When to Go Multi-Product in SaaS

So a top theme across SaaStr CEO interviews since 2017 or so, and across our 5 Interesting Learnings series with public SaaS companies, is … when should you go multi-product?

I’m going to summarize a bunch of my learnings into 2 rough metrics, and then let’s do a deep dive across a bunch of SaaS leaders to see what we can learn.  Roughly:

  • By $100m ARR, you probably have to be multi-product to scale at top-tier rates
  • By 10,000 customers, you probably have to be multi-product to scale at top-tier rates; and
  • All things being equal, the larger the deal size, the more enterprise you are, the longer you can wait — up to a point

Now these aren’t fixed rules by any stretch.  Just … something to consider.  It’s what I’ve found in particular across my 30+ venture investments.  As you approach 10,000 customers, you start to need to sell them a second product to keep the engine going.  And by $100m ARR, most SaaS companies start relying too much on account expansion.  Their new customer count often doesn’t keep up with the ARR growth.  A new product is often the answer.

#1.  Spenser Skates, CEO of Amplitude, at $200m+ ARR and recently IPO’d, dedicated a lot of his recent SaaStr talk to this very topic.

His learnings:

  • You need a second product by $100m ARR (our learning) if you have a mid-sized ARR offering
  • It’s tempting to attack a different buyer and ICP, but that was too hard for them.  That failed initially for them.
  • But, selling an additional product to their existing, happiest customers worked well.  They accessed more budget from them.

The latter is an important point and distinction.  If your customers love you, they’ll often buy more from you.  Hunting new buyers for a new product can make sense in theory, but in practice, it’s an even larger burden on sales and marketing.  Probably too large a burden.

#2.  Let’s next look at Datadog.  At Q3’18, Datadog now had a material number of customers finally using 2+ Products — 15%.  That rapidly grew thereafter.  But they didn’t get to that 15% until about $160m in ARR:

As you can see above, boy, they really needed to be multi-product thereafter to fuel their ferocious growth.

#3.  Samsara sells to plenty of SMBs and mid-market customers, and they got multi-product early.   Samara launched a new product each of its first 3 years in market, and importantly, by the time it IPO’d, two of its major products each did $200m in ARR.  Each did 40% of its revenue.  So if Samsara hadn’t gone multi-product early, it would have been a fraction of its size:

Fast forward to $500m in ARR, and 89% of Samsara’s 700 $100k+ customers use multiple Samsara apps, and 52% of all customers use multiple Samsara apps.

#4.  Freshworks is another interesting SMB example of going multi-product early.  Freshworks started as Freshdesk but then renamed itself as it expanded its product suite.  Its first major addition was FreshService — which is added as it approached 10,000 customers and about 4 years in business:

So Freshworks was multi-product with SMBs at about 5,000 customers.  Starting early also helped it scale, as Freshservice passed $100m in ARR just 20 months or so after Freshdesk passed $100m ARR.  Both become core contributors to the company at $100m+ ARR and beyond.

Fast forward to $500m in ARR, and while just 18% of their 50,000+ customers purchase 2 or more products — those 18% represent 45% of total ARR.  Another way to see how critical a multi-product strategy often is at scale.

#5. Box is a dramatic case study of going multi-product late.  But it still worked its magic.  Box’s growth slowed dramatically at scale, and really it took going multi-stage to get Box to the next level post-IPO.  You can see multi-product sales didn’t really scale until 2020 — 15+ years after founding:

But it really worked, when done right.  Box now has a 30-50% attach rate with new products, and 125% NRR with multi-product customers (vs 90% with no add-on products).  Box customers pay more, and stay longer, when they buy more than 1 product from Box.   You can see in our deep dive with CEO Aaron Levie at SaaStr Annual here that a top “regret” was not going multi-product earlier:

It just plain worked at Box, and has fueled their renaissance.

Summary:  So it’s a question of when, not if, you’ll go multi-product for almost all of us.  The lessons above are if you can sequence in a new product by Year 5 that’s material, that can be the fuel for future growth.  At least, you’ve got to have a strategy here well before Customer 10,000, or $100m ARR.  Probably by the time you are halfway there.

And two more case studies of going multi-product with Twilio and Veeva here:

When Should You Add a Second Product?

 

Published on May 4, 2022

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