In today’s dynamic SaaS landscape of hyperfuncational SaaS, the journey of building a product that customers adore, while simultaneously scaling revenue to nearly $1B, is still quite a feat. During a conversation at SaaStr Annual with Jason Lemkin, founder, and CEO of SaaStr, Andrew Bialecki, co-founder and CEO of Klaviyo, shares his insights and lessons in achieving this milestone.
Klaviyo is the most awesome SaaS company you probably don’t know enough about but they’re a huge player in the e-commerce and SaaS space. They’re bigger than HubSpot in marketing by ARR. By having huge market share, and owning a specific space.
Not only is Klaviyo a rocketship but it was also the first SaaS company to IPO in almost 2 years when it went public in September of 2023. It was a big milestone for the company and the markets as it had everything you’d want in a company going public: 39% annual revenue growth, 16% free cash margins, and 117% NRR. More on that here.
So how did Klaviyo do it?
As Klaviyo CEO and co-founder Andrew Bialecki shares, the company was built on a foundation from Day One of solving problems for SMBs, specifically automating their marketing to increase bottom-line sales, which quickly won over customers, and turned them into both happy customers and raving fans by solving some of their biggest pain points that no one else was focused on.
Finding Superfans Early On
Jason starts by asking the meta-question: “You’re at $900M of ARR, growing 35%, 112% NRR from SMBs, and 14% free cash flow. Is there a downturn?”
For Klaviyo, the answer is no. Why? They supply their customers with a full marketing suite and customer data software for thousands of SMB, e-commerce businesses.
Andrew explained: “I was always fascinated by this idea of how businesses interact with their customers in a B2B world, where you’re used to this model of you automating a lot of stuff, but fundamentally, you still have sales folks, you have customer service folks, so there’s always this person that can be the intermediary between the customer and the business. But in consumer that just doesn’t work. If you go buy a pair of Nike’s, nobody’s calling you to find out how you like them.”
So everything has to get automated.
But in talking to those businesses, Andrew realized that in reality, these small-business, e-commerce consumer stores he was setting out to help were doing everything manually. The status quo was spreadsheets, trying to segment customers and upload into a newsletter tool. Most businesses didn’t bother with segmented campaigns because it took too much time to parse the data by hand.
There wasn’t software that did this back in the 2010s when Klaviyo was founded. Andrew and his co-founder knew immediately they had to deliver an awesome customer experience that utilized the first-party consumer data all these businesses were wasting.
“The reason that we got all this love in the early days was everybody said, look, I have all this information, I just want to put it to work, I want it to be connected to, you know, the other software I use. And we actually asked them, like, well, what software matters, and they all said marketing. And so we said, okay, well, that’s what we’re going to do then.”
So Klaviyo solved this pain point early on and created loyal, happy customers in doing so. They built one platform that does it all, but also made it simple so that these small businesses they wanted to serve, could actually use it to grow revenue without needing a developer that they didn’t have. The 10x feature in the early days was the ability to automate segmentation and help people connect their data to those segments in just a few minutes. It was game-changing for thousands of businesses on spreadsheets.
The Power of Building an Ecosystem
When Klaviyo started, they launched on Hacker News as everybody did back in the early 2010s. They initially tried to sell to other startups on the basis that Klaviyo could help you with your customer marketing. Then quickly, Andrew had a friend with a Shopify business who sold quilts on the internet. It was a sizable business with repeat customers and patterns.
The friend wasn’t very technical and asked Andrew to help him. At the time, Shopify was still a new player. But even back then, Shopify was developer-forward, so when Andrew approached them with a new API connector, Shopify encouraged and helped foster Klaviyo’s launch in their ecosystem
While a lot of companies and platforms may treat developer partnerships as an afterthought, that wasn’t the case with Shopify. They really wanted people to build around them, so they asked Andrew, “How can we help promote?.” That became a big part of the early flywheel, getting folks at Shopify and Stripe to drive awareness back to Klaviyo.
Jason shared a counter-example: “I remember back in the day of a major platform, we spent like two months being a launch partner on their platform. They said they’d help us market. And then I asked later, ‘What happened?’ They’re like, ‘Oh, you didn’t see the tweet?’ That’s what I got was one tweet from a junior product manager. That was how much push we got after what seemed like a huge amount of engineering effort at the time.”
“Now we just look at it as a big competitive advantage,” Andrew explains. “Where if somebody says, ‘Hey, I’m thinking about, you know, my customers, my marketing. Obviously, we (Klaviyo) do a couple of the marketing channels, but if you want a solution for TV advertising, it’s like, well, we don’t have anything for that. But now we do, right? That’s the power of an ecosystem.”
Finding Your ICP + Niche
Shopify is a much different company today than it was when Klaviyo found them. Everyone wants this kind of partnership, but it’s important to understand how something like that comes about. When you’re building a product and thinking about how to get more distribution, great partnerships are one way to do it, but both sides need to benefit from it.
Andrew explains: “So we often think of this like a rope. Amd if you’re going to keep it tight, you need both sides pulling on it. I also think when you’re building partnerships, you should expect to have to do a lot of the legwork yourself when you start. I think sometimes it can sound good. It’s like, yeah, we’ll agree in principle and then magic will happen. But that’s not really how it works.”
For Klaviyo, they realized Shopify merchants were a great fit. So Andrew and his co-founder set a goal to get 10-20 raving fans to show that data and those reviews to Shopify to get them to stop and take a look.
Case in point, Andrew made a bet in the early days and his thesis was that customers were calling into the Shopify support team and asking them questions like, ‘Hey, I’m curious about how to send an abandoned cart or Hey, I have this idea for personalization in marketing. What product would you recommend?’
And so Klaviyo had this belief that Shopify had to answer that question.
Imagine being the person that’s doing customer service at Shopify and answering ‘I don’t know, I’ll get back to you.’
That’s not a good experience.
So Klaviyo had this belief that if they could just say, “Hey, look, we’ve got these super fans” and then share that information back to Shopify team, then the folks on the front line, their sales team, their customer support team could feel comfortable recommending them.
The bet paid off.
In fact, by the time Klaviyo started working more formally with the Shopify partner team, they told Andrew that they already had their customer support team recommending Klaviyo because they realized it made their jobs easier.
From the outside, it might look like Shopify is playing favorites, but from the other side, Shopify has to recommend someone to solve a problem, so why not recommend someone who already has a lot of customer love and is solving real problems?
Klaviyo’s 10x Features
Andrew shares two killer features that set Klaviyo apart. One is the speed at which they solve a painful problem. Imagine you’re walking down the sidewalk to your office. You have an idea or an experience you want to deliver to your customer. With Klaviyo, you can do that by lunch.
The second is gamifying things. This is more normal in consumer land, but in the B2B / SaaS world, we forget that using software should be fun, not a grind. For Klaviyo, they loved the idea of being able to measure how you’re doing in dollars.
Marketers might think they care about click-through and open rates, but that doesn’t really matter. What matters is the dollars and amount of revenue that the campaign drove. Almost overnight, people were like, “Whoa! That one campaign made $50k? Why is that?”
They were way more interested in this perspective, so they’d set a goal for their team to drive $100k in “Klaviyo” bucks. You’re onto something when people set goals and KPIs around what you provide.
When a marketer can say, “Hey, we brought in $118k with this campaign,” rather than having a 41.6% click-through rate, they are a hero for driving actual revenue. The whole Klaviyo dashboard is designed to be screenshotable.
The Second Act: Why and When to Go International, Multi-Product, or Upmarket
Klaviyo is coming up on a billion ARR. They’re going international and more Enterprise, but they didn’t do this super early. They also aren’t radically multi-product like Datadog and Salesforce, so let’s take a closer look at this Second Act.
In Andrew’s mind, there are two ways you can found a business.
- You find a problem, a niche for one market, or a use case. That’s good; it gives you a toehold and a place to expand from.
- Klaviyo was founded in reverse with very broad ambitions at the start. They wanted to create a place where you could store everything about your customers and use the data any way you choose. That was the idea from day one, but it’s so large, so where do you start?
Klaviyo was bootstrapped, so there wasn’t much time to find product market fit. So, they approached things much like Amazon originally did, building a logistics network to sell books, even though that was never the end goal.
How do you sequence an idea so massive? How do you build a brain for a business, marketing, and within marketing, narrowing down to which channels matter? They began with email, then SMS, and now mobile.
“My advice is always, you need to start thinking about second acts a little bit sooner than you’re comfortable with,” Andrew shares. “Because you could build some pretty big businesses, but sometimes you can have a spot where you go, ‘Oh my gosh, I don’t know what to do next.’ And you kind of want some lead time to start to build those products.”
From a product perspective, Klaviyo has a lot of directions if can / could go in but it started with marketing because, after building this database in the early days, most customers said they were using the results for marketing.
Going International and Going Upmarket
Andrew and his co-founder never wanted Klaviyo to be just a U.S.-centric company, so they had customers all over the world quickly. They’re excited about this Act, expanding Klaviyo around the globe.
They also started with SMBs because they were bootstrapped. They had the perspective of Nike: They aren’t our customers yet, so they should be. So, how do you work into that?
Going upmarket and international requires different GTM motions and even some product changes to meet the demands of those markets. So, to achieve your Second Act, you have to sequence things well and not get too distracted by all the shiny objects along the way.
Even though growth is epic and Klaviyo has 2,386 $50k customers, it wasn’t an overnight thing. Why was Klaviyo so deliberate on pacing and timing?
Klaviyo started with more SMBs but knew they wanted to get into the Enterprise eventually. How do you do that without hiring a big sales team, giving them some territory, and knocking down doors?
You have to start with a little groundswell. When you think about the unit economics of a business, especially the cost to acquire customers, the best marketing is viral marketing. When you go to a customer, you want them to already know how awesome you are because they’ve spoken to their peers and partners. When moving into Enterprise, you want all of those ingredients to be there.
Takeaways from Klaviyo’s IPO in 2023
When Klaviyo started in the early 2010s, the ARR bar was slightly lower, “Which is too bad,” Andrew shares. If you’re at $100M or $200M, that should be plenty. You can do more growing in the public market, and you don’t need a billion in revenue. “I think that will come back,” he continues.
What matters is that you have a durable, sustainable business with positive free cash flow, and if you don’t, you need a path to achieve that. If you meet that criteria, you’re probably in good shape.
When Klaviyo started during the post-2007-2008 recession hangover, it was a great time to build. Now is another great time to build because fewer people want to do it, and it’s comparably harder, which also means it’s less competitive.
If you want to go public, there’s a lot of work to do. Being a public company isn’t much different than being private. As a team, Klaviyo likes the rigor of showing how you’re doing every few months. There’s a lot to be said about setting goals, showing up, and meeting them.
