5 Interesting Learnings from Freshworks at $560,000,000 in ARR - The Entrepreneurial Way with A.I.

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Wednesday, May 3, 2023

5 Interesting Learnings from Freshworks at $560,000,000 in ARR

#SmallBusiness

So Freshworks in another in our line of “hero companies” in SaaS.  While Freshworks is very much a global SaaS leader, its history as perhaps the first with deep roots in India to IPO in the U.S. makes it one we all root for as a break-out global leader.

It’s now at $560m in ARR, growing 23% on a constant-currency basis, and while that growth has slowed from the go-go pace of the last 2 years, it still beat Wall Street’s estimates for both revenue and adjusted profit!

Freshworks is doing a lot of things right in a challenging time for many “traditional” B2B segments like CRM, Support, etc. — so a great one to learn from!

5 Interesting Learnings:

#1.  NRR Still Impressive at 107% Given Many SMB Customers, Although Down Year-over-Year from 115%.  For those of us who sell to B2B customers small, medium, and larger, it can be super helpful to see what’s happening with a leader like Freshworks.  Their NRR remains relatively strong, but ha taken an 8% hit.  Probably a fair way to model things in 2023 if you are similar to Freshworks.

#2.  First quarter of non-GAAP operating profit.  Freshworks turned “profitable” at least on a non-GAAP basis and hit cash-flow positive in 2022.  Yes, this excludes stock-based comp expenses and more, but is still an important milestone.  Its burn was modest before, but crossing to both cash-flow positive and non-GAAP operating margin positive is an important step.  And a reminder it can take a while in SaaS!

#3.  North America continues to be the strongest geography, albeit only by a small margin.  EMEA is the weakest, and we’ve seen this for other SaaS leaders as well.  While it’s hard in the U.S., it’s harder for many in B2B in Europe.

#4.  20% Revenue Growth from 11% Customer Count Growth.  I always find it helpful to see this math and ratio.  A 2:1 ratio is a pretty healthy ratio as you go upmarket.  Much more than 2:1 means you are often relying too much on your existing base.

#5.  $50k+ Customers are the Fastest Growing Segment.  Another case like Asana and other B2B leaders of slowly going upmarket.  $50k+ customers are their fastest-growing segment, at 33% on a constant currency basis.  With $5k+ customers growing 19%, that means like Squarespace, Zoom and other leaders, they are seeing the slowest growth in the tiniest customers.

What a great story!  And one almost all of us can learn from!

 

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Jason Lemkin, Khareem Sudlow