Making it as a SaaS company is difficult, and successfully selling at the enterprise level seems incredibly daunting. But achieving a billion-dollar ARR with a thriving enterprise customer base isn’t as unattainable as you may imagine. SaaStr CEO Jason Lemkin shares 5 interesting learnings from ServiceNow, Palantir, and Snowflake, and explores their secrets to success in the Enterprise.
ServiceNow
Learning 1: There is No Ceiling to Growth. Contrary to long-held beliefs in the SaaS space, growth can be infinite, as evidenced by companies like Shopify and ServiceNow. Says Lemkin, “Even at $5 billion ARR, they [ServiceNow] are still growing at 32%…If nothing else, it’s a challenge: The best companies, the best founders always find a way to grow.”
Learning 2: There are More Enterprise Customers Out There Than You Think. If you are primarily selling to large enterprise customers, won’t you eventually run out of those million-dollar deals? After all, there are only so many behemoth corporations in the world. ServiceNow proves that enterprise lives beyond the Fortune 500. Currently, they have about 1,100 customers at $1 million ACV, and that count is growing by 23%. “It’s hard to close big deals. The sales cycles are long; you need to button down security, you need to sell to multiple stakeholders. It’s a long slug for a while. But don’t let anybody tell you there’s not enough of them,” Lemkin says. “ServiceNow proves you can get over 1,000 $1 million per year customers if you do something that really matters in the enterprise.”
Learning 3: The Key to Growth After $1 Billion ARR is Multiple Products. Your core product will get you very far, but at some point, you must consider offering more product lines to keep enterprise customers invested. ServiceNow began with its core product of IT workflows. But after adding additional workflows and products, they expanded their revenue so that now, that original IT workflow product makes up only 62%.
Learning 4: Wait to Monetize Your Platform. Sometimes it’s best to avoid over-monetization early in the life of your business. ServiceNow waited to monetize partners for years. Become the number one, well-loved product in your space. Eventually, all the customers in your ecosystem will want to build on your platform. At some point, you will need to monetize, but don’t be afraid to give your customers breathing room beforehand.
Learning 5: Shoot For the Highest Logo Retention Possible. ServiceNow has an incredible 99% logo retention rate. Yes, this is extraordinarily uncommon, but take it as a challenge to keep pushing!
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Palantir
Learning 1: Don’t Let Concentrated Revenue Worry You. Palantir had quite a journey to a whopping $1 billion ARR. Their secret to success? A core group of customers. 66% of their revenue came from their top 20 clients. Many SaaS founders might panic at this, but it is ok to have concentrated revenue. As long as you continue to make your customers happy and you work on closing more deals, you can find great success.
Learning 2: You Can Continue to Grow Your Deal Sizes Indefinitely. After the monumental effort of closing a large contract, you may automatically subscribe to the mentality that the size of the deal has hit its maximum. That is not necessarily the case. Even smaller sales can expand to be massive ones several years down the road. Says Lemkin, “It seems more often that the best cloud companies find a way to keep selling more to the same customers.”
Learning 3: The TAM Can Grow Faster After $1 Billion. Defying expectations, Palantir accelerated to 49% growth after $1 billion in ARR in its IPO. For most companies, the initial TAM (Total Addressable Market) is small, but if you build a brand, provide value and leverage a top-notch management team, you can grow your market, as Palantir did.
Learning 4: Existing Customers Can Fuel the Bulk of Your Growth. The majority of Palantir’s growth comes from its existing accounts. Their largest customers have grown 5x since 2012.
Learning 5: Be Who You Are As a Business. Palantir wasn’t afraid to take a unique path to their IPO. For many years, they operated as more of a services firm than as a software company. But this approach worked for them. Don’t be afraid to lean on services. The lesson here is to be who you are as a company, and success will follow.
Snowflake
Learning 1: Allow Customers to Influence Your Pricing Structure. 93% of Snowflake’s revenue is consumption-based, but it still has a SaaS multiple. That means only seven percent was under a fixed contract. This is highly unusual in SaaS: Many companies adopt the Salesforce locked-in, per-seat pricing model. Snowflake’s model is totally opposite, but at $600 million ARR and an impressive 115% YOY product revenue growth, it obviously works for them. Lemkin advises, “Do pricing the way customers want to pay. Make them feel comfortable.”
Learning 2: Pay Attention to Gross Margins Over Time. Snowflake grapples with high computing and storage costs. Historically, their gross margins were not very high, but now they are growing: Next year, they are projected to be 70%. Get your house in order early. Even if you start out as an outlier, make sure you have similar margins to other companies as you grow.
Learning 3: World-Class NRR Does Not Have to Come Down. Snowflake’s NRR is at 162%. Remember that if it comes down, then you need to pay some attention.
Learning 4: Go Where Your Customers Are. Going global is a critical part of the growth strategy for many SaaS companies. For example, ServiceNow has 36% of customers outside of North America. However, Snowflake takes the opposite approach. It has been slow to grow internationally, with 90% of its 2020 revenue coming from North America. There is no right or wrong here, as long as you lean into selling where your customers are.
Learning 5: Don’t Be Afraid to Sell Beyond Enterprise. On the surface, Snowflake appears to be highly enterprise-oriented. However, they have a long tail of around 3500 smaller-sized clients that also fuel their growth. Don’t be afraid to sell to a wide variety of customers to fuel your company’s growth.
Key Takeaways
- Don’t accept limits to growth. There are always new ways to make more money from existing customers and new deals to close.
- To expand revenue, build on your core platform and offer more products for your enterprise customers.
- Listen to your customers to influence your pricing structure and business model.
- Be who you are as a business, and don’t let the status quo dictate your decisions.
