The Co-founder & CEO of high-flying search startup Algolia shares the key metrics he looks at to make sure his company is on the right growth curve. We explain the specific importance of ARR, net new ARR, churn, NPS, capital efficiency. Plus: the importance of experiments & failures to grow even faster.
Tim Anglade, Executive in Residence at Scale Venture Partners: For people who don’t know Algolia, like, what do you guys do?
Nicolas Dessaigne, Co-Founder & CEO of Algolia: Sure, so we are a hosted search engine. So, we will help websites, mobile apps like Twitch, Medium, Periscope, deliver a great search experience. So let’s say, you know, Google educated all of us, you, me, to expect such a great experience when you are searching, super fast, relevant. But when you are developer in your own web app, people expect that from you, but how to do that? I mean, super complex, it’s very difficult. So, that’s where we can help them become successful, become the new heroes there, so that they can deliver on that promise.
Tim: Right, and so, it’s like for anybody who has a website, like an ecommerce site, an application, and they wanna have that search box, and they’ll do a search, they just do it well, oh yeah, and they get to keep the data, and all that, right? And they get to control all that?
Nicolas: We’re really an API, so the data belongs to our customers. We’re not holding anything, it’s really an API. Whereas I will push the data, and just tend the queries.
Tim: Makes sense. And so you guys have been growing like crazy, right? And so what data points can you give us? You know, it seems like you’re everywhere, and I see you in more and more places on more and more websites and apps, but what does that look like from the inside?
Nicolas: Yes, sure. So you know, we are like a bit more than four years old, we actually launched the product in September ‘13, and since they we have grown to more than 2,300 customers in 100 countries. We are serving 20 billion queries every month today. So yeah, so we’ve been super successful in these months, so that was cool.
Tim: And on a very small staff too, right?
Nicolas: Yeah, we are reaching 85 people now, so we are pretty efficient, I would say, compared to like the market. So yeah, we are already doubled from last year, 78.
Tim: Yeah, so that’s kinda crazy, so how do you track growth? I mean, of course, everybody looks at ARR, and wants ARR to grow, but what deeper metrics do you use to know whether or not you’re growing well, or you’re growing as fast as you could be growing?
Nicolas: So ARR, still, of course. More precisely, I would say new ARR is more important, actually, when doing just ARR. It’s just the delta that’s important here, because you want that delta to grow too, so that you get that exponential curve. And so what we would track very closely is that new business that we can add up every month, every quarter. And then you get like the traditional suspects, like the churn, like all about retention of sales, of course, when you have this negative churn, it’s a super good position to be, because, well, it stacks, it compounds, and helps you to get successful, even if you cannot loan that many new deals.
Tim: Right. And you know, you mentioned earlier that you also look at stuff like NPS, right, to see how fast you’re growing? And I thought that was such a good reflection of how organic, in some ways, your business is, right? How much kind of the bottom of the funnel almost informs a lot about how you’re gonna grow, and how much your product is gonna spread inside a company, or to other companies, through referrals and everything else. As opposed to trying to attract just completely new business, which I know a lot of startups do. So let’s talk about that a little bit. Like how did your product grow, and why is so much of your growth coming from those bottom of the funnel metrics, as opposed to top of the funnel?
Nicolas: So you know, I would say that was our strength at first, really, the product, the quality of, not only the product like the software, but also the interaction that our customers would have with the team. We really cared about making them successful, and that’s really how we got to get successful at first. And there, NPS is kind of the super good indicator. You want leading indicator, like indicator that’s going to help you predict the future. And NPS is a very good one, we are between 60, 70 NPS today. That means that we have a lot of second-hand revenues, coming from people recommending us, coming back when they change company, and that’s really helpful to grow a community, a user base, that’s going to follow you year after year.
Tim: And that’s also to be very capital-efficient, yeah. It’s also about that capital-efficiency, right? So if you have so much of the referral, and to some extent, the product selling itself, which is never true, but if a lot of that happens, then that explains why you can stay at just 85 people, and still have the success and the reach you have.
Nicolas: But then, you want to increase that growth even more. And at some point, this organic growth is super nice, but how can you go faster? And that’s where you want to experiment with new things. Well, we have very good self-sufficiency, but our company already, so to get it a bit lower, for the sake of new experiments, to grow the legion. So we started to do more outbound, for example, lately, but keeping that only for enterprise strategic accounts. You know, developers, they don’t like outbound, so let’s avoid that, but that could work there. We’re opening new offices. So a lot of new experiments like that, that hopefully will help us to grow the top of the funnel, and that will then increase our revenue.
Tim: So you want to start from that organic base, right, and find more ways to grow faster, right? And I think it’s so important to have that mindset of experimenting, and looking at different things that may or may not work, tracking all the indicators you can, and having that mindset that it’s not just about mistakes and stuff you could improve, but like brand-new things, that you’re not doing, right? And growth that you’re robbing yourself of, by not doing outbound, by not doing expansion.
Nicolas: You don’t know what you don’t know. And yeah, of course you need to keep that agility, too, to be able to explore new things, and you need to be able to fail. But it’s because you are going do 10 experiments, that one of them is going to work so well, you are going to develop that one, and then it’s going to become like the key of your future success.
Tim: Right. That makes a lot of sense. But so what are some of those failures? What are some things that didn’t work, like stuff you were doing and you had to stop, or stuff that maybe you thought was gonna be great, but didn’t end up working so well?
Nicolas: Ah, so many things. I would say like the usual one is always around people. We should have hired faster. That’s always the… I mean, better be safe than sorry. But we could have probably grown faster if we had been more aggressive at building some of the key functions. I was thinking with marketing, for example, it took us a long long time to really staff up our marketing team, which was like a shame, in a sense, that it was a missed opportunity there. But on the other hand, it actually may have had some positive impact. Because we didn’t have any marketing, the nice thing is that everyone had to do marketing. Given our audience, our community, are developers, and we are developers, we could count on our team to explore, to do some hacks, to really do marketing to developers much better. Today, we are going upmarket, much more enterprise customers, and that approach may not work as well. So it’s kind of like finding the right balance, and like more typical marketing is super important for us now.
Tim: Right. Yeah, I think we in startups, we tend to, you know, underestimate the value of experience. We’re like “Oh, we’re doing things very different, “we’re brand-new, we’re changing things.” But, you know, there’s a lot of value in stuff, and a lot of stuff, not all of it, but a lot of it, does work, even if it’s been the same for 10 years, 20 years. And so I think it’s always something you have to be careful of, not cargo-culting, not just doing stuff that’s been done before, but also not neglecting the value of following standard models.
Nicolas: And to learn from your peers. I mean, so many of the people have done that before, it’s never the same. And so you need to be able to adapt to your own situation, because simply copy-pasting what’s worked elsewhere is not going to work, it’s never working. But however, ignoring what’s happened next is always worse. And you were speaking of failures. Actually, failures are even more important here. Because if you do something and nobody else did that before, maybe that was because someone tried and failed.
Tim: You gotta be careful. But it makes sense, right? Like that focus, again, on NPS and lowering the churn, and kind of having that base of organic business, and then that view to kind of experiment, try things that have been tried before, try things that’s never been tried before, but having that framework of measuring whether or not they’re impacting your leaning-in-together growth, I think that’s kind of the gold way, really, to get fast growth in fast. So that makes a ton of sense to me. Thank you so much.
Nicolas: Thank you too. Bye-bye.
The Startup Tapes chronicle the highs & lows of building a startup, through candid, immersive interviews with founders, operators & advisors. Tim Anglade, an Executive-in-Residence at Scale Venture Partners and formerly with Realm, Apigee, and Cloudant leads the project with the goal to de-mystify the process through which startups emerge, grow & succeed. His unfiltered interviews transcribe the conversations we often hear in the boardroom, amongst our portfolio community and with entrepreneurs and partners we engage with every day.
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