Five years back, Whatfix raised its Series B when Eightroads, f-Prime Capital and Cisco joined the captable, and I wrote an article on lessons learnt in going from Series A to B. A lot has changed since then for Whatfix – they have grown 25x in their ARR since that time, have added PeakXV Partners (formerly Sequoia Capital India), SoftBank Vision Fund 2 and Warburg Pincus to their captable, and most importantly, have grown to be the #1 player in their category globally, redefining the category itself. This article, though, is not to celebrate their success, but to identify some common patterns that founders encounter as they traverse the $10M to $100M journey. For clarity, Whatfix is not yet $100M, though close enough for me to be able to write this article 🙂
#1 – Single product to a multi-product company
At a young stage, almost all the revenue of a SaaS company comes from new customers. However, as they grow, the mix gradually shifts. If one looks at very large SaaS companies e.g., Salesforce, ~90% of the revenue comes from existing customers. The growth in new revenue from existing customers can initially come from seat (or any other form of usage) expansion. In the case of Whatfix, it has also come from growth of their footprint across different packaged applications; for example, Whatfix was being used on top of Workday, and is now also being used on top of ServiceNow. As such, they largely continued their growth journey on the back of one core product.
However, at one stage, maintaining growth becomes hard on the back of one product. Whatfix also realized that one of their biggest assets is their enterprise distribution, and the company can push newer products through this existing channel. Transitioning from one product to a multi-product company is not an easy shift. The hustle and innovation required to build new products tend to slow down as a company grows – yes, even at a few tens of millions of dollars of ARR, you are not the same as what you used to be when you were less than $1M ARR.
Whatfix took a dramatic step – one of the two co-founders, Vara, who was leading both product and engineering, hired leaders for these functions and set up Whatfix Labs to rekindle innovation velocity. It has been one of the best decisions that the company took – and also shows that the zero-to-one journey is a difficult skill and is a founder-class problem.
Many new products were conceptualized and tested. Some worked, and some did not. But in the process, Whatfix has changed its new products velocity. This started with the addition of their desktop and mobile products, followed by an automation (RPA-like) product, product analytics and then Mirror, a simulated software training platform. More recently,several AI initiatives have been added to the pipeline.
#2 – Industry and Horizontal Solutions
“The journey of a startup is like an hourglass.” I learnt this quote from Khadim 🙂 At the beginning of the journey, every company experiments with different ICPs / value propositions, trying to find the one ICP to focus on and use that focus to define the initial positioning and scale. As the company scales, one expands its positioning and addressable market.
For Whatfix, that early focus came in the form of packaged applications, particularly Salesforce, due to the large number of common users (as opposed to power users). As Whatfix grew, the company realized at some point that there was both a need and an opportunity to create more focused industry and functional solutions. The need arose because, at a certain scale, messaging became too broad and generic for prospects across different industries or functions. The opportunity lay in the fact that many large industries or functions had very specific needs, and the competition had not targeted these segments.
One such example is the P&C insurance, where a few large software vendors like Guidewire and Duck Creek dominate, and Whatfix’s primary competitors did not have any presence. Whatfix created a different product, along with a tailored product marketing and a dedicated GTM team for P&C insurance. The success of this pilot led Whatfix to expand into many other industry-specific solutions. It is important to note that “solutions” does not necessarily mean new “products”, more often than not, it is more to do with product marketing and GTM.
#3 – Platformization
One of the challenges that all SaaS companies face as they expand their products is that there are many common “services” that are required across different products. These services often get rewritten as the engineering teams grow and islands begin to form within them. Additionally, different permutations and combinations of pricing and packaging also emerge, particularly in enterprise contracts. As one begins to sell to larger customers, they need to offer more enterprise-oriented capabilities, such as more sophisticated authentication/ SSO, feature control, log management, role based access controls, etc.
It is both wasteful as well as buggy for engineering teams across different products to try to reinvent the wheel. Almost every SaaS company I know has to, at some point, separate the platform services and capabilities from the rest of the applications. This transition is a major overhaul when it happens, and Whatfix was no exception. This is a critical transition for the scalability of the product, and also to write off the tech debt that inadvertently accumulates over a period of time.
#4 – GTM evolution
The valley of death in SaaS is either in the 0→$1M space, where you do not find PMF, or the $10M→$25M space, where the reason is often the inability to constantly evolve your GTM. Many founders often assume that once you find PMF and the (initial) GTM motion, thereafter it is just a matter of putting more fuel to the fire. This could not be further from the truth!
It is around the $10M mark when a lot of things begin to change, for example, ACVs start going up and demand gen motion may move from predominantly inbound to being more outbound. This is also the stage where many companies begin to feel the need for a pre-sales function. As discussed earlier in this article, one may have new industry solutions or new products altogether. Each of these changes involve a change in your GTM.
Whatfix founders did not necessarily foresee that they will face these challenges, but what they did exceptionally well was recognize problems early and follow a systematic approach to solve them. One of the qualities that I admire the most about Khadim and Vara is their ability to prioritize the most critical problems to solve, identify who to take advice from depending on the problem they need to solve, apply first principles thinking with external inputs to figure out potential solutions, pilot some of them, kill what does not work, and scale what does. No startup is ever built without problems, what matters is how you solve them!
In their journey, Whatfix experimented with a number of GTM elements. These included – consistently increasing pricing and removing lower tiers, expanding regions (e.g. Europe and Asia Pacific), segmenting sales initially between SMB and Enterprise, then further into strategic accounts, building a new team for industry-specific solution sales, establishing a proper revenue ops function, amongst other things. This journey will never stop.
In my opinion, PMF gives any software company the right to exist, but success is the result of continuous evolution of GTM, and Whatfix has been one of the best examples in the Indian SaaS ecosystem of such an evolution.
#5 – You need to manage the P&L and not just ARR
The evolution of sales efficiency of many SaaS companies, particularly those that go through a continuous upward evolution of the ACV, is very counterintuitive. Early on, when ACVs are smaller, sales cycles are faster and more predictable. Sales teams can be ramped up faster with faster sales cycles and usually come at lower compensation, and typically, no pre-sales is required. Many founders expect that the sales efficiency will only go up as their brand strengthens beyond the $10M mark. On the contrary, they usually find that sales cycles become longer and they need to invest in sales capacity ahead of time. Larger companies evaluate against a larger number of competitors, larger committees make decisions, procurement teams get involved in sourcing, and there is often a need to do a POC. Even after all the process, the initial land deal may be for just one product or one division of the customer. The CAC-ACV equation is often poor, therefore, leading to lower sales efficiency.
One of the key metrics at this stage (learn more in a detailed blog on this topic) is the burn ratio, i.e. how much you are burning for every dollar of net new ARR. Whatfix was exceptional in its cash efficiency until this stage, but they also recognized the need to invest in building GTM capacity ahead of growth, thereby deliberately compromising cash efficiency. They were both judicious and bold about it.
It was during this period that Whatfix instituted discipline in their budgeting and financial controls. Despite that, there have been times when not everything has gone well. The biggest lesson learnt is that any business with a large enterprise-centric motion is itself like a large ship – you cannot stop and start it at will. It takes time to ramp up in a new direction and time to move away from it once it’s set in that direction. Knee-jerk reactions towards hyper growth – such as hiring too many people at once or complete cost controls – both do not work. One needs to move at a measured pace and plan 12-18 months ahead.
Where does one go from here?
Most categories within enterprise software tend to redefine themselves every decade or so. Leadership in one decade does not guarantee leadership in the next. Today, Whatfix has an incredible opportunity driven by two factors: (1) the acquisition of their primary competitor by a larger software company, and (2) the reimagination of this category with AI, particularly with Whatfix as the only independent software provider with the largest data set to rethink human interaction with enterprise applications.
It is hard building any company, harder still to build a global leader in any category, and yet harder to maintain that leadership. Time will tell where Whatfix will be in the years to come. While I am biased, I am also confident that Whatfix will build a generational software company from India, and be the lighthouse for many other such software companies to be built from India.