work. It doesn't feel very sexy. That's the kind of thing that Jason M. Lemkin said. And so, right. So we did that in that one vertical and we've now taken that same playbook and said, yeah, what does, hey, what does the equivalent look like, say, for, you know, restaurants, right? Versus retail. And it's like, yeah, it's all, it's all very similar. And that now it's going to help us, you know, in that market. Yeah.

Maybe even thinking about it, the fact that instead of click-through rates and open rates, we had dollars probably also turned the marketer into a hero. That's probably another reason they're a super fan. Not only could I do it in an afternoon, hooray. But now to my, my boss, the owner, not the CEO, probably just the owner, not even the CEO.

Yes.

I can actually, I'm a hero because I brought in another $118,000. I didn't just have a 41.6%, uh, we literally make them a hero.

That's right. We designed our whole dashboard to be very screenshotable because we literally, I know it's like, okay, at the end of the week, you're going to go show this to somebody and we want that to be a win for you. Yeah.

Yeah.

Okay.

One small thing about the past. And then I know it's a long time ago and we briefly touched, you won't remember, we briefly touched on this when we did a a podcast during lockdown, but you nailed Shopify. You got with the team, you got it, you got in, it worked. You were doing something very thoughtful, focusing there. But back in the day, Mailchimp, which obviously exited for $12 billion, pretty good outcome, right? Yeah. But they did stumble in that ecosystem, right? They, there was friction. There was friction between the organizations. Was that a boost? Was that one of your pieces of luck? What were the learnings when 'Cause they're bigger, right? And they did, but they, they, they weren't the best partner back then. Is that, is that accurate?

Yeah, I think so. I mean, there, there's, you know, there's kind of some kerfuffle with like in a, you know, in a—

Well, they got banned from Shopify. I would call that a kerfuffle. Yeah. If Shopify says you're no longer allowed to use our platform, that's on, on the DEF CON scale. What is it? A 4? It's a 4, right? It's not a little one. It's you're banned from Shopify.

Yeah. And like, I, yeah, it was, it was so anyways, I, our learnings now is like, look, if, you know, if sometimes things are going to happen that are outside of your control that you just, you know, sometimes they're going to be to the good, sometimes they're going to be bad. And like, you just have to do your best to take advantage of those when they do. I mean, for instance, I remember in those weeks we got a lot of folks that came to us and said, I need to move like now.

It happened.

Not next week, but today. Right. So it was, you know, sort of all hands on deck for a little bit. Um, and a lot of like, how do we automate that? But in general, like, I think that was, you know, I'm actually, my biggest lesson from that was just when you're working with partners, it comes back to this, like, there's got to be something in it for both sides. And I actually think there's like the opportunity for things to kind of get, you know, uh, maybe like, you know, uh, go off the rails like when they don't need to is there. So it's actually with all of our partners, you often talk about like, you know, hey, here's where we're headed. Where are you headed? And like, I often think, you know, you want things, I mean, obviously you want them to be complementary. It's actually okay if they overlap a little bit. You just want to understand like what folks are after in general. Like they're, oh my God, there's so much surface area to get to. Like we're not sort of not that precious about like, okay, well, you know, hey, if we're going to color over here, let's just, let's make sure what we're doing is working together.

Yeah, that's good.

Um, okay.

This one's going to be hard for folks to read. There's a lot going on, but I'm going to be your Wall Street— this is Jason M. Lemkin from Raymond James or UBS, or I don't know. I don't know who the names are today. But there's, even though this is a chart, it's super interesting because you're coming up on a billion in ARR, you're going international, you're going a little bit more enterprise, you're going beyond e-commerce, but you didn't do it super early. Yep. So why? Okay. Let's talk about, and you're, and you actually didn't, you can tell me whether you think you're multi-product. I'm not an expert, but I wouldn't call you radically multi-product like Datadog or Salesforce or something like that. You don't have like, 5 SKUs that have almost nothing in combination with each other, right? Even HubSpot, right? So talk about timing on second act and all this stuff, and then we can talk about some of the details, but what's, what's hap— why, why and when have you done these initiatives?

Yeah. So, uh, let's just say a couple things. Um, so the first is when we started Klaviyo, and I think there's actually two ways you can kind of found a business. Um, sometimes you can find a problem and it can be kind of niche. And you're like, I'm going to go solve this really well. I'm going to solve for this market, this use case. And that's good. Like, it gives you a real, it gives you a toehold, a place to expand from. The thing you just always have to check as you're going along is like, okay, well, how am I going to expand? Like, how do I make sure there's more to this? So you can work it that way. I think that works. Klaviyo's path was actually a little more the reverse, which was, you know, we had very broad ambitions when we started. We said, okay, well, we're going to be the place that you store everything you know about You know, your customers, and then we want to be any, any place you want to use that data, we're going to be the, we're going to facilitate that. Maybe we don't build the application, it's just built on top of our platform, but we're going to build a bunch of, you know, apps on top of it and all this kind of stuff. And that was, that was the, you know, we had this idea of like, okay, that's what we want to do from day one. But obviously that's, that's so large. You're like, okay, well, where are you going to start? We decided we were going to bootstrap our company. So we're like, okay, we don't have a lot of time here. We got to go find something that's got some product market fit. So the analogy we had in the early days of Klaviyo was, you know, as much like Amazon was like, look, we're going to build this logistics network, this like, you know, retail website, it's going to be great. And we're going to start with books. It's like books was never the end goal. It was just, look, it's a great place to start. Um, and so that's, that's very much the mentality we've had at Klaviyo is what's the much bigger opportunity and then how do we just sequence things along the way? So for us, it was okay. How do we build this brain for a business? How do we build marketing? Get into that. And even within marketing, we're like, well, let's narrow it down even further. And we ask like, well, what channels matter? And so that's why we started with email and then we added an SMS. Now we've added mobile. So now as we think forward, you know, this idea of second acts, you know, my advice is always like, you need to start thinking about second acts maybe a little bit sooner than you're comfortable with.

Yep.

Um, cause I think there's, you know, there's some, you can build some pretty big businesses, but sometimes you get to the spot where Oh my gosh, I don't know what to do next. And like, you kind of want some lead time to start to build those products. I think about them, talk to customers about them. But for us, the obvious, it is actually the biggest challenge for us is there's a bunch of different directions to go. You know, so just purely from a product perspective and being multi-product, we started with marketing because after we built this, you know, database back in the early days, literally went to our customers like, what are you doing? You know, database is only as good you're querying it. What are you doing with the results? Everybody And so we always kept a list of what are the other use cases. And just to give you some examples, you know, we have a ton of customers that are clamoring for us either to release APIs or product that could help improve things like the on, you know, the, uh, on your website or a mobile app experience. So literally, can I customize how the product feels while I'm using it or, you know, I'm browsing a website? Um, and then, hey, can I plumb this into other parts of the customer experience? So for instance, I think customer service and like all of the different ways of how can I personalize that and measure that. So there's all these other applications and it's a little bit similar to maybe Salesforce or HubSpot, uh, that I think Klaviyo can expand into. And again, some of those we'll do directly, some of those you do through partners. So we're very excited about that in the breadth of, you know, don't just think about Klaviyo just purely for messaging. And then beyond that, like, while it's, this may feel kind of straightforward, we've never wanted Klaviyo to be just a US-centric company. We had customers all over the world pretty quickly. I was just talking with, you know, one of our partners in Japan, our partners in Japanese, and, but they're desperate for like, hey, can you just help us get a little further here? So, you know, one of the other acts we're really excited about is how do we get Klaviyo into around the world, right? I think one of the things you start in the US, like you tend to take this a little more US, North America-centric view. But the reality is, is like there are businesses all over the world. So we're working on that. And then, you know, finally for us, you know, we started with SMBs. My co-founder actually came from enterprise software, but we started with SMBs because we wanted to bootstrap. And now, you know, I made the analogy to Nike. It's like, well, Nike's not a customer of ours yet, but they should be. So how do we work into that? And we know that that's like, that's a very different go-to-market motion. Some of the product requirements change. So anyway, so we're working across all three of those and then we've got some even like Some even like, you know, crazier ideas of, you know, what, what does Klaviyo for consumers look like? Hey, if we can, as a business, we can help you personalize the experience for a consumer. What would you want from us to, right, maybe help you, you know, get the most out of your relationships with businesses or discover new ones? So anyways, so there's actually this like a whole bunch of these things. I think we've kind of done the size and we'd say, man, all of these things could be billion-dollar businesses. So actually the reality is, is it's a lot of us, for us is like just sequencing those. And not getting too distracted, right? Not getting spread too thin.

Well, you can pick a year, but 2017, 2016, how big did you think the TAM was for what Klaviyo is circa today?

Yeah. Well, when it comes to like TAM sizing, market sizing kind of stuff, we always looked at like, uh, try to be pretty constricted because then if you get a big number, you're like, okay, that's real. And if it's not, then that's okay. You can always add TAM on, right? Yeah. By expanding products or expanding markets. But we already thought that there was like, oh, what we were building, just what we were building. Already could be a multi-billion dollar business. Why? We just looked at like the number of customers that were out there. We looked at like the size of their business, how much they typically spent with us. And we knew there was already a big there there. So actually for us, you know, now as you think about it, it's like, so there's a long way to run with what we're doing, but I think there's also this bigger ambition of like, okay, well, we never, we didn't build this just to sell books. So now, like, how do we get into these other categories? And so that's, and now I think we've got the time where we're starting to ramp up those. Investments in like, you know, those are things that we've got a few years to have them pay off.

But help me do a little bit of math. This is the non-obvious piece. So HubSpot doesn't break out their revenue by products, but it used to.

Okay.

Until sometimes it gets more flattering to combine it. But I think they're, my guess is marketing's about a billion of the two because CRM's friggin, I mean, I bet 90% of this room uses HubSpot CRM. And when we started SaaS or annual, it was zero. I mean, it's, it's crazy. How many folks use HubSpot CRM? It's, it's off topic, but yeah.

Yeah.

But I think the marketing automation is probably a billion. So you're doing a verticalized piece for e-commerce. You're highly attached to one really big platform, not entirely, but 80%. Your deal size is smaller than HubSpot's. It's like 5— I mean, we're gonna talk in a second about bigger deals, but your average deal's like $5K, right? HubSpot's $10K. Why are you bigger in marketing? In a niche, a really large niche. I mean, it's at half the price. I mean, I can build a spreadsheet, but, but why is it so big? Like, if you didn't really go through it, you might think, hey, great, great, Andrew, but that's going to be a $100 million business, right? How could it be as big as HubSpot if you're vertical at half the price?

Oh, okay. So, well, I think there's maybe two things. One is, I mean, this is where you just have to kind of look at the economic data, the size of retail just as a category is just massive.

Yes.

I mean, it's hard. It's really hard to appreciate unless you're in it. And especially it's hard in a digital world because you can kind of, actually something I'll do is like when I'm driving around is just look at what are all the stores that are there and like, what's their purpose? Like, why do they exist? Um, now a lot of retail has moved online, but like, they're just, my gosh, there are stores for everything. Yeah. Right. And then on the internet, I mean, it's a little bit harder to drive down Main Street to see that, but I mean, you talk, as I talk to customers, oh my gosh, there are ideas everywhere. Like, you know, we, maybe you remember the idea of, uh, hey, you know, could, could somebody, could you find 1,000 super fans and start a business? In retail, that's like super possible. You can find, you know, 10,000, maybe 100,000 really committed consumers for some category, maybe some hobby. And it's like, and that's a real business. And there are a lot of those.

Yeah.

Um, so one is, I think the category is very large. The second is, you know, one thing that's interesting about marketing is in a B2C context. So I mentioned this, like there are no sales reps. You know, one of the insights we had is in when you're working as a consumer business, marketing is sales. And it's actually hard to, you have to really appreciate that insight.

Marketing is sales.

There is nobody else coming to make the revenue number if the marketing team doesn't show up. And so if you talk to any B2C business, they'll say, yeah, we own it. We're responsible for this. And I think because our role is as a revenue driver for those businesses, it just has a massively different impact. But, you know, the, you know, the, the, the value that we can show and therefore what we can, you know, what we can price is different. Um, contrast that with B2B where I actually think it's like, you know, if you look at like the, you know, the sales or the CRO, like that, like that's really the cornerstone. And then the marketing side is, yeah, it kind of sits in support of that. And that's, it's just this huge difference between those two markets.

And one last piece on it that, and I, you probably haven't disclosed this metric and I certainly wouldn't push you as a public company CEO, but I think in core e-commerce, Shopify and friends, okay, Shopify, I think you have massive market share. I mean, like more than a HubSpot does, right? You have, if you've disclosed it, share with me the number. But I think in your core, core ICP, it's over half. It's over half. I mean, it's insane market share, right? So how did you learn from that and why did it not— typically I see when you get more than like 10, 15, 20% market share, you have to slow down because it's so much energy to push through the water to get to beyond that.

Yeah.

But I don't think it slowed you down to get to this penetration, did it?

Yeah.

Well, numbers don't suggest it slowed you down, right?

Yeah. Like the way we've always thought about it is, I mean, if you just, if you just go, you do bottoms up. If you go look at like all the retail, you know, e-commerce, like the B2C businesses out there, we can address, I mean, there are literally millions and you can know how many customers we have. We're still just scratching the surface. So what's interesting is, um, you know, obviously like, I mean, a ton of those businesses are using Shopify, but actually interestingly, there's a lot of these businesses that were founded before Shopify. Um, or just maybe you're in markets that Shopify is just more recent. There's, there's, there's anyways, there's lots of stuff that's where we, where we can grow. But to your point on like, let me just take like within, within, you know, within some of these like kind of core markets, right? Shopify, say US. I actually, one of the things we believe about software is if you're the market leader and you're topping out at 20% share, like you're not, that's not really much of a market leadership position. And sometimes there's dynamics why that happens. But I often think it's like if you have truly built the best product, and maybe there's some network effects to it, you should be able to top out way higher than that. Right? Could be 50%, could be even much larger than that. And I think that's one of the things that actually we've talked about for years is as we were growing, to your point, it's like, I think a lot of people say like, oh boy, it's going to be tough to push through this. But actually, I think if you, if you really get the product market fit really snug, then you can just kind of get, you can kind of get to this default status. And, uh, you know, that's, you know, I think you've seen loads. I mean, this happens a lot more in consumer lands. Um, but I think if you can do that in B2B where you just become the default, it's very hard. Like that has all sorts of wonderful, um, yeah, side effects.

The good side.

Okay.

Just two things I want to hit before we run out of time. Thanks for your patience on this one. One, just very tactical. And then one, I want to talk about little things like IPOs in the public markets just to help everybody, right? Just a small one. I could have picked a million things, but in terms of timing, you're just really going mid-market and upmarket now. Right. This is your slide. I mean, it's great. $2,386,000, $50K cut, 64% year over year. And you're seeing the classic thing, which is even though Klaviyo growth is epic, these ones are even epic-er, epic-er-er. It's 64%, right? But it wasn't overnight. And they're really big merchants out there. I mean, Shopify celebrate, I mean, Harley and everyone, every time they have a Kardashian or SpaceX, it's the whole extreme, right? Why were you deliberate here? Like, what are the learnings of pacing and timing.

Yeah, yeah, yeah, yeah, definitely. So, so Klaviyo started with, you know, more SMBs. Great. And we kind of had this, we knew, you know, a little bit because of our background, we wanted to get into the enterprise at some point. So I tend to think of like, well, how do you get into the enterprise? Yeah, one of the things we didn't want to do is we're not just going to hire a big sales team, give them some territory and say, go start knocking down doors and like, you know, uh, and, and like, you know, grow, grow customer. Like you've gotta start with a little bit of like a groundswell. And so that was something we wanted to be very deliberate about. I think when you're, when you think about the unit economics of your business, especially, you know, your cost to acquire customers, we've at Klaviyo, we've always felt like the more you can do, obviously with your products to make it, you know, have better fits, uh, you can do things with, with customers to drive awareness. I'm a massive believer. Sometimes I've had folks on our marketing team don't like saying this. Our best marketing is like viral marketing. It's word of mouth. It's people just talking to each other. Yeah. So it doesn't mean, it doesn't mean that like the marketing programs you run aren't important, but you want that basis where you've got customers and then partners. You know, so we often felt like when we go to market, we actually, by the time anybody from Klaviyo talks to you or you ever see an ad from us or anything, you should have talked to your peers. You should have talked to maybe some partners, like maybe in our case, maybe it might be a marketing agency. You've talked to some of the platforms that we work with, and if they're all saying Klaviyo, by the time you talk to us, you're like, oh yeah, I'm like already predisposed. We're like well down the funnel, right? So when we were moving into the enterprise, we tried to make sure all 3 of those ingredients were there. Did we have customers that loved us? Did we have, you know, partners, you know, in our case, digital agencies that already knew some of those folks? And were excited about us. That added, because they usually have a really good sense for what products will work. Yeah. You know, obviously we've done a lot of work with Shopify and others on the platform side of let's work on this together. So I think when you kind of stack those things up, then more recently we said like, okay, let's pour a little bit of, you know, sales and marketing gasoline on this. Now, now all of a sudden, you know, it's going to work. That plus I think going enterprise, you know, we start to expand the number of products we offer. So more products within marketing and now some products outside of that. I think there's this, this very, very big push in the enterprise to, I want all my software to work together. And we've been able to play to that too.

All right. There's more I want to talk about. We could do a sequel on the podcast sometime if you want. But one thing I know you're probably bored of talking about this, but just to help folks here, Klaviyo IPO'd September 2023.

Yep.

The last one was HashiCorp in our universe. So it was, how many months is that a gap? 20 months? Is it closed? Obviously it's not closed, but a more nuanced answer is there's a, You know, social media is annoying, Twitter's annoying, but how closed is it? What did you learn? What's the real bar and what's the takeaway for founders from the world? It's because it ain't easy, right?

Yeah. Well, I definitely think like, you know, so I can go back to when Klaviyo started in like the early 2010s and what the bar was then. I think in some sense we've, I think that, you know, maybe the ARR number has gone up a little bit, which I think is just too bad. I actually think it should be, you know, if you're a $100 million, $200 million business, like that should be plenty. Like, I mean, you can do more growing in the public markets. You don't need a billion in revenue.

Like that's Shopify and HubSpot IPO'd at $100 million. Right.

I think, I think that will come back. So like. But I think this idea that, you know, hey, it's a sustainable business, that it's a business that can grow durably, that it's, you know, it's got positive free cash flow. I think that's real. Like, I think you have to have figured that out. There's probably still some acceptance, like maybe if you haven't totally figured that out, but I think you need, you need to have a path to do that. So I think if you meet those criteria, I think you're in good shape. And actually, you know, just a bit of a meta point, you know, I felt like when we started, it was a great time to build. It was, it was still maybe a little bit of a, hangover from like, you know, the '07-'08 recession. I tend to think right now is like another awesome time to be building. It's just, there's just fewer people that want to do it. It's a little, it's comparatively a little bit harder. Um, which means that like it's actually less competitive. So, you know, there's actually, you can get more time with customers, all this kind of stuff. So, um, I, I think there's a lot of companies that can and probably will go public in the near term. But for us, you know, we kind of looked at it as like, look, we knew we're going to go public at some point. I often used to joke with our investors. I'm like, look, like by 2030 we'll have gone public. So will I remember which year it is? Probably not. Right. Yeah. So, you know, when we looked at it, like there's just a bunch of work that you have to do and we kind of decided it's like, okay, we're here, we're ready. Like, you know, like all things, like we have a lot of urgency. Let's just go get it done and then let's move on. And then, you know, folks often ask like, what's it like being a public company? Honestly, like if it's not really, it's not really any different than being private. Like I actually, I actually, I think we as a team actually kind of like the rigor of Every few months you have to show how you're doing. Yeah. I think there's a lot to be said for setting goals, right? Being able to show up and meet them. And then, you know, if you're, if you're a founder, you're naturally going to dream long-term. And then I think really good companies can balance between those two, thinking long-term as well as executing in the short run.

There was a discussion in SaaS Europe in London this year. Welcome to come anytime, Europe, if you want to. A bunch of folks that were at $100 to $200 million that were in more impacted categories. You said there's no down there. They're saying 20% is the new 50%. Like, it's hard out there. So 20, if I, we can just grow 20% in our, what do you think if you had to gut check it having done it at $200 million? What do you have to grow at IPO? Forget about efficiency. I know it's important. Is 30 enough? Is 25? Can you do it in the 20s? Does it have to be, I mean, HubSpot and Shopify IPO'd at 100, but they're going north of 50 like you did. What do you think the line is? Just having done the roadshow, if you had to ballpark it, what do you think the line is to have a decent IPO?

It's a good question. I mean, it's definitely like you can't be colored too much by what we've seen the last like 2, 3 years. So I definitely think it has come back and I think it's all, it is, it's all relative. Like I think everybody's looking, so I think you can kind of look at the public market comps. I think there's generally an expectation that like, look, if you're a smaller revenue base that you should be growing faster. Others, but I also think equally important is the durability of that growth. Yeah, actually, I think when you talk to a lot of folks in the public market, it's probably true of the private markets too. I mean, everybody wants, you know, what's the easiest path? And so I think even if you're a 25, 30% grower, but you're like, but I have a very durable model. I think that can last for 4 or 5 years in the future. I think people really pay attention to that compounding. And so that fact that people know that there's some heft to it, that's probably equally important. So I think that could be enough, but you've You've got to have a point of view on like, how are you going to sustain that in the long run?

Fragile revenue isn't going to cut it, is it? Yeah. All right, Andrew, I have more, but this was great. Thanks for going so long. Thanks everybody for being with us. This was great. Thank you.