As an investor, some investment journeys are a delight to watch – Whatfix has been one of them. They have just concluded their Series B round, where Whatfix welcomed three exceptional new investors – Eight Road Ventures, f-Prime (a Boston based firm) and Cisco. Stellaris not only participated, but also doubled up to buy a few more seats aboard the Whatfix rocket.
In a nutshell – we are even more bullish on the category as well as the team compared to when we invested in Series A. We believe that Whatfix is a very large SaaS company in the making from India. Here is what made it a no-brainer for us:
- 9x growth in ARR between the money-in for the two rounds
- 10x growth in net ARR added quarterly
- ACV growth of 5x in this period
- ACV / CAC (fully loaded) = 4
- 5x increase in sales productivity
- Capital Output Ratio [ARR/ Total Capital Used] = 2.2
But no matter how smooth any ride looks from the outside, building a company is a hard path, with something new to learn at every stage. Whatfix was no different. I am taking the liberty (with permission from Khadim and Vara) to share their key learnings.
#1: Hard to replace founders when it comes to core innovation
Whatfix provides enterprises the capability to create click-by-click walkthroughs to address “how do I do this?” kind of questions for enterprise software. In the Seed to Series A journey, I always used to worry whether the product was “too light”, and had a certain level of paranoia about this becoming a feature in existing enterprise software platforms, thus eliminating large parts of the market. Whatfix constantly made incremental changes with inputs from its core customers and partners; while those change were very adequate to address short-term needs, they were often not as substantial as one would have liked from a long-term perspective.
At one point, one of the founders (Vara) decided to extricate himself out of the day to day engineering execution, and instead focus on what he called “research”. While I found the idea absurd at first, the benefits of his call are obvious in hindsight. He brought about some fundamental changes in the product which we believe will be category defining. As just one example, they added RPA (Robotic Process Automation) capabilities where the software can auto-execute many steps today as opposed to just guiding the user on how to do it.
Three lessons came out of it:
- No matter how good the sales numbers look, we will hit a wall if we do not focus on getting the product leadership right.
- While there will be phases of incremental product changes, you need a complete rethink of the product every once in a while.
- Complete rethinking of the product – and, therefore, the customer value proposition – is a founder level skill, and something that cannot be delegated, at least not at this stage of the company
#2: Sales is important, but pipeline even more so
There is a saying in large enterprise sales that what happens in current quarter was determined 2 quarters back. Why? Because that is when you built the pipe. If you didn’t have the pipe today, you can have the best sales execution, but will not be able to do much.
As a board, we were diligently tracking sales numbers, but did not have a similar level of discipline on tracking the pipeline. Somewhere post Series A, we decided to make that a religion, tracking not just the overall pipe, but also the sources, the associated CACs and eventually also the conversions. If measured correctly, Pipeline, in my opinion, is the best measure of future health.
Why does this discipline matter? One begins to figure out what is working and what is not working when it comes to demand generation. For example, at one point the team realized that investments in inbound demand generation were not scaling and we needed to increase our efforts for outbound demand generation.
#3: As ACV rises, you are building a different company
Whatfix initially started as a low ACV company with inbound marketing and remote sales. At some point, we realized that it will be very hard to build the company with such an ACV. There was higher churn given that these were smaller customers, they needed more help in deployment, and pipeline was hard to scale through inbound channels as there was no defined category for what Whatfix did.
As we started to focus on higher ACVs, initial gains were easy – we raised prices, started going after slightly larger customers, but that plateaued at some point. It was clear that what got us here, will not get us there.
The critical levers for Whatfix in increasing its ACVs by 5x turned out to be four-fold:
- Partners who took Whatfix to market at much higher ACVs than Whatfix could. In particular, we found that the best partners were not the largest SIs, but small/ mid-sized SIs and ISVs who found a lot of value in the Whatfix product and had the reach to larger sized customers. I have been very skeptical of using partners at such an early stage of the business, but have been forced to change my mind.
- In-house outbound demand generation. Whatfix tried to outsource outbound demand generation to multiple vendors, eventually realizing that no one was able to do what they needed. Outsourcing works when there is a recipe, and creating that recipe takes time and requires advice from people who have traversed this journey in the past. Whatfix also realized that India does not have the right quality of advisors who have done outbound lead generation and eventually worked with an advisor in Silicon Valley to build this function internally with very strong results.
- Sales team in US. As ACVs increase, one has to build an on-shore sales force. As you peel the onion, you realize that the toughest part of doing this is finding the leader(s). I have been through multiple examples of where this did not work out. In Whatfix case, Vara moved to the US, and Vispi Daver, one of the earliest angels in Whatfix and a board member, joined them full time as global head of Sales. Clearly Whatfix was very fortunate, and therefore this is not a playbook for all SaaS companies from India, but getting this right can be a make or break for the company.
- Focus shift from hunting to farming. Series A to B was also the period where the focus shifted from new logo acquisition to some serious account management. Any large enterprise uses 10s if not 100s of large software packages. Entering the account through one should ideally lead one to many other opportunities. Whatfix realized that the art of account management is very different to new customer acquisition. While we have taken long strides here, we do believe there is still a lot more that can be harvested.
#4: Creating a focus in GTM is important
Even though Whatfix grew very rapidly through this period, the GTM had too many permutations and combinations along the following dimensions:
- Packaged enterprise software and custom, in-house software
- Low ACV customers (inbound) and Large ACV customers (outbound)
- Remote sales from India, and feet on street (FoS) sales in US
- Direct sales and partner led sales
During the Series B fund raise, many seasoned SaaS investors gave pretty harsh feedback that Whatfix should have made some choices already. While some choices were already made and implementations underway, e.g. low ACV accounts were being phased out, which meant that we were going more outbound and there is a higher FoS orientation, but expectation of many investors was that by the time you reach Series B, some of these choices should already be in place. Essentially, the engine is already tuned and humming, all you need is to add more fuel to scale.
In hindsight, could we have begun the journey of eliminating certain GTM paths a tad earlier? I think yes.
#5: Cash is king, but lesser cash could make you a bigger king
Whatfix is as cash efficient a company as it gets. ARR output/ cash burnt ratio of Whatfix is 2.2, which in my opinion is off the charts for this stage. Most companies at this stage would have burnt $1 for every $0.5 in ARR, and Whatfix is just the reverse. They actually had quarters where they generated cash – I know it is hard to believe!
On one hand, that is great for the company (and for me as an investor) as it gave them a longer runway, enabled them to get to a higher run rate with the cash they had and therefore raise a good Series B. There is, however, a flip side to it as well – could they have expanded product capabilities earlier and expanded sales & marketing more aggressively to get to where they are faster? Again, I think Whatfix could have.
In closing, I want to emphasize that the Whatfix journey has been a dream run. I have not seen too many examples of such consistent execution quarter after quarter, year after year. It has been an immense opportunity for me to learn from the sidelines. Many of these learnings might see parallels in other SaaS start-ups from India, though each one at some level is unique and needs to find its own answers for its own problems. Am always looking to learn from other founders and investors, and would love to hear their thoughts and comments!