Revenge of the SMB: Zoom & Shopify Got Even More SMB at $4B ARR, Not Less

So many curious things have happened as Cloud and SaaS companies have exploded to $2T+ in market cap.  One of them is a challenge to the rule that at some point, you have to go enterprise to really scale.  Another is a related challenge to the idea that SMBs, since they don’t pay all that much, sort of “max out”.   These rules are still true in many cases.  It’s just as Cloud has gotten so big, there are plenty of exceptions.

Let’s take a look at two challenges to those rules — Zoom and Shopify.  Both crossed a stunning $4B (!) in ARR during Covid.  Wow.

As Shopify crossed $4B ARR, it actually got a bit more SMB.  Its more enterprise “Shopify Plus” revenue continued to grow at an impressive rate.  It’s just its SMB customers grew even faster — at $4B in ARR!  As a result, while the enterprise-focused Plus product grew handsomely, as a percent of revenue, it declined from 28% to 26%.  So SMB revenue at Shopify grew to 74% at $4B, up from 72%.

And as Zoom crossed $4B in ARR, it actually got a lot more SMB.  So much so, it’s almost counter-intuitive.  Zoom started very freemium and SMB, but over the past few years, pushed deeply into the enterprise.  And it worked.  And Covid boosted this enterprise push, as so many large enterprises immediately all had to work from home.  And basically, they all chose Zoom.  So its enterprise business, its $100k+ ACV customers, grew a stunning 156% last year.  Boom!

It’s just that SMBs grew even faster — a jaw-dropping 470%.  Yes, 470%.

So netted together, despite adding a ton of enterprise customers and functionality, Zoom overall got a lot more SMB.  It went from 20% very small business (VSB — 10 or fewer employees) to 37% VSMB in just the past year.

Now, of course, these examples don’t say “don’t go enterprise”.  Going enterprise also worked incredibly well for Shopify and Zoom.  It’s just, their enterprise customers didn’t end up growing so quickly that their revenue growth eclipsed the SMBs.  Quite the opposite.

The lesson perhaps is what Loren Padelford, GM of Revenue and previously GM of Shopify Plus notes above. You may not have to choose.

The vast majority of us eventually go upmarket, at least in part.  We’ve seen this recently with many Cloud leaders:

So the lesson from Zoom and Shopify isn’t not to go upmarket, at least in part. Both have, and both have done it extremely well.  No, the lesson is a reminder.  That there are so, so, so many SMBs.  They may scale far longer, and far further than you thought and intuitively think.  To $1B ARR.  To $4B in ARR, like Zoom and Shopify.   And thus, probably at least to $10B in ARR and beyond.

That’s plenty far.

 

Published on April 28, 2021

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