Listen to the podcast to learn about:
02:20 - Chargebee’s unique insights and 0-1 journey
08:00 - Aligning Pricing with customer success
11:30 - How Freemium helps in changing perception
13:00 - How to think about customer segments
16:00 - The $1-$5M phase
19:00 - Expanding into new markets
22:00 - Building an Org in US
31:00 - Choosing key metrics for your SaaS business
34:00 - Importance of qualitative metrics
37:00 - How SaaS companies can leverage partnerships intelligently
46:00 - In a subscription business every function is a revenue function
50:00 - Chargebee’s next growth phase
54:00 - Pleasant surprises experienced during the journey
57:00 - Advice to new SaaS entrepreneurs
Read the complete transcript below
Sanjay Swamy 1:15
Hi, everybody, this is Sanjay Swamy here from Prime Ventures. Welcome again to a new episode of the Prime venture partner’s podcast. This is likely to be the last podcast of the year of the calendar year 2020. Despite all of the challenges that everyone has faced, I think one of the clear takeaways here has been, this is the year of SaaS. And I’m delighted to bring a founder here from the SaaS industry, and one who actually enables a lot of the SaaS companies around the world to be successful. My guest today is Krish, founder and CEO of Chargebee. Krish, welcome to the show.
Thank you so much for having me, Sanjay. Glad to be here. Thank you.
Sanjay Swamy 2:20
Wonderful. So Krish, as I said, this has been the year of SaaS. But SaaS companies also take a lot of time to develop, there’s a lot that one goes through in the zero to one, phase one to ten phase. And then from that point on, tell us a little bit about your journey. And we’re not investors in the company, sadly, but we’ve known you right from the beginning, and been big cheerleaders and supporters, but we’d love to hear you share with our audience about your fabulous journey.
Krish Subramanian 2:55
Sure, thank you. I still remember your diligence call on behalf of shekhar from Accel. So we started Chargebee in 2011, we bootstrapped the company through a year and a half of building the product and getting those alpha, beta customers. And then we raised capital from investors. So even after launching the product, the zero to one journey was not a straight line. To give some context, my co-founders, all four of us come from engineering backgrounds. Three of my co founders have built SaaS products previously at Zoho. And that’s how we all came together, I come from a product implementation background.
And then as first time founders when we launched the product, it took us close to 14 quarters to get to that right first million dollars. And that’s the reason I said it’s not a straight line. The reason I said it’s not a straight line is that around half a million mark is when you realise that the natural constraints and advantages with which we build also becomes the reason why you attract a certain type of customers, we built everything with inbound, because we built from Chennai, but built up something global. From the beginning, we focused on North America, European markets, because the problem, subscription billing as a problem was more relevant and more mature businesses were there. And we focus on those markets. And because of inbound, we found the different types of businesses that we’re looking for the solution. And inbound as you know, the SEO SEM, all of that attracts either e-commerce companies and SaaS companies, and also some agencies, all types of businesses, founders, and some of them become customers.
And as first time founders, of course, you’re also enthusiastic about anybody who shows up and says, hey I want a solution, you’re trying to recruit them as customers. And that happened, with all enthusiasm, to serve and learn from them. But what happens in that journey of that figuring out, I think sets us up for either a lot of pain or success. And thankfully, we had some good advisors to help us through that phase to say, Hey, who’s your customer? Are these the right customers? And what kind of a seed are you planting that will grow in a particular way later? And I think those kinds of questions were where we spent a lot of time in that zero to one million. And I’ll pause here to let you ask a particular directional question that would be helpful for our audience.
Sanjay Swamy 5:30
Sure. So you talked about the zero to one phase in identifying the right types of customers as you established product market fit. What were some of the decisions you all made in your choice of customers, customer segments? And how has that stayed consistent as the company has scaled through a couple more phases since?
Krish Subramanian 05:55
So when we tried to define, what was the unique insight with which we started the company it was based on the past previous experience of building SaaS companies that every SaaS company shouldn’t have to build certain components themselves. And we should be able to provide that abstracted with an API that was a unique insight with which we started. And yet, when we were in the process of getting customers we lost track of that part. Rather, we built an API first product based on all of that. And yet we thought of trying to get anybody as a customer, which is the typical engineer mindset of challenge accepted more to say, Okay, I can solve the problem. If an ecommerce company shows up, let me try and solve it for them.
And we went a little bit everywhere to try and solve the problem through configurations and all of that. And the realisation through that iterative phase this figuring out was, It’s not a problem, a question of, can you solve that? It’s a question of, can you solve it in a time, the limited amount of time to get to that inflection point, and develop deep expertise and also a product that there, it resonates beautifully for one segment of customers who are able to champion and appreciate what you have built. So we had to make certain choices like letting go of let’s say, if even though multiple markets are attracted, we had to say, Okay, let’s stay focused on SaaS and SaaS like businesses for a period of time before we focus on more segments.
So those kind of early choices were very helpful, it was a little painful to say we are not going to focus on certain segments. But having said that, there are always adjacencies we all play in adjacencies in our customer base where some customers like Soylent, which were led by a CTO as one of the founders, they were behaving like a saas company, we could actually make our API first product for them. So the product works for multiple segments does not mean you should not have a strong hypothesis.
So these were some of the key learnings for us early on in terms of first time mistakes, to deliberately focus on the segments that worked for us and also iterating on our pricing to ensure that it was aligned with our customer success. And also it acted as a filter to remove certain segments that we did not want to serve. Like, for example we deliberately have a freemium pricing model. But it’s not free forever. You start with a freemium model. But when you hit $50,000, of aggregate invoicing, you automatically move into a paid tier. So we want our customers to know that at some point, this is going to be a paid product. And we want to offer the best service to scale with you. But don’t think of it as free, and it also acts as a filter for certain segments. And it was really scary to introduce these iterations, these kinds of pricing changes, for fear of losing existing customers. And we were afraid of thinking will enough people actually buy the product? But it turned out to be a good decision, because that’s the only way, only by changing the pricing, we will actually know what resonates with the market and all of that. So those were some interesting changes that happened during that phase. That taught us a lot.
Sanjay Swamy 09:25
So that’s very interesting because again, a lot of times we tell founders, A, if you underprice the product, in the beginning, you’re sort of making this a very small market for yourself, potentially, it’s very hard to raise prices. And B, finding price discovery is well, you don’t have to wait to prove things out too much. And get to that right price point. One of our SaaS companies actually here, which is India based, kept doubling their price with every customer they talked to until they got a serious pushback. And that was a way to establish price discovery.
So let’s talk a little bit about the zero to one phase, and you said that it took almost three, four years really right in the making for that to happen. And that’s when you sort of clearly knew exactly that this was something that had product market fit in a segment. And as you scale from the next phase, right, the one to ten phase, you would have had the opportunity of different geographies, different customer segments, many companies try to quickly go up market because churn is very high in the, at least traditionally in the SMB segment. And the cost of sales and the sales cycle is much larger, but it’s less churn in the higher end segments. What has your journey been and along these lines what are some feedback and advice you have for founders who are setting out and are at that stage?
Krish Subramanian 11:05
Sure. So, the context of our market is that, till recently at least two, three years back, this was a very nascent market category as such, to some extent, because of the build versus buy argument that still goes on between the CTO and the rest of the organisation, and in any of those categories, selling to early stage customers, and you’re basically selling for API first product we were selling to the CTO, and then it’s always against the ego of the person to say, hey, shouldn’t you be building it yourself means that challenge accepted. And you don’t want to say that. How do you change that perception? Things like freemium goes a long way in helping to say it’s not that you cannot do it. But as you scale, you will need this and this and this, your business users will start asking more things, so you probably don’t want to build.
So that’s how we tried to frame it and having freemium and other things helped change that shift that argument a little bit. To remove that objection and get more conversion in the early stage. For the smallest segment of customers, and to put in that context is, zero to one million SaaS companies, maybe let’s imagine that’s the first person there is the next phase, which is once somebody establishes product market fit, and then scaling the between that one to $5 million. There is again that we think of ourselves as a product where our customers choose change billing system, only probably four or five times in the life of their journey, when you’re starting out, when you have product market fit, and you know that something is working, but you don’t want to spend any time here. And it’s mostly a second time founder or they are hiring an operations person to hand out the billing related things or a finance person comes in, and then they decide this is sub optimal, I don’t want to do it in Excel sheets or our the CTO decides that no, this is not what I’m going to keep building. So let’s do that.
The third one is between the ten to twenty million dollar stage when you are beginning to scale, and you are setting up the leadership team. And the founders are giving away things to the next level leadership and allowing them to operate. And then say the director of finance and operations person, somebody who comes in and then they decide that I have to change the infrastructure. And sometimes they go after multiple infrastructure tools, including your CRM, accounting system, and all of that. And that’s sort of the third stage. The fourth stage, we think of as you’re getting, you’re able to dream about an IPO, like in two years, three years time, and you probably are going to pick this anywhere between 40 to $60 million is another stage. And then probably the only other opportunity is probably post IPO or something like that.That’s a segment that we don’t play into.
This is a context of how we think about our customer segments. In that context, we have now defined it, now I’m talking about as if we had this all figured out. But bear with me. But in hindsight right, I am now able to define the segments as zero to one this startup segment one to $25 million or scale up segment and 25 to 100 is a growth segment internally that’s how we look at it.
And the reason why we segmented differently is that their buying motion is different; the messaging and positioning for each of the segments has to be different and who purchases the or who makes a buying decision is also very different in each of this. And our product also had to grow with our customers. So the way we have driven our roadmap is, 60% of the roadmap is driven by our existing customers and fastest growing customers who are pulling our product to the next stage. So, if you focus on the world’s top 50 customers, then what happens is they are growing really fast beyond the 100 million then we are able to deliver. We are aligned with delivering the capabilities for them, then the product is already ready for the 2900 other customers who are following them.
So that’s how we looked at the product roadmap and that can scale to the next segment, but the challenges, the go to market motion is not the same, even though your product may be ready. So we are used to selling through freemium and then a quick 20 days kind of a sales cycle in the startup segment. And suddenly what is required for a 5 million or 25 million company is something more sophisticated, they have existing systems. Changing a billing system is like spine surgery if somebody is afraid of changing it, then we have to put in the right go to market motion along with this which means that the sales team cannot go in and then push for a sale quickly. They have to consult to understand what all is there in the existing system. How do I help you with change management? Evaluate, make them feel safe about the change and then handhold them.
For that we had to change our sales methodology where the same sales people who work for successful sales team, worked on the startup segment need a different sales methodology for the scale up segment and then the larger segment. So we were focused on building this organisational muscle to teach new sales methodology for sales people set up a pre sales team to complement the sales people so which means that there was a combination of a pre sales and a salesperson for every prospect. And we continue doing that. So to put this I’m actually talking about a lot of things in terms of what to do. But I’m going to take a minute to just give some context about at what point, so between the one to 5 million phase, you realise that if you are selling a 4k product ACV, what does it take for you to go from five to 10 million in, let’s say, for quarters? How do you double the revenue? Now the number of customers you have toacquire suddenly starts looking a little scary to go from to the lifetime of whatever you have done in the company in the world to get to the 5 million, you want to replicate it in one year? How do you do that?
Now, suddenly, there are only a few levers that are available for you to go do that, which is pricing or your ACV of your customers that you sell to and then the number of customers you can acquire. And suddenly you realise that, which are the ones that are the most attractive and most feasible, given where your product stands. And given the maturity of our company, what do we do? So what we did was at that point when we decided to say, let’s do what we have done till this point for five to 10. But by the time we get to 10, definitely, it’s going to get harder to go from 10 to 20. So what are all the foundations we had today? So what we did was that one year, we built an organisation muscle to one set of the middle management layer in the team, and then setting up the sales methodology and then preparing ourselves for the upmarket mode, so that the sales motion changes GTM teams are structured. All of that happened for one year while our execution was focused on whatever had worked till that point. So those are some things that we got right, that helped us to consistently double revenue from five to 10,10 to 20, and so on and so forth. And so that is how we developed.
Sanjay Swamy 18:25
Got it. So, how much of this is as we said, initially the US was your key market, but now you have customers all over the world, certainly in several geographies. And at what point did you feel that you had to expand? Because I guess there are multiple things you could do, as you said, change your ACV, increase the sales team, etc. But there’s also the segment to go after in terms of the tiers of customers, as well as the geographic expansion. And you guys have kind of done all of the above very methodically. So when did the geographic expansion come into your growth?
Krish Subramanian 19:05
Actually, we are still focused on the same geographies where we had sold because inbound, we had North America and Europe as a primary market, and those continue to remain the primary markets along with Asia-Pacific. Asia-Pacific is 5% of the business. But North America continues to be 60% of the business. We have deliberately steered away from temptation to go into multiple other geographies where there are still opportunities. Like, for example, Japan or other markets, because when we tried having feet on the street in Europe, what we learned was, especially in that up market mode to sell $50,000 $100,000 deals, what happens is you would think, okay, having local sales persons would help. And then we try doing that. And what we learned through that failed attempt when we tried to do that in Europe was, if you don’t think of this as holistic, how do we support that group to be more successful, and then think of the structure that is necessary to help the team on the ground, It is not a good way to do that.
So there are simpler ways, we all solved to start with or to test any market, which is through product, write code, integrated with the right partners, make it more appealing to the customers, that’s a simpler way to test any market and we had reasonably 500 customers or something like that in Europe, even before we tried doing this. But even then, what we realised was very hard was what is that that’s missing for a salesperson to be successful. When we hired a couple of salespeople, and then when they brought the 50k, 100k deals, our realisation was that without the pre sales people to support them on the ground or continuously having the right support structure to also fast track their learning process like onboarding time, three to six months, how do we help them prepare and learn the product really fast to be successful? Those things we had to invest in that a little bit more. It’s much beyond just hiring a few salespeople and then hoping that somehow their organisation facilitated. Those are some missteps.
So the biggest learning when it comes to geographic expansion, especially local hiring, is making sure that we start with leadership hiring for somebody who’s invested in the success of of who you’re hiring. So we started with hiring the sales leader there in that geography, and then the sales people. So then the gaps in the organisation are highlighted by the sales leader and gets conveyed on the ground. And we can actually go fix it and then help them faster, was one of the key learnings when we started hiring locally in the upmarket mod process. But other than that, I think we all do the rest of the things which are normal, which is like making sure the localising currencies, language support hours and right integration partners to make it appealing and things like that are the product of things that we did ahead of that before we did the geographic expansion.
Sanjay Swamy 22:10
Yeah. So can you talk a little bit about org building in more specificity? I mean, I know a little bit about what you’ve tried to do in the US. But as you mentioned earlier that it’s now a full fledged org. You’re still largely based in Chennai, and although you do shuttle back and forth, I’m sure this year has been an interesting year. But when is the right time in your mind, for India based startups that are selling primarily overseas. And there are multiple schools of thought the most common one is one founder, at least should be based in the US right from the beginning, and at least the customer facing person. And you guys have not done that. And in hindsight, was that the right thing to do? And how have you built the org in the US over the years?
Krish Subramanian 22:55
Absolutely no regrets about the decision to stay here and it’s thankfully going well. I think some of the advice from operators who have scaled nicely was very, very helpful from the $5+ million stage. One of the first observations when inside it looks like pretty much your middle management doesn’t exist, like pretty much all questions are coming to founders, whether it’s engineering product questions on GTM, if I ask who’s responsible for this, again, again, it comes back to the founders.
So first thing you need is let it be the founders in these layers, but hire your managers first so that when you go from 5 to 10, you have the managers who are making or are executing most of these things, from the decisions that are already made. And so the first $5 million, at least till we got to that. This is real, and it is possible to actually build a large company where it’s always about heads down focusing on figuring out things, one step before the other is how the mode is. But I think getting to that point, and then when the data actually says that this is actually going to be real, and it’s going to become large is when it hits. And thankfully, we listen to that feedback to an observation, because we didn’t see it ourselves. Then we decided to build the manager layer, and that was a little painful, I was really surprised how painful it was to actually introduce the manager layer inside the organisation because suddenly you are looking at some of the peers becoming managers and then some of them may be first time managers.
And one challenge is some of you are people accepting this suddenly. The peer who may have more experience, but still a peer becoming a manager that creates some organisational challenges, in terms of retention and all of that. The second one was also the Rockstar individual contributor, becoming responsible for people. How much time is necessary to coach this person to ensure that they really start learning to own that it’s a responsibility, not a privilege, So how do we teach them?
Now suddenly a start up becoming this, we realise that now from everyday going in, and then looking at the number of leads, what are we going to do? Now suddenly, you start shifting your focus towards people’s side of things a lot more, about helping these people and you don’t want to take the steering wheel again and you have to trust them and yet we have to become coaches, it was an interesting transformation. So that went on while we were also scaling this revenue that manager layer and then the realisation was now we needed that director layer so that when we are focused on this current month and current quarter, how do we pull ourselves out so that there is a next level of people who are able to take care of that, and we are able to focus on the year ahead, was the next challenge.
And so there were a couple of ways in which we approached it. One school of thought was, you should probably get into the 10 million, you should probably hire a CRO especially when we are looking at up market moves and all of that. Another school of thought was if you focus heavily on the sales in the market too soon, what might happen is, the sales team might actually figure out how to sell. But the problem is you will get pulled in all directions. If the customer segmentation, the product feature discipline is not established methodically, because the product was still founder lead.
So what we did was slightly counterintuitive, where we hired a CPO first, and then allowed the person to come in, look at all the data and then tighten the roadmap. And then bring in the product discipline to make sure that we were strengthening whatever was working, let’s make sure that’s done well, and then have a methodical plan to move up market. And it was very interesting, because only when the CPO came in, even conversations like how to point the entire company in a single direction using these segments and the names for the segment, all of those conversations started happening. And this is what I was mentioning earlier, Sanjay, which is the start up, scale up and grow up. The definitions and all of that. It did not feel very natural for us even though we had segmentation, we were trying to align with the natural segmentation of a gardener or somebody else, nothing wrong with it. But we also had to do that based on our customers data. Our customers who are all SMB to mid market, and the traditional number of employee based segmentation did not really align with how the customers were buying the product.
So we had to find our own metrics in terms of how to segment and then label it. So our organisation was aligned in a directional execution based on this. So the CPO decision was good, and was very important for us to actually bring that focus. And then we hired, then we focused on the market more and then hired the CRO more than a year and a half later. This slight change in approach was very important because we could strengthen whatever was working before we actually pulled the company up in the execution consistently. And then we could point to the salespeople what to sell and whom to sell, rather than the salespeople somehow selling and stretching the organisation to try and sell, figured out how to build the customer, and the reason is you could bring let’s say somebody like an e-commerce company, subscription company $25 million or $50 million, $100 million e-commerce company to the table. But the problem is, these are the products, the right one for them, then definitely not right, at that time, we would have been stretched thin if we had tried to meet the needs of the customer. But the problem is you have put so much effort into getting them at the doorstep that you don’t have the heart to say walk away that easily because a deal size might actually be like all the deals put together kind of size. And then you’d want to do everything.
Sanjay Swamy 29:10
Not biting off more than you can chew, basically is the critical thing.
Krish Subramanian 29:18
Yes exactly, when to walk away. And we needed that voice and that stakeholder was the product leader who was not the founder. So building that executive team, strong executive team was the key. So to go back to your question of how we actually thought about this, we deliberately started with hiring the person in the US, because there are fewer people available in this local market practising higher who have been through the cycles of market move and also scale. And then with the CPO then we hired the CRO, and then aligned sales, pre sales and customer success together.
So all of these transformations were from founder’s led to the executive’s led, and the founder’s role then became walking with the perimeter. And that continues to happen. We have joint responsibilities but we trust our executives and then our job is to continuously enable them. So we are continuously transforming ourselves to ensure we are helping them. So that is how we have tried to hire the leaders in different geographies, and also setting up multiple levels of structures.
Sanjay Swamy 30:25
Fabulous. And so coming back to SaaS. I mean, ultimately, you are also a SaaS company, and your customers are a bunch of SaaS companies as well. And if you go and look all over the internet, there’s a whole bunch of metrics, SaaS metrics in itself is almost like, one could do a thesis on it. What in your business has been the most, I would say the three to four most important metrics that you all have tracked and because you also talked about metrics to characterise your customers as well iIn terms of the number of users was not the right metric for you as well. So as you built this and as the business has evolved, what have been the key metrics that you all have tracked.
Krish Subramanian 31:15
Early stage, I think it was very important to find what our Northstar metric was. It could be revenue, but the problem with revenue alone as a Northstar metric is it’s going to be an iterative process. And it’s very hard to get it right first. So what we found for ourselves, the Northstar metric was our customers’ revenue. And overall, how much did we process as a company. And then we could say, okay, who was using the product really well. We are monetizing it, if that’s growing, then we are growing. But then we started applying that to cohorts of customers that we were winning as well, because we had freemium. Again, we had to track these cohorts of customers who are moving out of freemium into paid, and how the revenue cohorts were building up.
So what told us some of the bad stories, I think more than which metrics to track, I think, how did we know we were not having the right product market fit around that half a million dollar stage was, logo churn was high. But more importantly, the revenue churn was really definitely not in the right direction. It was not getting to the net negative where there was not enough upgrades. Even overage where the customers were not the cohorts were not building up. And when you know that, you know that something is wrong when the churn is high. If you had 100 customers at a point where you’re at a half a million dollar mark, and then if you want to find the next 500, or next 1000 customers, definitely there are going to be out of the 100 customers, maybe your 20 or 50 customers are your best customers. Now, they probably are not your best customers. Now, how do you make sure that you get more of that 20, or the 50 that you want, and make sure that you get most of them for the next 1000. That is what we want to do. And when we look at it through that lens, I think we will, depending on the business context, I’m sure we will all figure out the right metrics, which is that NRR is a very, very important.
Segment that data when you are past the million or 5 million mark, it’s very important to start segmenting the data by whatever slice that works for the business, but also start looking at churn metrics NRR metrics by segmentation. That was another biggest challenge for us to know which segments were where we had to put more effort into retaining and where the churn is really happening and all of that. When we look at an aggregate, it somehow hides this real story. So segmented metrics of customer acquisition, activation, new customer, ASP, and also churn and NRR were very, very important. And the qualitative metric is the one where churn reasons by segment, which is deliberately making sure customer success or somebody in the team is reaching out to the customer to understand the real reason right the product can facilitate the churn, you don’t want to create friction in the process. At the same time, you want to know why churn is happening. And the reasons are very different for different segments of customers.
So the qualitative metric plays a huge role in a one to 5 million, in my opinion, because it has told us a lot of things about some of the difficulties, somebody’s paying $299 per month, but then churning out, because the organisation priority changed, the purchaser, started prioritising something else, and the rest of the organization’s was not aligned in implementing it. So it’s actually an implementation churn rather than a problem of the product. So then how do you solve that? It has to be a process driven change, where we have to either get an annual commitment, or an implementation fee as a friction point that drives the customer to commit longer or commit seriously, before you get them in, it’s not about the money, it’s more about the commitment. And that helps the churn. Otherwise, your metric looks like we sold $10,000, $100,000 ARR, but that’s one due to which I lost another $10,000 or $20,000 of that ARR, and what’s the point of actually getting $100,000 and the load of cost of all of that goes into the LTV CAC all the metrics starts looking bad. So more than the key metrics I think one learning from us was for us was segmented metrics, especially the key metrics and also looking at first principles reasons for churn were very helpful for especially the early stage.
Sanjay Swamy 35:45
Got it. So we’re gonna talk a little bit about partners and in larger companies, because right from the beginning, you’ve sort of been a layer on top of several of the payment gateways. It’s always been talked about why can’t some of the big names in the segment do it themselves and things like that. And yet they’re also very important partners for you. So there’s a little bit of can’t live with them, can’t live without them, sort of situation sometimes or possibility. How did you approach that? And did you work closely with some of these companies to help you win business as well through their partner programmes. So explain to us how SaaS companies can leverage partnerships intelligently.
Krish Subramanian 36:40
So, we have clients on three sections, we play a pivotal role in it, it’s an opportunity as well as the same threat, which is the CRM side, Salesforce, HubSpot, Pipedrive we have integrations with them on the accounting side QuickBooks Xero, NetSuite intact, and then payment processors like Stripe, Braintree, and all of that. And stripe has compatible offerings. Now, even straight billing is a monetized product exactly in our space, and then several other what we have the way we think about this, how can we be the Switzerland for billing, that there is an agnostic player necessary that allows our customers to be able to choose multiple systems, what is in their best interest as they continue scaling through different stage, is how we think about our safe space, why we should exist and why we believe we can double down on focusing on this. But from a relationship perspective, the majority of our customers are in a nascent space, where most companies have been host billing, where they have written some amount of code themselves, which they shouldn’t have to build themselves. And yet they are built on top of these partners like the integrated solutions like Stripe and Braintree. How do we then build a relationship? I think one of the things that happened was, when we had the freemium, and then we were actually helping them also activate a lot of customers, early stage companies, for the partner, we were actually focused on highlighting how much volume is actually going to come through. And then we help them with a projection to say, this is how we see the trajectory going based on our data, in terms of the number of new accounts that you are going to get, and I could actually help promote you more and more.
So instead of actually thinking about what we could actually get from them, we had the integrations, but to formalise a partnership, we demonstrated how they will benefit from that, however small it is, but painted a vision of how things can look in the next two, three years. And that helped secure these partnerships with Braintree, PayPal and Stripe, and all these payment key processors and also accounting system CRM so that we could do that. But it was scary, It was not without these voices in the room, even within our company to say, shouldn’t we be worried about exposing our roadmap, are we highlighting too many of their features to our customers instead of actually, like getting it.
And we say, we just take the approach to say what is in the best interest of the customer, for example, Stripe continues to be amazing in their execution in terms of innovation, as well as the capabilities that they are going to bring to the table. And we said the only way we are going to remove the exit barriers is by removing entry barriers. So we said let’s store the cards inside Stripe, our customers are free to go and then build on top of Stripe at any point, if they want to. Let’s remove the exit barrier, it will remove the entry barrier. And then we also started building our features in alignment with their roadmap. For example, we had a joint roadmap when they were releasing ACH credits transfer as a capability which was beautiful. We said let’s be the first ones to launch. So we built that and then exposed it to the customers. So deliberately, feeling secure about our space, and then even telling the partner that we are comfortable. You guys are the big guys, we are the small guys. But we are comfortable with just promoting your thing and products.
While we know that you may play in adjacency and we may compete at some level, and the way it’s beautifully now transforming is, and we now have co-selling motion in some segments, even with partners, some of these partners, where there are some segments that’s not very interesting to them, or they are actually thinking of how do I do this. And we have some particular strengths, in geographies or in segments or size of customers, where the sales think about those billings have a separate division payments, they treat that as a separate division.
So we are actually deeply in partnership with the payments group. While billing might still think of us as a like for like solution, and we might come up on deals and compete. That is how the relationships are evolving. But I don’t think this is going to go away in a SaaS world right because all of us have overlaps. And if you think about what makes any SaaS company win at a certain scale, we all want to increase wallet share. And we are all going to want to introduce features that are having overlaps, one to reduce churn and secondly to have ability to upsell and also to continue to defend your moat to increase wallet share, and I think for all these reasons, because you have reduced the cost of acquisition and increase revenue means your LTV looks really beautiful and strong. If you could build a component that customers are going to buy, but I could cross sell that to 40% of my customer base, of course you’re going to build it, there is a reason to do it.
So this best of breed versus desktop suite is only going to move in a direction where we are going to see more of that. And overlaps may happen. But I think this is what has helped us. And the narration we have, and strongly the direction where we are moving as we believe that if we act in the interest of our customer to be the agnostic player, as a Switzerland for billing, there is a space for us to continue doing that. To develop that, and with that, we have set up the partnership team to say be open. And let’s just work with pretty much all of them where there may be competition.
Sanjay Swamy 41:55
So let’s flip the things a little bit now. I mean, we talked about a David and Goliath sort of partnership where you are the David. But you guys are fast becoming a Goliath. And there will be younger startups, smaller startups that will be perhaps looking to partner with Chargebee. And so are you open to that? How do you see that develop? Because once again, you could always look at and say, Well, I can build this stuff myself? Why should I be partnering and exposing my customer base perhaps? So, how does the company make that transition? Maybe it’s more of a mindset thing.
Krish Subramanian 42:30
Absolutely correct. We already have examples of that, which is analytics, it is a space where we play in adjacencies and we have our own revenue story analytics. But from the beginning, when we started working with Profitwell, as well as Chartmogul, and even Baremetrics, especially from Baremetrics, was fairly new in the integration, Chartmogul and Profitwell, they asked us and then we transparently told them, I remember meeting with Nick Franklin of Chartmogul, as well as Patrick Campbell of Profitwell.
We told them that we don’t have sophisticated analytics, but then I wouldn’t rule it out because this may become a reason for churn or it may become a table stakes for winning a customer, which means that we will build it. But we are happy to expose everything in the API. And we will not hold back when it comes to the data. You tell us what you need to deliver the best experience for customers. So we do real time integration with them, and also expose it. At the same time, we are focused on our customers to make sure that we build the best analytics system. And I’m sure that each of our product takes a roadmap based on where our customers are pulling us, for example, if you take Chartmogul, they’ve been focused on things like bringing in CRM, marketing automation data, matching that on top of existing system data, and then creating a combined system that actually measures SaaS metrics with something else like other data and provides them something else. So their customers are pulling them in a particular direction.
So your point, the question is spot on. It absolutely requires a mindset shift to make sure that we don’t become the closed company the moment it becomes about us. So the way we are internally again, and again, deriving the motivation is to make sure that we build an open ecosystem, open API, allow others to build on top of that. Just be transparent with even the smaller players who are building on top of it, if there is any question, because we don’t want those smaller companies to think like you screwed us over by doing something bad, then that shouldn’t be the case. That’s all right. So the only way is to be transparent and tell them that I don’t want to hijack your roadmap. And we have no interest in doing that. We will also open up customers, feel free to sell to them. But at the same time, at some point we may also build, we may grow our ambition to want to build it if we think that more customers could benefit from this. But it might also lead to a point where we might be able to acquire some of those. It might make sense as well. That’s how we directionally think about it. Anything that we are missing? Anything that we are missing that we should do better?
Sanjay Swamy 45:15
I think being transparent is the most important thing. I think none of us, no two companies are swearing that they’re never gonna tread on each other’s toes. But as long as there are no, and as long as that expectation is not set, I think that’s the fair thing.
Krish Subramanian 45:34
No breach of trust.
Sanjay Swamy 45:36
That’s exactly right. And that is I think the biggest thing and as long as you’re also in exposing, and you don’t like turn off API’s because you just released a competing product, for example.
So switching gears a little bit, just a couple of more segments. So it’s been really an incredible last few years. I remember you first telling me when you first hit the million dollar mark as well. And then you said the freemium thing really helped the year right after that where you went from there to five and then it’s just been an amazing ride and obviously very well deserved, and a lot of hard work has gone into the company as well over the years. And a lot of it is your resilience and focus.
I listened to another interview of yours, where you said, Look, every function is a revenue function in the subscription business. It’s like everybody is tied to make the company successful and all functions sort of have to be operating in alignment. It’s not just the sales guys job to get the revenue in. But the product guy also got to be thinking revenue, the marketing guys got to be thinking about it, support, ops, etc. So tell us about your thing of how the org has to align towards
Krish Subramanian 47:10
Right. And I think I just want to be careful that it’s not misconstrued that the entire organisation has to only focus on revenue. That’s not what I meant. So the customer delight is the only reason why you can keep a subscriber, your customers like that’s given in a subscription business.That creates a beautiful alignment tension, right level of tension to deliver value. The other side is why is every function a revenue function, is that when you take the example of what features are you going to build in a product and engineering team and all of that, if you don’t tie yourself to the company’s growth goals in terms of why am I building this feature, in what way is it either going to delight or differentiate, or it’s going to help me sell more, it becomes harder. So every function in some sense has to, and it’s not just, we don’t do like annual release cycles. And so that’s why the thinking process has to become a revenue kind of a function. Almost every month, every quarter, everybody has to be thinking about revenue. And not something where you can just do a planning and then do a year long exercise to release is definitely not the case anymore.
That’s why I was saying every function has to be aligned with growth metrics, and thinking about why am I doing what I’m doing, joined at the hip with each other, especially with revenue, if it is customer success, and if you are going to do let’s say, if you want to do some campaigns to say I want to arrest churn. And it is also very closely tied with retention, churn, even trying to convert your monthly customers to annual customers, you might actually get this. Let’s say your churn is high on monthly customers. Sometimes it may look bad that why should I give 10% discount on an annual plan, It’s not necessary, you have to give it but let’s just say that’s your only hope of retaining customers and giving yourself a chance of retaining customers annually, like HubSpot used to do that early on, to say most of that they were trying to arrest the churn by having forcing everybody into annual contracts. And then later on, they opened up freemium, they became more product led a little later. Now, every function has to think like a revenue function to be able to align the tactics to ensure that they are acting in the best interest of the business. And it is not an isolation, which is why I was saying the metrics that actually guide you to make the decisions. You cannot ignore the revenues impact of those decisions, whether it’s customer support, because it’s no longer a cost centre, right customer success, marketing, pretty much all of them completely aligns with revenue as an even product and engineering and that was my point.
Sanjay Swamy 50:10
Great. So coming towards the end of our podcast, but before that, what’s the next two years got in store for the company? I mean, every time you keep going to new stages and new phases of growth, and execution. So what are the things that keep you up now that you’ve sort of built out a lot of the team become more of a coach? And thinking 10x from this point perhaps? What keeps you going and what keeps you worried at night, things that you have to solve next, which are like new problems to solve.
Krish Subramanian 50:50
I think given the nascent nature of our category and the problem, I think the thing that keeps us up at night is the product related part, which is how do we ensure that we are actually aligned with where the customers need to go in the next two, three years. And are we completely aligned? Is a part that we want to spend more time thinking about. The reason being right when we look at how the evolution of the market is happening between the best of breed and best of suite and all of that. What we are trying to understand is, what are those capabilities that would actually unlock given the nature of our product, which is a core infrastructure for revenue and all of that. The things that we are obsessed about are helping that like, for example, pricing experimentation. So we just announced our price catalogue and other things which would allow the customers to be able to do more pricing experimentation. So we are now increasingly seeing more SaaS companies becoming mature about how they are thinking about pricing and packaging even from the earlier stages, which means that our product has to adapt, to be able to serve where the market is actually going. And it’s not just about saving more money on payment processing, or complaints of invoice and taxation, all of that. Those are more predictable, the compliance and other things. But the part where we are trying to read better is to ensure that the maturity of the SaaS market, where is it going? And how do we ensure our product in our roadmap is aligned with them and is the band that we are trying to make sure we are directionally aligned with our customers?
Sanjay Swamy 52:35
I guess another way of saying it is, billing historically has been sort of a back office function that people have had to perform. But now it’s getting to the point where it could be a core differentiator of enablers of new businesses and new business models. And subscription billing will also sort of move into more of a, some element of variable billing as well, not just sort of flat fee per month and things like that.
Krish Subramanian 53:00
Correct. And how do I want to price my product, all of that continues to evolve, which is why, which is where we are directionally going to enable customers. So are we reading this right? And how do we make sure that we double down and do more of this, are things that we are obsessed about, maybe not worried, it is not the right word. But that’s what we are trying to focus on Sanjay.
Sanjay Swamy 53:25
Awesome. So a couple of quick fire questions. Along the way, in this journey, now looking back, these 8,10 years? What surprised you? Both pleasantly, and especially pleasantly. And of course, things that you thought were going to happen very easily never happened that easily. And if you were to do this, again, what are some quick things that you would have done differently.
Krish Subramanian 54:00
So the thing that surprised me the most, especially in B2B SaaS is how much effort it actually takes that gets front loaded into building something really good. Because there is this figuring out process iterations and all of that, but all of that still requires you to invest heavily in a lot of areas. And I think especially in a B2B SaaS, in a nascent category. What surprises me is a number of people that are eager to solve different problems, because you’re dealing with a new customer on one side, while there is a complexity of growing customers. So the amount of effort that is necessary, that goes into product engineering, and all of that, I would say, definitely surprised me with the number of people that is required for a product of our nature, I thought this will be much fewer in terms of people, all of them because the number of people that you add also shifts focus towards making sure your management related practices. Also the people related practices also mature faster to support such an organisation. And I think that kind of surprised me a little bit. But it’s good as well in terms of learning.
The second one is a snowball effect, which is hard to see, even though we see that in our customers, but what does it actually take when you build momentum, and how does it actually beautifully snowball when you get your products right, features right and then latch on to specific segments. How much momentum that SaaS builds, where you’re able to build revenue is something that definitely pleasantly surprised me. Because it’s so hard to actually get to that first 5,10 and all of that, but you actually get a lot of other things like NRR metrics and clear alignment in terms of how your revenue grows with your customers and all of that. It’s amazing to see how it beautifully snowballs. It doesn’t get easier, I’m not saying. It’s still hard, but the momentum shift is just beautiful to see inside out.
Sanjay Swamy 56:12
Right. And I guess along with that, also, sometimes I always liken it to driving a car, sometimes you have to go back to third gear and redo the few things in again, build some more torque and momentum, if you can accelerate again, you can’t always be non stop, going in one direction. And I think those are some of the moments you talked about when you had to build the next layer of the team, next layer of the processing, retool the product to be a little more robust and scalable as you enter newer tiers of customers and so on. Any quick thoughts for young entrepreneurs starting out now looking at the SaaS space, what would you advise them? In terms of opportunity, is the market very crowded? And how do you find whitespaces?
Krish Subramanian 57:03
I would say, definitely focus on more than a lot of other metrics, especially getting to the first million. Focus on more first principles questions of why do customers care? Why are they even buying it? What else are they buying, and still try to focus on, there is so much done in Excel sheets that we all compete with, I wouldn’t consider this to be crowded, because every time you go deeper into any slice of market, whether it’s small customers, medium or big customers, there are so many inefficiencies in every type of industry imaginable. And we are having a front row seat looking at so many SaaS companies coming out, like everywhere in the world, that I’m still getting surprised by the number of companies that are even coming up in surprising industries, including real estate and all of that. The inefficiencies are so bad, and also the SMB market, never cared about automation, because software was not affordable to that segment. And with SaaS, it has become affordable and the buying behaviour is completely shifting, where SMBs are so hungry for more SaaS products to automate things.
That is something I don’t think any of us predicted probably 10 years back, because SaaS used to be the rich people’s enterprise game where you build something to go enterprise. But it is possible to actually build amazingly durable companies focusing on SMBs mid market or enterprises rather than having to move into enterprises. So if you’re starting out, don’t think that the market is crowded, but there is actually so much space and room whitespace that is available in every market, but only if you look close enough and hard enough to understand the customers persona better is my take.
Sanjay Swamy 58:52
Great, Krish on that note, it’s a good encouraging note for the entrepreneurs as well who listen to our podcast. Once again congratulations. I think it’s just been fascinating what you have been building at chargebee, but we all know the best is yet to come. all the best and I look forward to continuing to be connected in your journey.
Krish Subramaian 59:14
Thanks so much. It’s fun chatting with you.
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