5 Interesting Learnings from Slack at $1B in ARR

So this 5 Interesting Learnings post is a bit bittersweet.  We’ve recently checked in with a bunch of our Cloud and SaaS favorites as they cross $1B in ARR:

And now Slack joins them, getting there faster than almost all of them.

But this is the last time, most likely, that we’ll be able to check in on “Slack, Inc.” as it now joins Salesforce in a 27B+ mega-acquisition.

So this is our last chance to learn from a lot of their metrics as a stand-alone company.  What can we take away?  My top 5 learnings:

  • Slack is still significantly growing its customer base, even at $1B ARR.  Most other SaaS leaders we’ve seen get most of their growth at $1B from their existing customers.  But Slack is growing revenue at 40% year-over-year and its customer base is up almost as much, at 35%.  So Slack should have a good run ahead of it, as it’s not just relying on its existing customers for growth.

  • Some deceleration in net retention.  This one is a bit unexpected.  Slack is growing its new customer base at $1B ARR faster than many do.  But net retention, while strong, has declined from 135% to 125% over the past 5 quarters.  Competition?  Getting better as selling more seats upfront?  There could be many causes.  But we’ve seen many SaaS and Cloud leaders manage to maintain consistent net retention at $1B+ ARR.  123% is still world-class, but a bit lower than I would have expected and materially down from 134% at IPO.  Still, Slack has “made up” for it with significantly higher growth in new customers than many others.

  • 1,000+ $100k ACV Customers, 49% revenue from Big Customers.  Slack continues to march to an enterprise beat, which should make it a strong fit with Salesforce.  They’ve crossed 1,000 $100k+ customers, out of 140,000 total, and stayed consistent with 49% of their revenue from $100k+ deals:

  • Not going more enterprise though — 50/50 small/large customer mix staying constant.  This was my biggest surprise at $1B in ARR.  I’d assumed enterprise customers would be growing even faster than SMBs, and indeed they did in the run up to the IPO.  But Slack’s SMBs seem to have accelerated, too, since then.  Slack’s remained 50/50 enterprise / SMB for 3 quarters, and close to it for 5.  So again, even as Slack goes more enterprise under Salesforce … maybe like Zendesk and Shopify, you don’t have to always march even more upmarket.  All 3 are holding relatively consistent enterprise/SMB ratios:

  • 40% of revenue from outside U.S.  Not a new trend, but something to remember.  When you see growth outside the U.S., jump on it.  Don’t wait if it starts organically on its own.  Most SaaS leaders have a significant portion of their revenue outside the U.S.A.  Embrace it, if you find your way there early:

And a final bonus point: Slack is generating significant free cash flow at $1B in ARR.  In the earlier days of SaaS, there was a lot of criticism about why SaaS companies weren’t generating more cash.  Slack’s chart here is a good illustration of why it can take time, but when it comes, it really comes on strong:

And a huge congrats to Stewart Butterfield and everyone at Slack. Slack’s been a part of the SaaStr journey since the very first SaaStr Annual in 2015.  We’re a little sad to see the independent part of the journey end.

But also, so proud.

 

 

 

Published on December 2, 2020

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