Business Breakdowns
· Matt Reustle
[00:00:00] S0: This is Matt Reustle, and today we are breaking down the work management software platform Monday.com. In August 2011, Marc Andreessen penned his famous essay 'Software is Eating the World,' and if there was a poster child from this era, Monday.com certainly deserves consideration from the committee. It was founded just six months later in February 2012, and today has a market cap of over $14 billion. I was joined by Ben Hensman, Portfolio Manager of Square Peg's listed Equity Strategy, a global tech fund, to break down Monday and how they emerged as a winner amidst plenty of competition. I walked away from this one with a true appreciation for platform flexibility and why Monday has said it's like having a bunch of LEGO bricks you can assemble at will to build exactly what you want. So please enjoy this breakdown of Monday.com. Ben, I am excited to have you here to breakdown Monday.com. It is in the world of software. It is an area that has very much been the market theme for many years now, but not a sector that we cover a ton. We're not over-indexed to it. So maybe we could just start out painting a broad picture of what Monday.com is, what they do, just some general sense of the business itself?
· Ben Hensman, Matt Reustle
[00:00:00] S1: Sure, and thank you for having me. Monday is a work management platform. It's been thought of in the past as a simple platform to run tasks, but it's much more than that. It helps teams and organizations of all sizes plan, track and run workflows of any kind. So they've expanded from running task management, running project management into functional verticals like CRM, service management, software development tools. And customers can easily tailor workflows to the way they work within these products and between teams, really maximizing efficiency. It's interesting to think about where Monday touches in terms of different markets. The flexibility of the platform means that they can serve an incredible number of use cases and solve problems across different teams in any organization. And that starting work management product is such a large market, partly because it touches labor budgets and how people work and the efficiency with which they work. And so there's a lot of areas we can go into, but it's a very, very large market opportunity across any business size. [00:00:00] S0: Yeah, I was impressed. Rather than being very niche in one particular segment of the market, it does seem like they've been able to just expand and have touch points in so many different workflows at this point. Before we really talk about what's going on today, we can go back to the beginning, the origin story of Monday.com, some dynamics around who founded it and why they founded it, and just those early days would be useful.
· Ben Hensman
[00:00:00] S1: Yeah, sure. So in 2012, Roy Mann and Eran Zinman, the current co-CEOs, founded the business and they launched what was called daPulse back in 2014. And the name daPulse came from the desire to keep your finger on the pulse within the business. And it was originally spun out of Wix.com. Roy and Eran, they built a prototype of that original product to use within Wix. It was a really popular tool, but they spun it out and built it out into a much broader platform. And Eran, at the time, he'd had his own previous startup as well, learned a lot from the failure of that startup, and he's talked about that a lot publicly, and they built Monday together. It was an incredible story of growth once they built that original product, that broad original product. If you look at where they were in their first year of 2014, they finished with $400,000 of ARR. By the end of 2016, that had come up to about $6.5 million of ARR. And then over the next three years, they grew 10 times, and then after that they grew another 12 times in five years to reach over a billion dollars of ARR, where they are today. And the product had incredible cut-through in those early years. And that hasn't really changed all the way through, despite it being a very competitive market. And if we look at what made them special, the original ethos of the product was for it to be as flexible as possible. Customers were using different software products, but in very specific ways. The way they were built was the way you had to use them. And their view was that was limiting the way that teams could work together. It limited not just their productivity, but their capability and the things that they could do within their teams. So they wanted to build a platform that was really flexible and based on primitives, so building blocks. Think of Monday as LEGO blocks of software that you can construct and work in any way that you want to. And those early years were also really informative in terms of how they built the team, how they built the financial profile of the business. In Eran's case, his business, while it didn't succeed, there were some really rich learnings that came out of it. One of them was moving really, really quickly and getting products into the hands of customers and getting feedback really quickly.
· Ben Hensman
So he talks a lot about the lack of speed and iteration and impact that they were having with that first startup. He talks about excessive overthinking, a tendency to strive for perfection in product development. And that has really flipped in Monday.com where they learn really, really quickly about what their customers need and build according to that need and get it into their hands quickly. Roy, in his time at Wix.com, learned many lessons. There were two practices that come up a lot from that time. The first was not offering free trials to customers very early on, which is sort of counterintuitive when you look across the software space products. They typically give customers a lot of flexibility in how they use the product, but that also allows them to not commit or churn really quickly after trying something and perhaps not seeing any immediate value. Wix and Monday thereafter really tried and incentivized themselves to show customer value and show that ROI really early on. And one of the tactics to do that was not offering free trials. The other thing that they did was, in driving willingness to pay and really testing that, was accompanying that with a bias to upfront billing of the customer and incentivizing that. And that showed when customers were really using the product for a core workflow, that meant that they were making that commitment upfront. It was also helping to build the company in a really cash-efficient way rather than rely solely on external capital. And so you see that today in Monday. You see the way that they have built out this organization. Speed and efficiency really matter. And the other thing that they've learned through that time is that transparency and trust are absolutely critical. If we start with speed and efficiency, new product ideas and launches are core to any software business. But what you often see is 20, 30, 50 developers getting thrown at new products in other businesses. If you look at Monday's CRM product, which was built on the core primitives of the platform, that was built with just a team of four engineers. That product now has over 27,000 customers and is growing accounts at over 100% year on year. So they really push developers to think about what can be achieved in short time periods rather than how long an entire product build might take and maximize feedback and improvement.
· Ben Hensman
That all came from those early days. And then on billing and efficiency, you can see the output of this across the venture capital years of Monday's journey and its IPO. They raised around $800 million in capital. And the vast majority of that was never burned. It's still sitting on the balance sheet. They now have about 1.4 billion cash with no debt on the balance sheet. And that second point was that transparency and trust are critical, not just with each other. Roy and Eran have always worked unbelievably well with each other and with their leadership team. But they have a certain leanness and efficiency to the way that they run their business. And you can only get there through trust and really empowering people. And for them, what that means is a really high-performance culture, but also high care where they're giving people the chance through transparency. And so this was even more radical before they went public, where everybody in the business could see what was going on. Every number was available. They would often share a lot of that publicly. And practically when you go into the offices of Monday, you can see this. Every team in the business has their own KPI screen. They know what metrics matter to them and they also see what metrics matter to other teams. And so they can always pass comment and get involved and help each other out. Everyone can own the success of the business. And we're seeing that transparency and trust really scale to an amazing level. With a team size of two and a half thousand people today versus hundreds in the very early days.
· Matt Reustle
[00:00:00] S0: Yeah. I have to say I'm embarrassed to note I did not appreciate that it came out of Wix. I noticed that the Wix founder is a very large shareholder and it would be obvious to connect the dots there on that point. Was that a major opportunity for cross-selling? Was there an ability, because Wix is obviously this outward-facing customer platform essentially, build a storefront out of a box with a website, which I think was very innovative in a lot of ways. I think it helped a lot of small and medium-sized businesses. Was Monday.com able to tap into, whether it was the customer base or anything with cross-selling in those very early days to get that start off the ground with customers?