Slack At $1 BILLION in ARR!! Growing 40%++

Hey, everybody, let's talk today about Slack at 1 billion in ARR, 1 billion in revenue. And we won't be able to talk about Slack too much longer because as part of its almost $30 billion acquisition by Salesforce, it won't be publishing its numbers or sharing many metrics going forward. So this is one of our last chances to take a peek at how one of the most iconic and one of our favorite SaaS and Cloud companies is doing and how it got there to a billion in revenue. And I think we'll learn some things that aren't quite what we expected. So, five interesting learnings from Slack. Number one, which sounds subtle or simple, but it isn't. Slack is one of the few SaaS companies that at a billion in ARR is significantly growing its customer base. And what do I mean by that? Most SaaS companies we see, especially ones with high NRR, high growth from their customer base, they get much of their revenue from their existing customer base. Salesforce gets 75% of its revenue. It's new bookings from upsells. Even rocket ships like UiPath get over 70% of their revenue from their existing base. It's almost natural. Imagine you have 130, 141, 50% net revenue retention. Almost mathematically that that's your easiest way to grow and can quickly become the bulk of your new bookings. But what you want is both. You want very high NRR and you want lots of new customers because you can fall into a trap. You can fall into a trap if you have high revenue retention north of 130 of thinking your growth is coming from new customers, when deep down it's coming from upsells and retention. And that's okay. We've learned that customers can. Accounts can keep growing in SaaS for decades even. But you want to make sure your core customer account is growing quickly too. And Slack is doing that. And even at a billion in net revenue, it's new customers who are growing 35%. Think about that. So as we'll talk about in a minute, Slack's NRR has declined a little bit. But if you can grow your new customer base at scale, let's say 30 or 40%, and you can have 130 or 140% net revenue retention. That's sort of a magical combination. And once you hit 10, 20, 30, 40, let alone a billion, an error like Slack, there's a golden ratio. And if you can get as as much new revenue from your existing customers as your expansion revenue, you're doing things Right. In sales, you're not just getting money out of the base, you're also substantially expanding your customer base. So Slack at a billion, growing 40% year over year. That's stunning. Slack at a billion, adding 400 million of AR a year. But good news is this customer race is growing 34%. So that suggests a decade of growth to come. And that Salesforce frankly got an awfully good deal. Interesting point number two, which we actually haven't seen that much looking at the public SaaS companies is there is some deceleration in Slack's net retention. A few quarters ago their net revenue retention was always in the 130s, 134, 132. It declined post Covid to 123% and that is statistically significant. And why did it do that? Hard to know. Look, 123% net revenue retention is still world class, right? Take a $1 billion business like Slack, have 123% net revenue retention. It grows to 1.23 billion next year without a new customer. Think about that math for a second. Slack at a billion. You want to grow 20% or more to be a high growth company. Slack could do that without a single new customer with 123% NRR. But still NRR is going down a bit. And that's interesting. We don't see that. It's interesting for two reasons. One what we found is that we used to worry that NRR would hit a plateau, that how much money can you get out of your base? But now that so many folks have gone past a billion, Zendesk has gone past a billion, HubSpot, Slack, so many others, we see that actually NRR doesn't decline even in a billion revenue. So you have no excuse as a startup for your NRR decline either. But slacks came down a little bit over the last few quarters. My guess, competition. It's okay. Their NRR is still world class, but it has come down a bit which we haven't seen as much with others. However, with such incredible growth from new customers from Slack, despite Microsoft having an almost free product again, they will get to 10 billion ARR from 1 billion just with the kind of customer growth and NRR they have. Okay, interesting point number three. And this is something we also saw with Zoom. After Covid, both Slack and Zoom went up market Zoom. Log out of your Zoom session. You're going to see a Gartner Magic quadrant. You're going to see Zoom Enterprise on their homepage. Zoom was very much an SMB product. To start, as was Slack, and both in different ways, went more upmarket. Slack got there more quickly. Slack today is 50, 50, 50% of its revenue is from smaller accounts and half is from customers that pay more than $100,000 a year. I But what's interesting is despite, you know, bigger customers growing bigger over time, Slack and Zoom have seen such acceleration from their SMBs that the ratios have stayed consistent with slack. They've had 50% of their revenue from 100k customers for five quarters in a row, more or less. And actually with Zoom, things were so crazy after Covid, SMBs grew even faster than Enterprises. Enterprises grew quickly at Zoom post Covid, but SMBs grew even faster. So what's the learning? The learning is something from Slack and Zoom that's a little counterintuitive, which sometimes we think that the percent of our revenue when we have small, medium and large customers, sometimes we think over time, of course the percent of revenue from bigger customers is going to grow if for no other reason that those accounts expand, those 100k accounts become 150k, 200, 250, 300. And tiny little SMBs sometimes grow, sometimes an acorn becomes a big tree, but more often they stay small. So mathematically, intuitively, it seems like big accounts get bigger. And so as a result, more of your revenue gets enterprise over time. But we've seen SMBs are such a force in cloud, such a force in SaaS that they can keep up. So Slack's 5050 enterprise SaaS mix has stayed the same for more almost two years. So keep that in mind. Your SMBs can power you to a billion in AR and beyond. And don't assume necessarily that they will shrink as a percent of your revenue unless you're seeing that. We've seen the same thing with Zendesk. We've actually even seen the same thing with Shopify. Shopify went up market with Shopify plus, which is very compet with bigger stores. But Shopify for SMBs exploded. So again, those ratios did not change as much as we think. Point four with Slack, 40% of the revenue is outside of the US and how much of the revenue is varied? A lot, as we've done a deep dive in different public companies. But it is something to remember if you're very focused on the US market or maybe the European market and you get some customers outside of it. Lean in, lean in. Slack has had 40% of its revenue outside of the US for two years. And different companies are at different levels. Some folks took a long time to go International like Ringcentral and others. Some folks got there very organically. But Slack is a reminder that go global. Obviously the browser works just about anywhere on planet Earth. Localize your product early. Do what you can. When you see seeds of growth outside of your home market, lean in. Because Slack would only be 60% of what it was if it didn't lean in outside the us. And a final note on Slack, and this is just something interesting, we've seen it many cloud leaders, but at a billion in ar, which is a lot. Billion's a lot. Slack was generating massive free cash flow. Okay, 14% margins, 14% free cash flow. Zoom is even more. I mean Zoom is incredible. And even some old school folks like Godaddy and others generate massive free cash flow. The breakthrough from slack was around 500 million in AR. It doesn't have to be for you as a founder. I want cash flow positive before 10 million ARR. So you can do it at different times. But it continues to show that even as we've invested lots of money in top SaaS and cloud companies that are growing like crazy, eventually they do generate massive cash flows. Dropbox is slow. Growth is slow, but it's generating massive free cash flow. Dropbox generates almost a dollar in profit for each two dollars that it charges. Zoom is massively profitable. Slack is massively Prof. Profitable. So it comes. It comes. And just make sure your unit economics are strong. If your unit economics are strong and you're getting a reasonable payback on your sales and marketing expense, go long. Because what we've seen is yes, SAS can consume a ton of capital. It doesn't have to, but it can consume a ton of capital on the way to scaling. But it doesn't have to after that. It doesn't after that. And Slack proves it. Slack is massively profitable at a billion and Arrow. They chose to take their time to get there because they're a rocket ship. But now it's simply an incredible software company. And good luck to slack as a $30 billion part of Salesforce.