Welcome to Episode 203! Krish Subramanian is the Founder & CEO @ Chargebee, the startup that lets you go beyond billing, payments and recurring invoices — to delivering subscription experiences that “wow”. To date, Chargebee have “wowed” some of the world’s leading VCs to the tune of $24m including the likes of Insight Venture Partners, Tiger Global and Accel Partners. As for Krish, under Krish’s leadership the team has grown to over 200 people and over 5,000 clients making it one of the next generation in truly global SaaS businesses started in India.
In Today’s Episode We Discuss: * How Krish made his way into the world of SaaS and came to found one of India fastest growing SaaS companies in Chargebee?
* Why does Krish believe that every SaaS company should bootstrap at some stage? What are the inherent benefits to these capital constraints? What are the drawbacks to not having the capital reserves? What was the inflection point for Krish in realizing he wanted to go big and raise from Insight?
* Why does Krish believe that it is wrong to think of the word “service” as being negative in SaaS? What are some of the foundational benefits to building out a strong services division? How does Krish think about what makes for good margins in services businesses? How can one prevent themselves from being reliant on service revenue?
* Why does Krish believe that transparency is not always good when it comes to SaaS pricing? What are the cons of transparent pricing? Why does Krish believe if you are going to try freemium, it has to be from the beginning? How does Krish think about reinventing the wheel vs copying when it comes to pricing? How does Krish think about installing usage based pricing without disincentivizing usage? How can one do it?
Krish’s 60 Second SaaStr:
* What does Krish know now that he wishes he had known at the beginning?
* What moment in Krish’s life has served as an inflection point and changed the way he thinks?
* What does Krish believe that most around him disbelieve?
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Jason Lemkin
Harry Stebbings
SaaStr
Krish Subramanian
Transcript
Harry Stebbings: You are listening to the official SaaStr Podcast with me, Harry Stebbings, and I would love to hear your thoughts and feedback on the show. And you can do so on Instagram at hstebbings1996 with two Bs, where you can also suggest both guests and questions for future episodes. However, to our episode today, and we always hear that today more than ever, truly global businesses can be built from anywhere. And today we’re taking you to Chennai, India, and I’m thrilled to welcome Krish Subramanianan, Founder and CEO at Chargebee, to the hot seat.
For those that don’t know, Chargebee is the start-up that lets you go beyond billing, payments, and recurring invoices to delivering subscription experiences that wow. To date, Chargebee have wowed some of the world’s leading VCs to the tune of 24 million dollars, including the likes of Insight Venture Partners, Tiger Global, and Accel Partners. As for Krish, under his leadership, the team has grown to over 200 people and over 5,000 clients, making it one of the next generation of truly global SaaS businesses built out of India. I do also want to say a huge thank you to Lee at Tiger for the fantastic question suggestions today. I really do so appreciate that.
However, you’ve heard quite enough from me, so now I’m thrilled to hand over to Krish Subramanian, founder and CEO at Chargebee.
Krish, it’s absolutely fantastic to have you on the show today. A big hand to Lee at Tiger for the intro, but thank you so much for joining me today, Krish.
Krish Subramanian: Thank you so much, Harry, for having me on the show.
Harry Stebbings: Not at all, but I’d love to kick off today with a little bit about you. So tell me, Krish. How did you make your way into what I definitely call the wonderful world of SaaS and really come to found Chargebee?
Krish Subramanian: Great question. I started my career building product in the old ASP model, the application service provider model, which was in some sense a false start before. It was almost like a precursor to SaaS. And my co-founders come from strong product engineering backgrounds from the network management system space with over 10 years of experience before starting Chargebee. But we always dreamt of starting a company for a very long time, and we said that for us, the inspiration was the likes of Joel Spolsky. His very popular blog joelonsoftware.com was one of the inspirations from 2002, I think. And they went on to eventually create Stack Overflow, which was all about bringing a very good smart set of people together into a room and allow them to solve a problem. And similarly, my co-founders were part of the AdventNet journey, which later on morphed into Zoho, and that was also another inspiration.
But by the time we started in 2011, cloud and SaaS made sense. But rather, I will say, install software did not make any sense at all. SaaS was where everything was happening and we felt that was natural.
Harry Stebbings: I mean, it’s been incredible to see the growth of the industry, but with the growth of the industry, there’s been a lot of maybe preconceived wisdom and notions for founders building SaaS companies today. And so I want to maybe unpack two of them, being funding and then the word service in SaaS. If we take this turn by turn, Krish, I’d love to start on the perceived wisdom of many founders today in terms of raising venture financing.
When we chatted before, you said to me, “Do you think maybe everyone should bootstrap?” Can I ask what’s behind this thinking that everyone should bootstrap?
Krish Subramanian: In my opinion, bootstrapping is a state of mind. It just makes you more resourceful. So we bootstrapped through the first year and a half to two years, and I’m very thankful for that. So the thing is, we all start with a passion to want to see a particular problem solved with or without anyone’s support, right? And we thought without your doggedness I think is very important to see a problem solved. And you also learn to treat money as a resource that can be used judiciously when it is available.
So apart from this, I think the makeup of the mindset itself, I think it also provides you … when you try to bootstrap your company through the initial days, it gives you the gestation period necessary to understand if you should really raise money for the product and the category because raising capital gets you on a treadmill too soon. If you get on the treadmill too soon without enough thoughtfulness, it’s very hard to get off the treadmill.
I know it sounds ridiculous that I am making this statement in a VC podcast and that was a venture from that company, but I just think that bootstrapping is definitely helpful to build a part of the muscle memory, especially for a first time founder. I think it is extremely important to understand the nuances of what you want to make a decision to raise capital and all that later. And you should know that it’s a choice. It’s something that not everybody has to do or should. That’s why I think bootstrapping is very important.
Harry Stebbings: No, I totally agree with you in terms of kind of the importance of that kind of capital constraint and what it brings in terms of creativity. What you said about determining whether it’s something that you should pursue and kind of having that gestation period, can I ask, Krish, what are the signs that it is something that you should pursue and there is maybe longevity and real opportunity in the project that you are engaging with?
Krish Subramanian: When you look for signs, I think understanding the category that you are getting into is extremely important, right? I think the most important thing is alignment, right, who you take capital from and the different types of capital in the market that is available. There are alternate models of funding where it can be debt financing, and then there are other models where you don’t have the value of using your cap table. And then there is also the venture fund, the angelinvestors, and then the VCs, where your alignment is definitely necessary to take the approach where you are able to go…
Harry Stebbings: Go for the home run.
Krish Subramanian: Right. So when you look for signs of why you should take capital or not, I think it is important to think about whether you are in a product or a category that aligns with the kind of capital that you are going to raise. What I mean by that is there are different types of capital available in the market, all the way from [inaudible 00:07:44] the debt to venture financing. And if you are really going for venture financing, you should be aligned with your VC’s interest to attempt a home run. I think that is extremely important to have, to build the belief that you as a team are signing up to go on to build a transformational business. And it is also aligned with the right kind of venture fund that can help you build that kind of team as well as the product and to dominate that category.
I think that alignment is extremely necessary, so trying to understand your own interest, but being able to prospect your own nature and the category that you are in and the opportunity, I think all those are extremely important before you’re enabled to make this thoughtful decision.
Harry Stebbings: And you obviously found that alignment with Accel and with Lee at Tiger because you’ve raised over 25 million now from the previous invention. Can I ask, Krish, what was that inflection point or moment that you thought, “Yes. Now is the right time to really raise a significant amount of money and go for that home run?”
Krish Subramanian: So we have raised three rounds of capital, one from Accel Partners, Tiger Global, and Insight Venture Partners. So even though we raised our first round of funding in the end of 2013, it was only last year that we were convinced that we should raise a big round of capital. To explain that a bit, in 2013, Accel investment happened because it was a convergence of a series of conversations that we had with them that helped us shape our thoughts. So I really enjoyed spending more and more time talking about the problem category. Is it a feature product or is it a category? And then the partner was as enthusiastic as we were about the space, right?
So it was more about the team and the problem in the early days. Tiger investment was also very similar because that happened in early 2015 when we were relatively early. For Tiger investment, it was relatively early stage, and we were scaling but we were still experimenting with pricing and product to break open that category. But when it comes to the inflection point, I think we’ve continued to operate without taking external investment for close to three years since then to ensure that we had the right product market fit and also how to break open this category.
But once the metrics aligned and then we were able to find the right fit in certain categories, the certain segments of markets, I think at some point, you realize that your ability to scale becomes a function of your sales capacity and getting more leads. I think you just understand that when you’re hitting the stage when there are more deals on the table than you can handle, and you know that you can sell more if only you had more people to pay more attention to every person who shows up at your doorstep, I think it’s time to scale. I think that is how I would read inflection point.
Harry Stebbings: I couldn’t agree with you more there in terms of that inflection point. I do want to touch on the other element, though, that is often maybe suggested as a preconceived notion, being the word service in SaaS and maybe its perception as being negative. In our previous discussions, you said to me that that was maybe a wrong thought. Can I ask, Krish, then, with that in mind, why is the word service in SaaS not such a bad word after all?
Krish Subramanian: Imagine trying to build a mainstream competitor today and say you also build it for a legacy industry like, let’s say, the hospitality industry. One, it is very hard to match all the features of mainstream from day one or even in a year, but your customers may be having a huge pain point with MailChimp, let’s say, without any specific integrations. Now what do you do?
You can either choose to wait for your product to mature but then they can play catch-up, or you think about other resource solving it. For example, support and service are the fastest way to bridge the gap in your product that your product cannot solve today. And when you focus on just solving the customer problem, leveraging what you have with your SaaS product, you could come up with the very creative ways of doing it like exposing an APA and then doing the last [inaudible 00:11:17] integration on the customer’s side by taking assistance from an agency or doing it yourself.
So that way, I think the job of the pre-sales team should be to solve a customer problem, and this includes understanding the ecosystem of services used by the customer, other SaaS products used by the customer and even deploy services to solve it. I think that one more reason is we are moving into a world with so many SaaS products stacked one against the other, and it is only natural that this explosion will continue. So I think it’s time we learn to embrace that service is an essential part of SaaS instead of trying to avoid it.
Harry Stebbings: I totally agree with you there. Can I ask, in terms of the services that one’s able to provide, does that correlate to maybe a specific price? So if one is serving the SMB market, where maybe the average kind of monthly fee is $10 versus an enterprise where it’s $50,000 a year, how do you think about the ability to service with the different prices? Is it completely unfeasible with low prices?
Krish Subramanian: If it is low price, right, if a product is priced under, let’s say, $100, you should definitely think about providing assistance for service through your customer support where you are offering solutions and not necessarily doing it as a service, right? The reason I say that, as I’ll qualify why I say that, my take is that as long as you are able to break even with services to earn your higher margin SaaS revenue, you don’t have to make money on services. That is number one.
And then I want to balance that perspective with the other side, which is service revenue is a very slippery slope, right? Meaning if you get addicted to service revenue, it can kill your a product focus. So it’s something extremely important to think about. But what are you going to really use this for? If the service revenue helps you retain and grow with your customers, then it’s absolutely worth it, right? If you are able to do that one additional integration that will help you win the deal, that’ll help you retain a customer for a longer time, it’s absolutely worth it. Go for it.
The expansion revenue earned from that customer is of very high quality because the cost of the revenue for the delta that you are getting is almost nothing. So for me, the thumb rule is not necessarily based on the size of the deal as such, but rather the lifetime value and the potential for expansion should be the major drivers for how you make that decision.
Harry Stebbings: Do you think that services component and that willingness to engage in services should be maybe a core tenet from the beginning? Or is it something that you introduce two or three years in when you have sales teams built out, customer success teams built out, and you integrate it over time?
Krish Subramanian: Very good question. I think your founder’s time is extremely precious. Initially, only offer solutions through support would be my advice. Don’t try to do this yourself. Early on, we used to actually have a list of agencies. Every customer who was integrating with us, we would ask them how they are doing that. And if we identify some very good integration partners that they are using that they vouch for, we used to keep a list of them and then refer them to our customers if they would like to use them.
But from our time, we would value that very highly where we will only do customer support as a full solution to tell them how to do it, but we wouldn’t do it. We would rather refer others to make money but offer the full solution. I think you are spot on about that recommendation, which is once you start hiring people where you are able to expand your time by hiring more people, I think that is a time to do services yourself. But to be honest, at Chargebee, we still don’t make any services revenue, but what we try to do is have a list of agencies through which we do it and allow them to make money.
Harry Stebbings: Absolutely. No, I completely agree with you in terms of kind of leveraging the team’s time there, but we did speak about the margin. It makes me immediately think to price, and we’ve chatted before about price, and I loved it because often today, transparency in pricing is kind of touted as this holy grail. But you said to me before that it’s maybe overrated. Can I ask, Krish, what makes you think that it’s maybe overrated? What leads the thinking here?
Krish Subramanian: This comes from someone that we still have listed by the transparent pricing on our website. Your premiums have changed over a period of time, but at full disclosure, I think we still will continue to have transparent pricing on our website. But here is my understanding, right? From our vantage point, we look at so many SaaS companies that use us, and for me, I think for an outbound-driven funnel, you really do not have to have the price listed, is one. Even for an inbound marketing sales funnel, I think it is important to earn the customer’s trust when they are visiting your website to help them understand and navigate, to help them know if you are a $3,000 per annum product or a $30,000 per annum product depending on the scale.
But if they are not able to make their mind, then their only option is to talk to someone before they are able to even find out who you are and who do you sell to. I think if you are able to get that information across to the customer or a prospect without having to reveal that pricing, you’ll definitely have a huge advantage.
The reason I say this is pricing acts as a filter of who signs up with you, who engages with you, and what they are really looking for is guidance to know if this product is the right one for me, right? Am I dealing with a marketer at $2,000 per month or am I looking at, let’s say, another automation tool at $200 per month? Now what we look for is transparency with all our transactions and if you are in the product model category, if your product category and segment [inaudible 00:16:18], maybe offer the sandbox environment for them to pay around with. Identify how much of a product qualifier they have there and also have your inside sales team to engage with them better. I think it can turn out to be a huge advantage in your favor.
But I definitely think SaaS companies should try something through the early stage. One is experiment with pricing through the early stages, including having pricing on the website and not having pricing on their website. Rather, only put the pricing bundles and indication to test the quality of leads. You have a range of products to be able to qualify every single lead. Even when you don’t have a product to sell, have a firm collect the leads, test who’s signing up, right? And who signs up is a function of what you say on the website and what pricing you have on the website.
If you make it too cheap, you get your value metric wrong. You may alienate the segment of customers who are price-sensitive. If your price is too high, you may ignore the right ones that you want. So I think what is more important is a culture or a mindset for a company of testing of your pricing, and when you do that, always grandfather pricing and honor the existing price for customers is a definite rule that you need to follow. But more importantly, test your lead funnel with another pricing on your website. You may surprise yourself with the results.
Harry Stebbings: Can I ask what is the right time to test for? Obviously, you don’t want to engage in something that’s maybe damaging for the long-term, but you also want to get enough data to really determine whether something is right or not. Is it 24 hours? Is it seven days? Is it a month? How do you think about the right time to test for?
Krish Subramanian: I think actually, every few months is something that I would highly recommend because pricing changes or any change in something related to pricing is very, very hard. I would definitely recommend at least once a year or once in one and a half years is a division that you should think about because you’re continuously adding value to your capability. Of course, grandfather your existing prices for customers forever, but for new customers, you should definitely test prices.
But when it comes to pricing experimentation, I think if you are thinking about freemium, because a lot of companies think about freemium, I would definitely highly recommend that you try this in the very early days because once you scale with the after-product market, it gets increasingly harder to make changes to pricing because of the inertia and the internal business [inaudible 00:18:18]. Imagine you having to introduce freemium and you also need to tell your salespeople that they may not earn the commission or variable pay because you introduced freemium, right? It’s a very hard journey to actually make that sales decision, and these conversations get harder later.
So my recommendation is all the experiments with respect to freemium, try them early on, but if you really want to know how frequently you should test pricing, go to web.archive.org and look at Shopify’s pricing page since 2012. You’ll be amazed by the number of experiments they run on a daily basis, all the small, small things from copy to everything else. So when we say test pricing, it’s not just pricing alone. It’s also the value metric that you can change without really having to change your price. It forces your customer to actually … but your prospects are likely to choose another plan or another plan X or Y because you changed your particular value metric.
So I think it’s mostly everyday thing.
Harry Stebbings: I absolutely love that on the testing of Shopify. I haven’t seen that, so I absolutely will go check that out straight afterwards. You mentioned freemium, that being obviously a big topic for founders in terms of considering pricing. Another element that I often get asked is, “There’s a lot of similar products in the market, Harry. Shall we just copy the pricing?” I’m interested, Krish. How do you think about reinventing the wheel and trying to be innovative on pricing versus copying what maybe works in the market already?
Krish Subramanian: Great question. I think this is definitely something that everybody struggles with in the early days, right? The question, I think, is yes, you can copy pricing, but can you also copy the acquisition funnel? Because fundamentally, pricing fit is a function of your lead quality or your ability to acquire leads and service profitably.
Let’s say you do all the outgoing emails and phone calls to acquire leads, paying $100,000 on target earnings. How many deals do you need to sell at $100 per month for the salespeople to earn their 100% value? I think that requires much more thoughtfulness than copying pricing because it is easy to get started by just copying the price, but I think what needs to be done is thoroughly study all aspects. When you look at copying the price, also look at how they acquire customers. Study every aspect of how they are servicing customers and everything, right?
For a sales service product, somebody can sell a product at $100 and they may be getting all inbound leads, and if you try to copy the price with a broken model where if you have acquire everybody outbound, then nobody can help you, right? So I think it’s important to study all aspects and not just something in isolation.
Harry Stebbings: Absolutely. Now in the UK, we would say you are up shit creek in that situation. But I do want to ask one final question on pricing, Krish, and it’s another one that I get a lot, and it’s about kind of usage-based pricing. And how do you think about maybe installing and kind of putting to what usage-based pricing without disincentivizing users to fundamentally use the product. Is there a solution to this thought?
Krish Subramanian: What you’re trying to find is essentially a way to align with your customers. I think one lever that you definitely have is product bundling. It’s a very interesting way to reframe the problem on the customer side. There are a couple of things, right? One is who is making the choice of the product. At the formal decision standpoint, the perception of your pricing matters with respect to being able to make a simple choice to say, “Yes, let me try this product.” And actual buying really happens later, after they get to experience your product and they’re able to go through the motions of understanding the value of your product. So we really need to look at these two separately.
So the product bundling is a very interesting way where by having a very good way to bundle your features and based on the size of your customers are [inaudible 00:21:47] and the usage pattern, you could come up with some very interesting ways. For example, let’s say you want to charge by user storage capacity as a value metric. You could bundle and allocate a certain number of users and storage capacity that works for 99% of the customers at that stage.
Also, you can try to align with customer’s growth in sort of usage. Let me give you a bad example. A bad example would be trying to charge for number of integrations or number of data points that you consume instead of number of accounts managed for a customer success product. And you clearly know that the customers get more value out of your product when they have more integrations and more data coming in. If you try to charge for integrations or number of APA calls in order, I think that would be a very bad way to align it.
So I think price bundles and grouping of features will definitely be a very interesting way to work around this sort of problem.
Harry Stebbings: Now on pricing, Krish, and the final question before we move into the quick fire, I heard that your first kind of dollar win and significant dollar win was an unusual one. So tell me. What was the unusual nature of this and were there any lessons from this?
Krish Subramanian: Sure. The first check that we won was with a competitor that at that time … so this was Spreedly, who had a like-for-like solution then, and we had a prospect inquiry, and we were still building to where we had our product in alpha or something like that, and I felt that Spreedly might be a better fit after hearing all the requirements. And I come from a very customer-service world, and then I told the prospect to check out Spreedly and then the prospect also spoke to them, and then they also happened to mention how they found it.
And very interestingly, what Spreedly felt was that even they had some gaps and felt that if we actually put our products together, we could be a much better value proposition for the customer. And Justin Benson, who was the CEO of Spreedly, who is the CEO of Spreedly, he spoke to me asking if we want to go together to the customer, which was very interesting. And the reason why Justin and I got talking was that I always used to actually write congratulatory notes to competitors because who better, then, to actually cheer for than somebody who’s already solving the same problems for the very same reasons just like you, right? That’s how I look at competitors.
So I think that helps to open up channels for communication, and this opened up the first big opportunity for us where this was metrics for India that one of the largest groups in India was trying to build. And that became the first check that led to another four-digit check with dollar [inaudible 00:24:07] that we were able to get, splitting the check with a competitor. And it turned out that Spreedly pivoted later and we became one of the customers for Spreedly as well, so.
Harry Stebbings: Yes, I absolutely love that story of writing letters, and I think it’s a testament to you as a character. But I do want to move into my favorite of any interview, Krish, I have to admit, being what we call the 60-second SaaStr. So I say a short statement and then you give me your immediate thoughts. Does that sound good?
Krish Subramanian: Sure.
Harry Stebbings: The challenges of building a global business out of India. That was from Lee at Tiger.
Krish Subramanian: The playbook of what works for your product or category. Talent comes to mind. I think capital is everywhere. Definitely a unique playbook and talent is hard. Those are the two major challenges.
Harry Stebbings: Tell me a moment in your life, Krish, that’s maybe served as an inflection point and changed the way you think.
Krish Subramanian: It was a very personal thing for me. I met with an accident 20 years back with both of my legs crushed, and I recovered alone in the US with friends. My family was still here. My parents were still in India then. And it took seven months for me to start walking all over again, but it definitely made me realize how short life is and also the value of relationships. I think that was a very important moment in my life, to take a look at life with fresh perspectives.
Harry Stebbings: Absolutely. What do you believe, Krish, that most around you disbelieve?
Krish Subramanian: That I used to be very arrogant. Or maybe not, right? Maybe they still feel that I am. Yeah, I feel until I was around 25, 26, before the accident, I used to be extremely arrogant, too proud of my skills that I bring to the table and all that. I think that had really just gone to my head then. I think life turned around.
Harry Stebbings: And then the final one: what do you know now that you wish you’d known at the beginning of your time with Chargebee?
Krish Subramanian: Yeah, I think one thing I definitely learned to use that I wish I had learned much earlier was the alignment of the entire team with respect to the goals, right, within the constraints that you have. How to bring that alignment was something that I wish I had learned much earlier. I think it was personally a hard journey going through it, as I found out, to actually get that.
Harry Stebbings: Absolutely. No, it is indeed. But Krish, listen, I’m obviously a huge fan of the product, so thank you so much for joining me on the show today, and it really has been such a pleasure.
Krish Subramanian: Thank you so much for having me. It was great chatting with you. Thank you.
Harry Stebbings: I mean, what can I say? Such a huge fan of Krish’s, and I want to say a huge thank you to him for giving up the time today to be on the show. And if you’d like to see more from him, you can find him on Twitter at CBKrish. Likewise, a huge hand to Lee at Tiger for the fantastic question suggestions today. I really do so appreciate that.
Harry Stebbings: It’d be fantastic to see you behind the scenes here at SaaStr on Instagram at hstebbing1996 with two Bs.
As always, I really can’t thank you enough for your support for this show. It means so much to me, and I cannot wait to bring you an exceptional episode next week.
