Squarespace is at $700,000,000 in ARR!! 5 Top Learnings!

Hey everybody. I wanted to take a few minutes to talk about Squarespace. SquareSpace is at 700 million in ARR. 700 million for this website builder growing 30% a year. That means it's adding over 200 million in revenue a year. And it's super interesting for a couple of reasons, but one of the biggest is a lot of public SaaS companies sell to SMBs. Probably about half of public SaaS revenue is SMB focused, near as I can tell. But we don't have that many Pure plays for SMBs where we can really, really dig into the numbers. We definitely have some. But Squarespace is 99% self service and SMBs and only 1% enterprise. So if we want to really dig behind some numbers, dig behind some trends, see what's happening. Squarespace is a super fun one. It's also one of the multitude of products we use to run Saster websites. We Certainly we love Webflow, we run Saster itself on WordPress. We use a lot of products but Squarespace runs a lot of our event websites. So we know it well and we're actually super fans. So it's fun to fun to take a deep dive. But let's talk about Squarespace as it ready to go ipo. A solo founder company. A solo founder that basically bootstrapped for the first years and still owns, still is the largest shareholder of the company, which we'll get to 700 million in ARR growing 30% selling to SMBs. What can we learn? Okay, point number one, about 500,000 revenue per employee. This is a metric that more and more of us should track as we think about scaling. Squarespace has 1200 employees at 700 million in revenue. That's pretty impressive especially these days as many fast SaaS companies are actually less efficient with more capital and faster growth. Folks aren't worrying as much about capital efficiency, but Squarespace started off bootstrapped. It really did not raise a venture round until the growth space. And it's self service, so it's been able to be capital efficient. And 500,000 in revenue per employee translates to 150 million in free cash flow. It's 700 million in revenue. Pretty impressive, but something you really can do with a viral business, or at least not a viral business, but a business with very strong brand that self service that sort of self propagates. And we see that a lot with Squarespace, that the market investment at scale is real and it's gone up since COVID as they've leaned in, but it's not huge and the sales cost obviously is very trivial in a self service business. Second point about Squarespace, and this is super interesting because we've seen this with Shopify as well, is a lot of the monetization comes from E Commerce. It comes from E Commerce and this is their big Covid boost. And in fact Squarespace would not be growing as fast as it would without E Commerce. And how does it monetize it? Well this is interesting learning for everyone. They added additions. It's what a lot of us do. And they actually don't make that much transaction revenue. Shopify has merchant services revenue. They make a ton of money on each transaction. So does Bill.com, it's half of Bill.com's revenue today. And Wix, which is its most direct competitor and WIX is at a billion in revenue. So WIX is kind of like a 30% bigger squarespace. Wix actually takes significant transaction fees from E Commerce. Squarespace doesn't do that. They just charge more for the edition. So a basic website on Squarespace is 18 bucks a month for the business version. The e Commerce versions $40 a month. It's more than twice the price. But think about it, it's worth it. It's closer to the money. So that has turbocharged it and the gmv. The amount of E Commerce goods that have flowed through SquareSpace was up 91% last year during COVID So that's been the huge accelerator. And this E Commerce has grown to 22% of Squarespace's revenue. So a quick reminder that if nothing else, you have to add a second product at a billion or often after 100 million to really scale. And E Commerce is the secret sauce for Squarespace. It's also the secret sauce for wix and it's how they scaled. The big difference between Squarespace and WIX is how they monetize payments. WIX takes part of the fees. They're low margin. Those margins on that, those, those incremental dollars at WIX are only like 30% but they get to capture more of them versus Squarespace says no, we don't want to take a little piece of each payment. We just want to charge more for the E Commerce module different ways to the top of the mountain. WIX is a little bit bigger because of that. But Squarespace's gross margins are significantly higher than Wix's 70%. Okay, next point. Nrr. And this is interesting, this is super interesting. Squarespace has 85% NRR. Why is this interesting? It's interesting because the Handful of self service and other companies that IPO, they generally hide their NRR, the enterprise ones, the ones that have 120, 130, 140% NRR. It's all over their prospectus. The crazy NRR at UiPath that created one of the biggest cloud IPOs, it's all over the prospectus. The 160%, the great NRR at Slack, at Zoom, SMBs, all of it. It's splashed all across all their investor presentations. But when you get down to self service, look, they turn at a higher rate. Little businesses go out of business, they're very price sensitive. They'll cancel a website and try to find a free version. So most folks obscure their NRR self service or the very bottom market. Or they blend it together. For example, Shopify's NRR is 100%. And Shopify does like Squarespace, sell to very small businesses. But it also sells to bigger businesses and it has Shopify plus which is very enterprise. So you take them all together and they blend to 100 NRR. But I bet, I bet it's Shopify. Shopify plus, it's enterprise versions like 120, 130. Whereas I bet it's single seat. SoloPreneur is probably 70 or 80%. Squarespace is one of the few that doesn't hide it. So we can learn from it. NRR this year, 85%. The year before, two years before, 83%. So they've driven it up a bit. But that's as high as they probably can get for a self service business. So that's a good anchor to think about for you. Just don't confuse self service with sales driven SMB or bigger ones. Because the more it's a solution sale, the more sales folks are involved, the less 85% is okay. For example, Bill.com we just did a profile of Bill.com sells to SMBs, two very small ones but also mid market NS solution sale. There NRR is in the 120 to 1, 110 to 120% range versus 85% for Squarespace. So make sure there's no excuses for NRR. But maybe for a self service product to very small businesses, 85% maybe like Squarespace is a good North Star to shoot for. But again remember that means their core base actually shrinks each year. So it's much harder than for other folks. But still their extreme capital efficiency, 500k in revenue per employee, 100 and some odd million in free cash flow, that makes up for it. But it means they need to be very, very religious about how much they spend on marketing and others to grow. Next point number four. Just always interesting to see in an SMB service how they do annual and monthly subscriptions. They're 70% annual, 30% monthly. Just something to think about. A lot of SMB folks really want to push folks hard to annual because they think it decreases. Churn it doesn't. It just hides. Churn for a year, often in exchange for a discount. If you let SMBs choose, they'll often choose a natural pattern. And there are significant discounts for Squarespace, 20 to 30% discounts for going annual, and 70% of people then choose to go annual. But 30% say, look, we're a tiny business. Every month counts. We're going monthly. It's interesting if you compare that to Zoom, which has gone more enterprise. But also SMBs have exploded since COVID They used to have about a 70 to 30 ratio. Actually, after Covid, it dropped to 50. 50. 50% of Zoom's customers pay monthly. Now that's actually gone up because so many SMBs come in and because Zoom doesn't put any gates. Zoom doesn't try to force you to go annual when you don't want to. And in my experience, and what I've learned is that's what you want to do. Don't force SMBs or anyone to go annual if they want to go monthly. Remove friction for a sales process. That's how you make the most. Close the customer instantly close the customer. The second they go to Squarespace and they're like, wow, this design pretty. It's not free, but I want to try it out monthly. Don't inject friction into the process. And they haven't. They let 30% of folks just buy the bi monthly, and it works out well for them. Okay, fifth core point. And then I want to hit four bonus points, and then we'll wrap it up. The fifth interesting one is seasonality. And it's interesting that it's 700 million in ARR. Squarespace still sees seasonality. It has two strong quarters, which are Q1 and Q3. Q1, they attribute new marketing programs. So Squarespace sells to marketers, right? And folks come in. It's the start of the year. You've got to hit the plan. You've got fresh ideas. So people, they spin up a new website. Q1's good. And then with this e commerce push, Q3 is huge, too. The holiday rush. And you see this with a lot of other folks all across the board, you See, with a lot of folks in E commerce, which is that the beginning of Q1 is a little flat often because everyone geared up for the holidays. What's interesting to me is that when I see startups blame amiss on seasonality, I say cry me a river. Because look, if you're growing at startup rates, if you're growing 100, 200, 300, 400% a year and a quarter is a little soft, it should barely show up in the numbers because your growth is so high and you're brand new. So what if it's a little soft? You have 0.01% of the market. There's really no excuse to blame seasonality, but it doesn't mean it's not real. And so it's always interesting when we see large public SaaS companies report on their seasonality. So we can see that it has an impact, but it's not epic. So again, no excuses, but you may see boosts in Q1 and Q3 if you're like Squarespace. Four last points. The first one we hit a little bit before, but the key of growing as you scale, of growing your footprint and adding a second product. The last thing I think most SaaS companies want to do in the early days is get distracted. You don't want to launch seven products. You want to stick to what you're good at, especially from 1 to 10 million in ARR. The best way to go from 1 to 10 is just double down on what you're good at. Good at inbound, do more good at outbound. Do that make real estate customers happy. Just do real estate until you're at 10 or more million in revenue, when you have a little extra people, a little extra fat, a little extra capital so you can invest in new initiatives. So keep very focused from 1 to 10, and maybe even 1 to 100 in many ways. But as you approach 100 million, you have to start thinking about expanding your footprint. How can I sell more to my existing customers? I One way certainly is to go up market. We did a deep dive on PagerDuty recently. PagerDuty IPO did 125 million, almost all the SMBs. But then the path from 125 to 250 from doubling from the two years after everybody was all enterprise, it was all $1 million deals. That's quite a change. So one way you can certainly grow is your customer footprint and broader. But Paycher D's also added other products as importantly as Squarespace. And Squarespace's key was going deep on e commerce. And if you know anything about how e commerce works with websites, this isn't new. I mean WordPress, you might not realize it, but WordPress itself, Automattic, is one of the leading e commerce vendors because it bought a company called WooCommerce, which was the leader on building websites on top of WordPress. And that's a huge part of WordPress's business, Shopify. If you haven't used Shopify, you probably don't think what it is, but it's actually a website builder specialized for e commerce with an e commerce engine. So Shopify directly competes actually with WordPress, PagerDuty and Wix, which you might not realize if you're not in the of things. But adding this e commerce element was key because its legacy business only grew 18% in 2020, while its E commerce editions, those more expensive additions that grew 78%. 78%. So together you get 28% growth at 700 million in revenue. That sort of 25 to 30% growth as you approach a billion makes you an outlier. That's the one where you get the crazy multiples. That's where the one where you're like 20x revenue when you dip below 20% when you're public, the multiples get pretty bad. Sometimes they get as low as three to four times revenue. So how does Squarespace stay a high growth company? It added e commerce, that's the key, growing 78%. So reminder too, you've got to expand your footprint. Don't do it too early. But as founders you got to really think about it at scale. And almost everyone in this five interesting learning series has added a second product on the way to a billion in ARR. So planet early plan for it before 100 million so you can really scale it over time. Three last points. One we just tend to track 30% of its revenue is outside the US Wix. Interestingly because Wix started in Israel, it's stronger in Europe and Israel and other countries. So 43% of Wix's revenue is outside the U.S. squarespace has kind of a traditional revenue that a lot of SaaS companies see 30% outside the US but it's just a reminder to lean in international that these browsers work everywhere and they've got 30% of the revenue outside the. You probably should too. You probably should have 30% of your revenue outside the US or you're not selling enough. Two last points. Eight we touched on it above just when you go enterprise, we've seen different case studies but less than 1% of Squarespace's revenue is enterprise today. But they want to grow there. So it's another growth factor for them after a billion in ar. But it's very interesting that they purposefully did not go there while Shopify and many others did. The last point that we touched on in the beginning, it's more just interesting. The founder, Anthony Casalena, he started Squarespace literally in its dorm room and it took years to get going. This was not a rocket ship in the early days. It was not. And that doesn't always work. This was 15 years ago. Atlassian was able to start slow. Qualtrics was able to start slow. Mailchimp was able to start somewhat slow. UiPath, wow. One of the fastest growing SaaS companies of all time. But from 2005 to 2015 it only had a million in revenue. It grew slowly, but the web was slower back then. The web was slower 15 years ago when some of these companies were started. The rate of innovation, the rate of competition is much higher today. But by going slowly in the beginning, often not intentionally, often, because Anthony didn't have any money today he still owns 36% of the company and 68% of the voting rights. And he owns 36% of the company because he waited, because he didn't raise three rounds of seed funding. He owns 68% of the voting rights because he didn't raise really any money at all until later, until growth investors came in and the growth are willing to give up control. They don't care about control, they just want money. So he owns all the voting rights and 36% of the company. So does the founder of UiPath, which is very enterprise centric and their ownership and voting is quite similar. But if Squarespace ends up being worth say 15 billion and he owns 36%, that's quite an ownership stake and well deserved. Did it all on his own. A solo founder. Tuffed it out in the early days. Found a niche in a space that people didn't. It was like Zoom people. When Zoom got off the ground, people didn't think. People thought this stuff had become free. It was a commodity no one would pay for. Zoom, well, Zoom did 4 billion last year. Similar thing happened with websites. Google gave away free Google sites. GoDaddy gives away free websites. Crummy websites or free or boring websites are all over the place. You can publish a page in notion or code or others. But a high design website, a high functioning website, a website that looks as professional as something you'd hire a design firm, squarespace stayed true to that vision even in the early days when it took a while to realize, even when like Zoom, it wasn't clear that people would pay for it. But paying $40 a month for a professional grade website that you can also collect payments on, boy, that's a good deal this year. And an incredible company, incredible vision. So super excited to watch, watch this space and check in with Squarespace again and maybe 1.4 billion and 2 billion and watch this rocket ship continue to grow.