So Zendesk has become the latest SaaS leader to cross $1B in ARR. Whoa!! I remember back in the day when Salesforce thought Zendesk was just a cute little app they could clone and beat with Desk.com. Well, what happened there? Desk.com is long gone to the dustbin of history. And Zendesk crossed $1B in ARR, growing 24%.
$1b ARR for Zendesk
PRETTY SOLID https://t.co/U1nqTqgjHe
— Jason ✨BeKind✨ Lemkin ⚫️ (@jasonlk) October 29, 2020
Ok, so what are the top 5 learnings here for SaaS and Cloud founders?
- Zendesk’s churn is still a bit higher than pre-Covid, but is almost back to pre-Covid levels. And expansion revenue is higher than pre-Covid. So if you sell to SMBs, or a mix of SMBs and enterprise like Zendesk does (with 160,000 total customers), well … enough with the excuses on churn. It’s OK for churn to still be a bit elevated, but you should be on the path to normalcy.
- 112% Net Revenue Retention. Zendesk doesn’t see the 140%+ net retention we see in the enterprise (big deal sizes) or in many B2D companies like Twilio, but it’s still above 110% for a business that is 60% Enterprise / 40% SMB. So that should be your yardstick, too. Strive for at least 110% net revenue retention if you sell to a mix of SMBs and Enterprise. No excuses.
- You don’t always go “Even More Enterprise” over time. Sometimes, you just stay a steady mix of Enterprise and SMB. Zendesk continues to push more and more enterprise, but since its SMB business is still growing as well, the relative ratios haven’t changed much. 43% of Zendesk customers had 100+ seats / agents or more in Q3’20 … which is basically the same as Q3’19. So while folks like Slack may march upmarket, it’s not to say you have to. You may both go upmarket and grow just as fast with SMBs. Like Zendesk. There’s no firm rule here.
- Almost 50% of Zendesk’s revenue is outside the U.S. This is more than I would have expected. Some folks go global later, like RingCentral. Others start global almost from Day 1. 28% EMEA revenue is a lot for Zendesk, as is 11% APAC. Embrace it if it comes early.
- Half of Zendesk’s growth probably comes from the installed base. Half. If Zendesk is growing 24% at $1B in ARR, and sees 112% net dollar retention … that probably means as much as 50% of its growth comes from its existing customers. Think about that. Are you investing enough there? The only thing that really makes it easier over time is having 1000s of happy, loyal customers. With lower growth from its existing customer base, Zendesk wouldn’t be the success story it is today. Not even close.
A final note: Zendesk is letting go of 2 of its SF offices. SF will be back. But it won’t be the same.
And take a great look back at how Zendesk got to IPO here from SaaStr Annual: