Why Metrics built our business: Nick Franklin CEO of ChartMogul

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There’s all this talk that the number of seed rounds has dramatically increased over the last few years but the number of A-Rounds being done has stayed pretty flat.  It’s created that crunch at the A-Round where there’s just loads of great SaaS companies doing  a million ARR.  But that’s not good enough anymore because there’s a lot of those, so the A-Round VCs can take their pick from the ones that they see the most potential in.  And a lot of that will come down to metrics for sure.

Nick Franklin is the Founder and CEO of ChartMogul.  Nick was the 9th Employee at Zendesk and whilst working there found a requirement for a business intelligence platform for SaaS and subscription businesses. After leaving Zendesk, Nick productised that vision into ChartMogul and received funding from some of Zendesk’s early backers.

Nick spoke with me on The SaaS Revolution Show podcast, where we talked about the origins of ChartMogul and the metrics that build his business.

You can listen to the full interview below, alternatively, subscribe on iTunes or Stitcher and never miss an episode.

Alex Theuma:

I’m joined today by a CEO of an exciting European SaaS startup that’s providing business intelligence to SaaS and subscription companies worldwide.  My guest is also a member of the mafia, the Zendesk Mafia that is.

Welcome to the show, Nick Franklin, CEO and founder of ChartMogul.

 

Nick Franklin:  Hi.  Thanks a lot for having me, Alex.

 

AT: Nick, can you provide an intro to yourself and to ChartMogul maybe for those that haven’t already come across you guys before?

 

NF:   ChartMogul it’s a business intelligence and analytics software basically, analytics SaaS software, that helps subscription businesses measure and understand their business, get insights out of their data.  And a big portion of those subscription businesses are SaaS businesses.  Most of our early adopter customers are SaaS.

Just to give you a bit of background, you mentioned just now I was a member of the Zendesk Mafia.  That was right before launching ChartMogul.  I was working with Zendesk for many years and that’s kind of where the inspiration for this product came.  We kind of built up internally a dashboard for measuring a lot of these metrics like monthly recurring revenue and things like this.  But I just thought this could be something that becomes its own product and there would be a market for that service.

Where it comes from, ChartMogul we’re based down in Berlin, although most of our customers are in the U.S., mostly U.S. SaaS businesses.

 

AT:   So two things there.  It’s from Zendesk, your background.  I understand you were a super early employee at Zendesk.  Is that right?  I never remember the number.  Number 6 or Number 9?  Something like that.

 

NF:  Well, you have remembered.  That’s right.  I was the sixth person after the three founders.  So Number 9 on the team.

 

AT:  I got it right!  Excellent.

And you mentioned that Chart Mogul is based in Berlin.  I mean, why not?  But could you tell me just a little bit about why you made that decision because you’re from the U.K.?  So why Berlin?

 

NF:  Well, I was based out in Manila more recently because we were kind of setting things up for Zendesk in Asia back in 2014.  I decided to leave Zendesk and then kind of sat down with my wife who’s from Korea.  We were kind of thinking, well, where do we want to start this business?  Where in the world should we go to do that?

So I have a British passport.  She has a Korean passport so we just want to go somewhere quickly and get started.  Obviously, probably Silicon Valley is the Number 1 destination you think of but when you just want to get started building stuff and doing a startup, you don’t want to be distracted by visa issues and things like that.

So we thought, well it has to be either Korea or somewhere in the European Union.  We just started looking at all the different places.  I think it would’ve been pretty cool to start in Korea but maybe it’s not the right market to do a SaaS business, especially current SaaS business is mostly targeting other SaaS businesses or other subscription businesses.

We’ve been kind of looking at Europe, which cities.  I used to live in London so London’s obviously a big tech centre.  But then we also heard a lot about Berlin with companies like SoundCloud and Wunderlist and kind of researched it a bit.  We went on a vacation to Berlin for a few days and really liked it, basically.

We ended up just kind of selecting it that way.  We kind of drew up all the pros and cons of like cost, lifestyle, all these different things.  In the end, we just decided to head to Berlin and we haven’t regretted it.

 

AT:  It has nothing to do with the Berlin clubbing scene?

 

NF:  I’d love to say it was but like I’m married now with a 9-month old, similar to yourself, right?

 

AT:  Yeah.  The clubbing days are long gone.

 

NF:  Maybe once in a while with the team, we go out.  But…

 

AT:  As we’ve talked about the early days of ChartMogul, going back real early to the actual sort of origin of ChartMogul, was the idea inspired by what is within the SaaS circles, the infamous Christoph Janz KPI Dashboard?  Does that lay any claim to the foundations of ChartMogul?

 

NF:  Yeah, absolutely. Christoph was the first angel investor in Zendesk so probably it kind of all comes together, I guess.  The idea came out of Zendesk measuring a lot of things in MRR and this kind of thing because I was on the sales side of the business.

But as we went into sort of designing the product, trying to understand how different metrics should be calculated correctly ,there’s only really 2, maybe 3 really great resources online.  One of them is Christoph Janz’ Excel sheet, SaaS KPI Excel sheet.  The other is David Skok’s blog.  I think the post is called something like SaaS Metrics 2.0.  I guess there’s also a first version of that as well.   We kind of productised a lot of that material into ChartMogul absolutely.

 

AT:  You’ve raised VC money. Successfully you’ve raised a double seed round of funding.  Can you just sort of quickly say how much each round and who your investors were?

 

NF:  Yeah.  The first round was at the end of 2014.  That was pre-revenue, pre-paying customers.  We raised $600,000 led by Point Nine Capital with Christoph Janz, you mentioned just now, as one of the partners there.  And also a couple of angels as well.  Michael Hansen, who was early at Zendesk.  He actually hired me into Zendesk as well originally.  And Tom James.

Then we also raised a few months later in 2015 after we kind of got some initial traction another further $900,000 from the same investors plus a few extras as well.  So the second round was also led by Point Nine Capital and the same angels took part again and we added another three angels I think as well.

 

AT: I was going to ask what metrics were in your pitch deck?  I guess for the first one, if you were pre-revenue, there probably wasn’t any metrics, unless I’m mistaken.  But what about in the second pitch deck?  Which were the metrics that that VCs wanted to see and that you showed them?

 

NF:

Yes, for the first version there wasn’t any metrics at all apart from had some quotes from Beta users about how much they loved the product.  But for the second deck, once we had some data, there still actually wasn’t much metrics in the deck itself but I think I also, when I circulated the deck, I included our most recent investor update or something like that with alongside the deck.

The deck was much more about the vision, the team, where the product is today and where it’s going and what we plan to do with the money.  The metrics were more like where our annual run rate, where we planned to be in 12 months’ time.  But I think I also bundled our investor update along with that which comes with quite detailed reports around even the number of website visitors broken down over the last few months, the conversion rate from visitor to sign-up for a free trial, then the conversion rate to paid, and then how many new customers we’re adding each month, how many churn each month, what is the new MRR, how much lost MRR, etc.  So it had the full breakdown of that anyways.

 

AT:  In your opinion, how important is it going to be, I guess in this climate of fundraising for SaaS founders, to have like really super awesome metrics to raise capital?   If you’ve kind of got average metrics and a great product, maybe don’t bother.  What’s your opinion?

 

NF:  I guess I’m not the best expert because we’ve done the two seed rounds and I have yet to do an A-Round.  But I think at the seed round, pre-revenue, it doesn’t matter so much in terms of the metrics.  It’s more about the vision and the opportunity and the team and the product.  These kind of things.  And maybe some initial B2 traction or something like that.

I think as soon as you start selling the product that’s when it gets pretty important pretty quickly.  And especially the A-Round.  It seems there’s all this talk like it used to be a million annual run rate, now it’s like 2 million.  Then you hear like 3 million annual run rate now.  I think it’s important.

I guess the growth rate is probably more important, or the potential there.  Then the potential like when I do talk to VCs occasionally it’s like what’s the size of the market, the size of the opportunity, and then how much of that can you realistically go out and get as a company.  And they want to see some track record of kind of doing that over the past months.

There’s all this talk that the number of seed rounds has dramatically increased over the last few years but the number of A-Rounds being done has stayed pretty flat.  It’s created that sort of crunch at the A-Round where there’s just loads of great SaaS companies doing like a million ARR.  But that’s not good enough anymore because there’s a lot of those so the A-Round VCs can take their pick from the ones that they see the most potential in.  And a lot of that will come down to metrics for sure.

 

AT:  Moving away from talking about raising capital using metrics to actually the metrics that you measure internally as a SaaS company.  Can I ask what are kind of the key metrics that you measure that helps power the business for ChartMogul?

 

NF:  Well, I guess there’s the top-line metrics of the business, which everyone probably knows already is MRR, churn rate.  I like Net Revenue Churn Rate and also Gross Revenue Churn Rate because it shows how much you’re really losing.  And then offset that for expansion revenue.  That’s like traffic to your site, how many sign-ups you’re getting.  I mean, this is often the better indicator of things to come whereas MRR is kind of like where things are at right now in terms of your current revenue.

All this is kind of top-line metrics that our software does this kind of thing.  But within each business unit or each part of the business, there’s different things that you measure.  We have a combined customer success and support team.  They really care about NPS, which is I really love as well.  I used to think it was a little bit too, I don’t know, fluffy but my opinion has been changed and I find it very useful and really like doing it.

Also, things like first response times on tickets, support requests that we get and things like that.  Within each thing, there’s like all these things as well that you measure.

But top-line, it’s probably similar to what a lot of SaaS companies are looking at in terms of number of paying customers, number of trials coming in, number of paying customers, conversion rates, this kind of thing.

 

AT:  Can I ask how your opinion came to be changed on NPS? So you don’t see it as a fluffy metric or measurement anymore?

 

NF: I think it just kind of got drilled in enough times that I just naturally kind of bought around to it.  Then our Director of Customer Success, he was the one who actually started running these NPS surveys.  We do it quarterly here.  And then we can actually see how it’s improved quarter on quarter.

And we also get a ton of great comments at the same time just doing it.  So I think it’s really valuable.  And then…

 

AT:  Yeah, I know.  I mean, I also see all over the web people talking about NPS and how super important it is for their business.  We’ve had the likes of Bill Macaitis, CMO of Slack on the show and saying that that’s his most important thing that they… or the first thing I think he implemented when he joined Slack.  That kind of thing.  So there must be some truth to that.

 

NF:  Yeah, absolutely.  I mean, David Apple who is the Director of Customer Success at Typeform and one of our customers, he gave a great talk recently.  I think it was at a Totango event where they were kind of explaining how Typeform does NPS.  But not just like that it does the survey and collects the NPS scores but also what it does afterwards with those scores.

One of the techniques they were using was piping the NPS score into ChartMogul and seeing, slicing net revenue churn by NPS score.  What they found was really interesting in that obviously, the customers with very good NPS don’t churn so much.  The ones with a very bad NPS or with the bad NPS they’re more likely to churn.  But they also found that the ones that didn’t respond to the NPS survey at all were the most likely to churn.  So it’s very interesting.  It’s like if they don’t respond they’re the ones who are really likely to churn.

So it’s kind of interesting.  It’s like where you should… and then it tells you something that you can actually do.  Like where should you spend your attention in terms of not… it’s actually maybe more valuable to put attention into the ones that don’t even respond, let alone the ones that gave the negative response is kind of interesting.

 

AT:

Dare I ask what tools that you use to measure metrics?  I guess you’re probably dogfooding?

 

NF:  Yeah.  I mean, without plugging our own solution there.  Of course.  Of course, yeah, we use our own tool for that.  I mean, we still use Excel for some things.  Things like burn rates and things like this, we don’t incorporate that stuff into our product.

We’re using a number of tools like different types of analytics tools.  Even things for just A/B test at Optimizely but, yeah, I guess the main one would be Google Analytics.  We use a system called Ahoy for attribution tracking.  It’s a pretty cool open source tool from Instacart.

Instacart, they built an entire kind of web analytics attribution tracking system and open sourced it, which is fantastic.  So we use that for marketing attribution tracking.  Seeing where do our trials actually come from, what landing pages do they land on, where do they come from and which ones, which lead sources actually convert into paying customers and these sorts of things.

 

AT:  Okay.  And that’s Ahoy as in the…

 

NF:  Yeah.  Like the pirate.  Ahoy.

 

AT:  The pirate.  Okay.  Very good.

for those that are listening that wants to check that out, that’s Ahoy by Instacart.

AT:

You mentioned churn rate earlier and net revenue churn and things that you measure and, well, all SaaS companies measure in super critical metrics to measure and keep control of.  What processes do you have in place at ChartMogul to keep your churn rate low that you’re happy to share?

 

NF:  We always do exit interviews.  I think that’s the most valuable thing so you understand why people are churning.  Especially if it’s sort of a larger customer.  I mean, it’s valuable with the smaller ones but often the reason if it’s a very small customer is that perhaps price sensitivity or something like that, with very great bootstrapped businesses or something like this.

I think exit interviews are the most valuable thing especially if you start to get the same reason multiple times then it’s something you should jump on and fix quickly.  So that’s really useful.

I think we’re going to start doing the thing that David Apple at Typeform was talking about of piping, attaching the NPS score to the churn rates, because that’s really interesting.  Then it just means that any kind of… anything that can help improve NPS you can sort of measure the ROI of that initiative.  So if you have an initiative that you think will improve NPS, you can kind of say, well, if we spend this much money or this much time and it’s going to reduce churn rate by this much, it’s actually got a number attached to it at that point that’s kind of that’s really interesting.  So I think we’re going to do that.

But I think exit interviews, really try to understand it and then just continually improving the product and the service and just continually layering on more and more value into the product.  It’s the only way that we know that really kind of helps reduce the churn.

 

AT:  That’s great insights and awesome advice there for other SaaS companies, founders, customer success people that are listening to this episode.

You didn’t really have a sales team.  Right?  It’s all inbound.  You’ve got your content team, customer success team but no sales hire, as I remember.  Is that right?

 

NF:  Yeah.  We’re still100% inbound.  We have two people working on content.  We try and invest into that because I think that also helps the whole product so that helps our existing customers and potential people that aren’t our customers also.  Whereas if you just spend money on advertising it doesn’t help your existing customers at all.

We really like content for that reason.  We invest in content, we try and create stuff that obviously get shared as well and gets a good reach and then we re-target that audience that views our blog posts.

But yeah, it’s all inbound.  We have a customer success team so we kind of just do it that way, which I like.  That’s kind of the early days of Zendesk.  We didn’t really have sales.  People just signed up for a Zendesk trial and then the customer advocates, as we called them then, I think that’s basically customer success people.  Just help those people out as best they could.  If they like the product they buy it.  If they don’t, they don’t.

I love the simplicity.  Of course as you grow, Zendesk now has very large a sales team, and we certainly will as well at some point.

 

AT:  Do you think that’s kind of like the new norm for a SaaS startup before you get to a certain stage and scale that you can have this model with inbound content team, customer success and this will be or is commonplace?

 

NF:  Yeah, it’s pretty common.  I mean, for pure SaaS, where especially SaaS targeting non-enterprise from the start.  Kind of relatively low-cost or low-cost B2B SaaS, yet doing inbound and having content kind of help accelerate that a bit.  It’s definitely something that a lot of companies are doing, companies like Intercom.  Everyone is doing that for sure.

But I think adding the sales… when you add salespeople, it depends on the company.  I think it’s good to nail down the kind of product and the flow and the conversion rate and everything,  get everything working well before you start to ramp on sales.  I mean, there’s different arguments around that but we’ll probably quite soon start to build out a sales team.

 

AT:  We clarified that you don’t have a sales team yet.  But is sales velocity a metric that you measure?

 

NF:  Yeah.  I like to just call it like trial-to-paid convert.  Cohort-based trial-to-paid conversion rates.  It’s like what is the kind of 30-day trial to paid or 60-day trial to paid conversion rate?  That’s what we measure, which I think is very similar to sales velocity which is kind of how long does it take from initial contact to closing the deal.

We measure the trial to paid in cohorts.  I currently do it in Excel but hopefully by the end of June we can do it in our product, ChartMogul, so then I’ll be at least doing it in there.

 

AT:  I think it’s just easier to say sales velocity than trial to paid cohort analysis.

 

NF:  I guess they’re slightly different but they’re close enough.  But yeah, how long does it take you to close the deal.  Definitely something we measure for sure.  I think even without having a sales team that’s still something you would certainly want to measure as a business for sure.

 

AT:

We’re coming to the last two questions now, Nick.  The first one I’ll ask is if you want to learn about metrics, what resources does Nick Franklin recommend that those who are listening to the show go to and learn from?

 

NF:  Well, I mean, a lot of people might have already heard of these.  They’re the obvious ones, but David Skok’s For Entrepreneurs blog is a fantastic resource.  Christoph Janz’ ANGEL VC blog.  Also Tomasz Tunguz as well.  Of course SaaStr, Jason Lemkin SaaStr.  And our blog.  We’re always putting out material about SaaS metrics and these kind of things.

 

AT:  Okay.  We’ll allow your blog.  Actually, it’s a damn fine blog.  So that’s good.

And I think Annie is the second content person.  They’re doing a great job or have been from the start.  So that’s good stuff.  I’m a regular reader.

And final question is, it’s not a cheeky one but when is the Series A round?

 

NF:  You know this is… I mean, right now we’re really just focusing on the business.  We’re not actively fundraising.   I guess no comment there just yet.

 

AT: We’ll allow no comment.  I didn’t want to put you in an awkward position.  But sometimes I like to dig a little bit, being an investigative SaaS reporter towards the end.  But perhaps I’m not that great at it so I’ll stick to the normal questions.

We’ve come to the end of the podcast, Nick.  You’ve been a great guest so really thank you for your time and being on this episode of the SaaS Revolution Show today.

 

NF:  Oh, no.  Thank you.  I really appreciate being invited and it’s my pleasure.

You can hear Nick Franklin speak at SaaStock conference on 22nd September 2016 in Dublin. Not got your ticket yet? Eary bird 2 sale ends 18th May. Get your ticket here

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