Join Tradeshift founder and CEO as he shows founders how to take control of their destiny. Tradeshift has grown to 650+ people with offices in 12 countries from its start as a mere vision in 2005.

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Christian Lanng | Founder and CEO @ Tradeshift


(music) Hey, everyone. So awesome to be here. I’ve been here as an attendee for a few years, but it looks a little bigger from this stage. Absolutely.

First off, I’m happy to see that people are interested in what it takes to stay in control of your company as a founder for the long run. Tradeshift, we are around 10 years old. We obviously have some lessons from that journey and have not always gone the route that everybody has done. I hope you’ll enjoy that with me as well.

Really, a little bit about my story and our story. I come from Denmark. That’s why I have an accent. We have a lot of SaaS companies, by the way, from Denmark if you haven’t noticed. Mikkel Svane was here earlier speaking. We went from Denmark to Unicorn here in Silicon Valley in around eight years. I’ll tell you a little bit about that journey.

We do something incredibly boring. Supply chains are complex. They’re expensive, but they also have that small thing where they make the whole world economy go around. It’s typically dominated by companies like Oracle, SAP. It’s very, very complicated, and it’s something you only really hear about in the news if it ever goes terribly wrong.

That’s awesome because we love complexity. We have a background doing software and standards for trade, and we thought that there’s a massive opportunity in this space. We really wanted to simplify supply chains. We looked at the world in 2008, 2009, and we said, “How come it’s almost impossible to connect two companies to do business, especially if they have complex business processes, but we can all connect as consumers on LinkedIn, Facebook, Twitter, every single day we want to do business?” So we wanted to create essentially … Well, you can probably describe it the easiest way as an anti-SAP of supply chains, something that was easy, simple, free to use, open, and easy to develop for.

What is Tradeshift really? It is if you took LinkedIn, combined it with the app platform from Salesforce, and looked at the domain, which is supply chains. Where Salesforce essentially is a company that serves everything between you and your customers, you can think about Tradeshift as an 180 of that. We are a company for everything between you and your suppliers. Just like Salesforce, we have a platform. Third parties are developing apps for our platform. But unlike Salesforce, we also have a huge network connecting all of those suppliers multiple tiers down all over the world.

So that’s what we do. We are heavily focused as I said, again, on doing things that are simple, that are easy to use. We take complexity out. Most of you who ever have done enterprise sales, you know enterprise sales are spreadsheet-driven. You get into an RFP. There’s a long list of features, and the guy with the longest list of features for the lowest amount of money wins typically the bid, except it’s probably very often rigged to begin with. They already know who they want as the winner.

We’ve gone the other way. We’ve actually taken features out. We very frequently advertise to our customers, “We have less features in the UI.” Around 60% of enterprise software features are never used, so as a customer, you just pay for maintaining them. We [inaudible 00:03:31] say, “What about having software that you can roll out fast, easily, and drive high conversion inside your supply chain?”

This is not an advertisement of Tradeshift. I just want to make sure you understand what we do and how we compete with companies like SAP on a daily basis.

We have three core products. Tradeshift Buy, which is essentially what we call private marketplaces. Think about it like Amazon or eBay, but instead of being for you and I, it is the Fortune 500 companies of this world that use it, companies like Unilever going and buying [produced 00:04:02] enzymes, ingredients, on our private marketplace technology.

We have Tradeshift Pay. Tradeshift Pay is an entrant payment solution for supply chains, meaning no matter where your supplier is in the world, we can make sure they get paid. Again, to make it very simple, think about that just like a PayPal, but for the enterprise, for the Fortune 500 in the world.

Finally, we have Apps, which is just like It’s an app platform for third party developers to develop software for the supply chain and to get access to hundreds and hundreds of customers and to thousands and thousands and, actually, millions of sellers.

So that’s all about us. I’ll talk a little bit more about our journey. In Tradeshift, we always had big ambitions, and we always knew as a company we would become big. In fact, as true entrepreneurs, we had this idea and wanted to start the company in a garage. That was simply something we had to do. This is a picture from the garage in Denmark eight years ago, and as you can see, we had very big ambitions. We already had a world map up with pins of where we had customers. This is within the first few weeks. Obviously, we were also doing what you’ve got to do when you have a SaaS company. We were on the phone selling our software before we’d even really begun to get the first few customers in and figure out what do they really need?

But there’s just one problem with being in a garage in Denmark, and that is unlike Silicon Valley, it’s pretty cold in the winter. So we also knew within the first 12 months that to win in our market and to be the very best in our category, we needed to leave Denmark. Denmark is a small country. We only have five million people, and we were never really focused on serving the Danish market. We were focused on serving the global market. From [inaudible 00:05:50], it was like, “Yes, we’ve got to go to the US. We’re going to win in the US because that is where all supply chains end and most of the purchasing power is.”

So I called up my good friend Mikkel Svane, and I said, “Hey, Mikkel, we’re thinking about going to the US, and we don’t know if we should go to the East Coast or the West Coast.” Zendesk at that time had just arrived in San Francisco. They moved to Boston first. Mikkel, he goes, “Christian, Boston is as far away from Silicon Valley as Denmark and as cold in the winter.” That pretty much made the decision.

I know right now … The reason I’m mentioning all of this is there’s a lot of discussions right now. Should you be in San Francisco? Should you be Silicon Valley? Should you be somewhere else? I know a lot of you come from around the world, from around the country, and I think I have a very simple view on that. That is you should only build a company in Silicon Valley or San Francisco if you think you can make it to be number one in that category because if not, you cannot afford the workforce. You cannot afford the real estate. You cannot afford to be here. You’re playing in the premier league of the world when it comes to cloud, when it comes to SaaS, when it comes to AI, and that means if you’re not number one, the power law that Peter Thiel talks a lot about is going to kick your ass harder here than anywhere else in the world.

Now I do think that Peter Thiel is actually wrong when it comes to the power law because it’s completely okay to be number three, four, five, and six, and seven in SaaS, especially in B2B, but then you should just not be in San Francisco. I think most markets, especially in enterprise space, they tend to fragment over time. Even in consumer, it’s not really holding out because we still have a Facebook, a Twitter, a Snapchat, an Instagram, and all of these fragmented properties. So the idea that there can only be one winner, I think we should start forgetting a little bit about that. There can be many, many winners when you have compounding interest from users and from services. I’ll talk a lot more about that.

What is it that worked really well for the business of Tradeshift through our journey? We sell enterprise SaaS software. We go to our customers. We say, “Hey, would you like a cloud platform to run your supply chain? We can do the private marketplaces. We can do the payments, and we have all of these third party app providers.” So the first thing that worked really, really well for us was complexity. Complexity is awesome. Complexity is something that you’re taught, and I think most founders are learning is you should focus. You should only do one thing. You should do one thing really, really well. That holds true for consumer, and it holds true for some use cases within business, especially if you’re doing small deals repeatedly at a fast rate.

But if you’re doing something that’s, that has its own advantages. Some of the advantage is it will take a long time for us to close a customer, but once we close the customer, we don’t churn them. In the history of Tradeshift, we’ve churned two customers, both before go live. We essentially have a saying that is, “If our customers go live, we won’t churn them,” because the stickiness of the complexity of rolling out in 190 countries, setting up tax compliance, managing really, really complicated B2B processes is very, very high.

It also drives for high ACV. Our average ACV is 500k, and it’s increasing with around 20% quarter over quarter. The reason for that is also very simple. What we do is very complicated, but once we’re in, we can extract a high value for our work and we tend to get more and more trust from our customers to do more. It also means that we win more value for every engagement our salespeople have. Where a normal sales guy, he might need to go and hit up five customers to make 500k, we can get that out of one cycle. The difference between selling 500k and 100k is not that different in time.

I think it was Tom Tunguz from Redpoint who said, “Whenever you’re in doubt about product market fit, just double your price, and if the customer is still buying, you have more room to go. Your product has value for them. If they tell you no, you need to iterate on product market fit until you can do that again.”

It’s also a huge moat for competitors. There’s not that many founders in the world that’s interested in doing global tax compliance for, let’s say, invoicing. So that’s fantastic, whereas everybody looking at, let’s say, Instagram in the early days and saying, “Oh wow, we could do an Instagram too or we can do an [inaudible 00:10:39] or maybe a Snapchat,” learned the hard way Mark Zuckerberg could do a Snapchat too with Instagram Stories. But we have huge moats for competitors. It’s very hard to penetrate. One piece of advice I would give to most founders is learn to love complexity because moats, especially in enterprise, are fantastic when you look at complexity.

It’s costly, so one thing you better start practicing if you are in B2B and if you are in enterprise and you like complexity is your fundraising skills. We have raised around $400 million in the lifetime of Tradeshift. We have had months where our burden was easily above $10 million. When you put 20 Fortune 500 companies live in one quarter, that’s what you’ll encounter. If you cannot soak up those capital costs, you’re going to die very, very quickly. But on the other hand, if you can soak up those capital costs, you can out-compete most of your competitors just on raw capital.

So I think this is something to be aware of, and also, in the beginning, customer acquisition cost is very, very high. Going into, let’s say, a Unilever and selling Tradeshift is not really convincing them to take a box trial. We’re simply going in and saying, “Hey, how would you like to use our cloud software to run the one thing that’s the most important for your whole business when it comes to deliver value and goods to your customers.” That takes some talking. That takes some convincing. That takes some time. So get used to having a much higher CAC in the early days.

That leads me to the last point, and I think in SaaS really cannot be underlined and often, I think most companies are probably under-investing in too late, and that is alliances. 50% of our revenue today comes from alliance partners. Any deal that comes from an alliance partner is half the time, it is a third of the CAC, and it’s typically higher value. So we cannot invest too much money in our alliance channel. We today have alliances with all of the major system integrators. We have alliances with all of the major BPOs in the world.

But alliances take three years to be efficient, so don’t hire those alliance people and then evaluate after 12 months. “Where are you? Why hasn’t Accenture pushed out 20 deals for us yet?” Accenture will make you work hard and long to earn your time with them. They will make you give them deals over and over and over. Don’t be cheap. Do it. Give it to them. Come to them and say … Even if you could have done the integration yourself, even if you have a professional services team, go and give it to your partners instead and say, “Hey, I have this integration for you. I have this project for you,” because that’s the way they build a bench.

The advantage again for partnerships is also it drives a very, very high conversion rate. Our conversion rate is around 28% for late stage deals in our funnel. It’s roughly twice of the best practice standard for most large scale enterprise SaaS companies. So again, this is where alliances can make a real difference.

Apart from the things that worked well, and I think as a CEO or founder of any SaaS business, you’ve got to manage, I think there’s one more thing that is underestimated, and that is Tradeshift is a SaaS business just like Salesforce combined with a network just like LinkedIn. Networks, I think personally, are going to be the future of SaaS.

If we think about computing, we tend to think it went in two stages: on-premise, cloud. Especially in enterprise, everybody says the journey is to cloud. How far is SAP to become a cloud company again? But if you look at consumer, I actually think it went in three stages. It went on-prem, and then we were on cloud for a minute, and then we moved to networks.

Do you guys remember we used to have consumer cloud apps that were not connected to networks, like Picasa for your photos? Who in the world today would dream of uploading their photos where they couldn’t share them, where they couldn’t [evaluate 00:15:03] them, where they couldn’t get likes, where they couldn’t have social interaction?

I think exactly the same is true for business. Cloud drives and builds networks for a very simple reason. It brings down the cost of connectivity. When you’re in the cloud, it’s much cheaper to connect things, and that’s where network value really increases very fast. If you’re in doubt, just look at some of the biggest bidding wars that have been in SaaS the last 24 months, the Microsoft Salesforce war over LinkedIn., he’s a very, very smart guy with what he’s doing with Microsoft strategy right now, and I think he’s actually leapfrogging a lot off the newer SaaS companies with where they’re going with this.

So why are networks so powerful? Well, of course we know networks effects from the consumer space, but the enterprise space, if you combine network effects with stickiness and real value … If we connect two people on Facebook, the only way we can really mine that relationship is advertising. If I connect two companies, the ways I can create value for that relationship are infinite. I can help you accelerate your payment. I can help you get insurance cheaper. I can help you get access to better logistics services. I can actually add real value instead of just being a leech on top of a connectivity model for friends.

Networks are powerful. This is the compounding GMV of the Tradeshift network. Just last quarter, we ran $77 billion through the network of global trade. It’s roughly around 3% of global trade, but at the current growth rate, we’re going to be doing 10% next year. To give you a comparison metric, this is roughly three times what Amazon do in B2B. We are right now doing more cross-border traffic on trades of GMV between China and the world than Alibaba is. So when you have these network effects inside the enterprise, they are a lot slower, as you can see, to start compounding, but once they start compounding, they’re a lot bigger and they’re a lot stickier.

All of this leads to a business model which I think is the emerging post-SaaS business model, which is really you get SaaS enterprise customers like we do. They drive adoption among their users and their supply chain and their ecosystems; and the more users and the more ecosystem they build, the more app partners that attracts for us who want to build on our platform; and the more app partners we have on our platform, the more deals we win because the more competitive we are in deal cycles versus standalone SaaS companies who only have their own offering.

We make the comparison and say it’s a little bit like the difference between … SaaS 1.0 is a little bit like the Nokia Feature phone. The SaaS provider will give you all of the services and all of the features, but if you want a new version, you’ve got to wait for the next one, where SaaS plus networks plus platforms is a little bit like your smartphone. You buy a SaaS solution, but you can continuously upgrade and get access to new value through the platform part of it.

Just to see how deep these network effects drive, this is an example from the real world where we closed first a German company, DHL. Then we got UPS. Then we got FedEx because what they all realized was the networks of sellers and the ecosystems are overlapping. So today, we are onboarding more than 70% of freight forwarders in the world. Of course, our next thing is to go and find all of the right app partners to service the logistics industry and to bring value for these guys.

If I was SAP, I would insist on building all of this myself. These old school companies, they want to build every single feature themselves, preferably in Germany, preferably in German. But instead, with an open model like ours, you can harness the value of these ecosystems.

The flywheel in effect today: we run 150 of the Fortune 500 supply chains. We have 2.5 million sellers in 190 countries. I mentioned we do more cross-border traffic out of China than, for instance, Alibaba do. It’s on a very boring topic such as supply chains, so you’ve probably never heard about us, but we’re completely okay with that. As long as the right 500 people in the world know who we are, we’re in a good spot.

So that was the whole speech about the journey of Tradeshift and why we are where we are today, but I want to … especially since this is SaaStr, and this whole speech actually started us with us announcing our funding round last year and Jason Lemkin pinging me on Twitter and saying, “Hey, you should come and talk about how on Earth you did that.” I’ll talk about what that is in a second.

When we announced our E round last year, we the founders, we co-invested. We had a fund, and we invested $50 million directly into that round as well ourselves. In fact, what we didn’t tell Jason is we actually bought another $50 million of early stage and secondary stock, and we almost doubled our stakes in our E round, which is breaking every formula there ever has been for how founders and ownership should behave in late stage rounds for big companies.

So how come we could do that? I think there’s a number of reasons or lessons I would love to share. We just raised our F round right now. We’re halfway through it. The founders plus the early stage investors, we own 40% of the company, and that’s on an F round versus $400 million of capital raised. So we’re pretty happy with that. I think one of the reasons is we never, ever in the history of Tradeshift outsourced fundraising. Investment bankers are lovely, lovely people who will take control of your narrative. Your VC fundraising for you, the friendly VC you have on the board that says, “Oh, I’ll help you pitch all the way up and down. I know everybody,” they will take control of the narrative of you.

You as a founder 100% have got to own the narrative of your company, and you can never, ever let go of the upside of that narrative because at some point, somebody will say, “Hey, why don’t you pitch your story a little bit differently? Why don’t you just cut out this whole thing about wanting to do an app platform?” Our investors told us for eight years, “The fact that you want to do apps, Christian, is too complex. You should focus and just be a pure SaaS business, and that’s the only way to do it.”

We insisted for eight years that no, being an app platform was actually what would make us a company in the league of SAP and Oracle and why we had a much bigger business, potentially. It’s almost like when you test for a good customer. There’s all of these blogs about ‘find the right first customers’. It’s the same here. Find the right investors that buy into the big idea, not the small idea, and it might take a little longer.

Secondly, time is your friend. I cannot tell you how many people came up to me and said, once we became a unicorn, “Hey, Christian, when are you selling? When are you going to live on the beach? When are you going to get that house in Hawaii? Now you’ve done it. You’ve made it.” But the reality is it took Salesforce 10 years to go from zero to $1 billion, and then it took another 10 years to go from $1 billion to $80 billion.

Most founders think about selling at $1 billion. That’s because they’re bad at math. Late-stage value in a SaaS company compounds 20 to 50 times more than early-stage value, and most founders hand over most of that value to the VCs and the investors. So you’ve got to rethink that because that’s where it goes wrong, but you need to be willing to spend 20 years instead of 10 years building your company. That’s the time investment you need to sacrifice.

Why is this? This is because it’s a pretty big secret. I know we love to think we are very different in Silicon Valley. We are reinventing the world. We are doing the cloud. We are doing cool things like software, and we are all wearing sneakers so we’re a lot cooler than bankers. But the reality is that a SaaS business is essentially a bank. Subscriptions are like bonds. Every single time you get a subscription, you get a steady, recurring revenue stream that get paid annually with a compounding return. If you just manage your churn and you manage your revenue growth and this machine works, it keeps going and it keeps going and keeps going.

That’s why Jason Lemkin is talking about, “Who’s the first next generation of $1 billion AR companies?” I don’t think he’s thinking big enough because there would be $10 billion AR companies and possibly also $100 billion because that’s the magic of compounding.

So if you have subscriptions, you are the holder of bonds. You have acquired a massive amount of bonds, and those bonds are financial instruments that you can leverage. If you think about it, what you’re really owning is you’re owning the best bank in the world. An average US treasury bond delivers a return to the big pension funds of around 3% to 5% annually. If you beat that rate in your growth and subscriptions, every single pension fund in the world will take a call from you because they have trillions of dollars that they need to place to generate a return from. Every single sovereign wealth fund, late-stage, will take a call with you.

Every single time you let your VC or you let your financier or you let your bank tell you that they should orchestrate that deal, you’re handing over the compounding future of all of those bonds to somebody else. What we did instead was we said, “Hey, we own all of these bonds. Let’s talk to these pension funds who are normally buying used treasury bonds and say, ‘Hey, we have a much better deal.'”

So we said to them, “Guys, we want to cut out the VCs. We’re going to cut out all of these people, and we want to buy more. We want to stake our own shares, and we’ll take all of our own holdings. We will bet them as security against the loan of $100 million. You’ll give us $100 million. We will bet our shares.” Since our shares were at that time worth quite a bit, it’s rough to a value around 25%, which these guys, they’re very comfortable with. The worst case for us is we lose 25% of our share value. The best case for us is we just doubled our holding of stock in the company.

So remember that as a founder in a late-stage SaaS company. What you own is bonds, and you should market and sell them accordingly. You shouldn’t trade the value.

Essentially, what we did is what most funds do in the world. They go out, they talk to their LPs, and they generate exactly the same deal with their LPs. As a founder, you can go straight and you can do that today. That’s the wonderful thing about finance being commoditized.

That’s really all for me today. I think for us, this has been a fantastic, fun journey. We are only 10 years in, so as you saw from my previous slide, we’re really looking forward to the next 10 years. That’s going to get really fun. I think if anyone has any questions, we can do Q&A now, but I will be on the floor later, so you can come up and you can chat with me. Thank you so much for listening in.

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