Business Breakdowns
· Ben Hensman
[00:00:00] S1: If we think about the major successes in software that have surpassed $10 billion of revenue, extraordinary companies like ServiceNow or Salesforce, they have three things in common among many others. But they have three things in common. The first is they're able to deliver multiple levers of growth that can work together over time through solving many problems across a range of areas of overhead and labor within their customers. The second is that they can continuously evolve and scale multiple go-to-market pathways to enable business from new customers to scale. But also they generate the majority of their growth from existing customers. And I'm going to talk to that. The third point is that they execute that with financial discipline and efficiency to create enormous value for the business. And interestingly, a lot of these businesses that have reached that scale, and there are only a few, they were led by the passion drive and vision of founders. We think Monday has all of these attributes. But looking specifically at multiple levers of growth and tying that to the go-to-market pathways, something that we've seen these successes do consistently is really evolve product and evolve, go to market in a pace that makes sense. And Monday has achieved that. If you look at their levers I mentioned, they can expand across seats and teams within organizations, they can expand in usage tiers, they can expand across products, they can use pricing as a leverage, and they're moving consistently across geographies with customers and into new customers. These levers all have really significant longevity. If you look at the typical pathway into a large customer, it often starts with a very small deployment and that moves through use cases, becomes more and more important over time to become a large account. And we've seen incredible cohort behavior akin to the kind of cohort behavior we've seen in the early years from companies like ServiceNow where you're seeing 3, 4, 5 year type expansions of very, very large 40 or 50% increases per annum in spend. And that's happening across teams. It's also happening with the tiers and increasingly it's starting to happen with product cross-sell.
· Ben Hensman
If you look at the two key products that have been launched, there have been some really interesting statistics that have come out that indicate we're starting to see the same sort of behavior that we did in the early days of a Salesforce or a ServiceNow, although those businesses were really focused on the enterprise. If you look at Monday service in its early days, it's still very early, but 80% of the deals they've done to date were multi-product deals. So not just selling work management or the core platform, but actually selling multiple products on top of that platform. 90% of the ARR to date has come through the patent channel or through direct sales. So these are large accounts, large enterprises as well as mid-market and small businesses that are looking to third-party partners to help them build out the use cases, expand their capabilities and also conduct services with them. 60% of the deals were cross-sell from existing Monday accounts. So this has been a really important feature and we think has real longevity. And we're very, very early, particularly with large accounts. And so across those five levers of Growth, we think there's real longevity. If you then look at the go-to-market side of the equation, they've gone from having a single approach to go-to-market very focused on the SMB and self-serve, driven by performance, marketing and product-led growth. They've moved that to having not just an inbound approach to growth, but moving through the partner channel and really scaling that partner channel, incentivizing the partner channel to go really, really deep, celebrate the wins amongst their partners and give them the data to be competitive with each other in the same way they do internally. They have an incredible amount of trust with their partners, they feed them leads on a regular basis, they train them really closely and they incentivize them to build a services business around Monday, like we've seen with businesses like ServiceNow, like Salesforce and Atlassian. And this is something that they've done with incredible discipline and innovation as well in terms of incentive models and really helping to build that out. And that is scaling incredibly well. As I mentioned, that's gone from about 12% to of new ARR in 2019 to about 20% of new ARR in 2024.
· Ben Hensman, Matt Reustle
They've also built out a solution-based approach to expansion that's now evolved into a top-down sales motion as well. And those things together are scaling very, very well. The other element to their ecosystem which has turned them into a broader platform. In addition to partners and the services that they bring, they've also built a development ecosystem around them where developers are bringing apps onto the platform, many of which are built by the partners themselves. And the vast majority of those are being monetized by partners. And this is allowing the platform to solve long-tail use cases, move into niches and verticals. Given it is such a horizontal and flexible platform, these partners and developers can really work around Monday and use it to access those markets and use Monday's distribution to get into all of these different parts of the market. And so we think that together all of those things across the different areas of product and pricing and expansion within the business, as well as the different go-to-market motions to go with it, can enable Monday to grow at really high rates over time. [00:00:00] S0: One of the things you've referenced a few times is the partner program. Can you give a tangible example of what the sale via a partner would look like? If you have examples of businesses or a description of a business and the ultimate buyer, that will be helpful as well?
· Ben Hensman
[00:00:00] S1: Absolutely. So there are two types of partners. Typically small business partners will be very focused on Monday.com as their primary service offering and they will have a set of sales motions or specific problems that they go out and solve for customers that they've often built themselves on Monday and they take that out to customers. Then there's a resell model as well. And then if you go up the scale, we also see Monday partnering with large consultants and platinum large scale partners that are very focused on not just Monday, but other software providers as well and are going to customers themselves or taking leads from Monday to go into the customer, explore the problem that they have. So it's less about selling a specific product through the partner and it's about exploring that solution, what does the customer need and building a solution around Monday with that. One of the things that we really liked early on about the partner channel and felt that it could really scale materially was an analogy that we've seen in the accounting industry. As the accounting industry moved into the cloud, one of the things that bookkeepers and other folks who use the other side of Xero and QuickBooks benefited enormously from the automation that came from that. So that actually improved their margins significantly because they didn't need to adjust their prices typically. And what we're seeing is a very similar dynamic with partners where they can provide enormous value to their customers, but they're doing so in a way that doesn't require code, doesn't require significant resources from them to build, and it can be reused. And so there's a real incentive for them to build product on platforms like Monday.com and they can see when they come in the initial build, but then they'll often sit down with customers and work out over the next couple of years, what are the things that we want to step through, what do we want to build? And we've seen that pattern consistently emerge across the partner channel.
· Matt Reustle
[00:00:00] S0: Yeah, it's very interesting how these ecosystems or open architecture in some ways where there's different use cases that can extend into new hubs, essentially that these partners become with a bunch of spokes that are customers as well. I always find it interesting, particularly in the software world. It seems to be incredibly popular and a delicate balance to manage all of that. I think you've painted the picture in terms of the outlook from a revenue perspective and some of the key things that are happening right now. If we go back over time, you mentioned net dollar retention being an incredibly important metric within software. There's been some periods where we've seen ups and downs. It seems like it's very much back on the upswing right now. Can you just talk through some of the periods of time that were noticeable or stood out and what was taken away from any volatility that's existed in that metric?
· Ben Hensman
[00:00:00] S1: Yeah, sure. I mentioned in the very early days what the net retention looked like over three, four years. In those early cohorts they were about 100%. If you wind the clock forward to 2019, this time scale we've been using, net dollar retention in 2019 was 100%. But if you look within the disclosure, net dollar retention for accounts with 10 seats or more was 116%. So really healthy behavior from larger customers, even as small as 10 seats compared to the small end or individuals using the product, which naturally are going to have a much higher rate of churn and also a lower rate of expansion. If you fast forward to today, the Overall business net dollar retention is 112% and those larger customers, both 10 seats or more, $50,000 or more and $100,000 or more are sitting around 115%. And that's been consistent for the last two years with $100,000 accounts actually a little bit higher at 116%. But to your question, there was a period of between the start of COVID and the start of 2023 where that net dollar retention ratio went up incredibly quickly. And that reflects both the incredible growth during 2020 of new customers looking for solutions in this space, but also their initial foray into upmarket and larger organizations and just incredible expansion. If you look at 2021, the NDR for $50,000 customers or more reached 150% for the full year, an incredible level. And we saw similar activity across the software space during that period where the best businesses in software were delivering net dollar retention ratios at those sorts of levels. Snowflake, Datadog, others were incredibly high. And in retrospect, that kind of expansion in a short space of time was very much pulling forward and wasn't a sustainable level of expansion. But in Monday's case, while that wasn't a level that they could maintain permanently, it did reflect that initial surge into the upmarket and the incredible success they had as they started to move into larger organizations. Best in class post-Covid. Kind of a more normalized world, even though I guess for the last several years there hasn't been the same level of demand in software markets as we've seen in the past, and particularly during COVID.