Andrew Bialecki: Is Klaviyo the Most Under-Priced Public Company? | E1170

Intro (00:00:00)

• Andrew Bialecki's company, Klaviyo, grew rapidly from a few thousand dollars in revenue in the first year to a quarter of a million dollars in the second year, and then to a million dollars by the end of the third year.
• Venture firms offered Klaviyo $20,000 with no strings attached or equity, but the company was not accepted into any of these programs.

Background (00:00:49)

• Andrew Bialecki grew up in the suburbs with a lot of freedom and independence, which he believes shaped who he is today.
• He played a lot of sports as a kid and had various passions, including weather, viruses, and dinosaurs.
• Andrew enjoyed bouncing around and letting his mind wander, pursuing different interests deeply for a year or two before moving on to the next one.

The Importance of Early Vision & Iteration in Startups (00:03:43)

• Klaviyo began as a database for analytics and evolved into a publicly traded company offering email marketing and automation services.
• The founders envisioned creating a system that represents an individual's essence and connects it to the internet.
• Klaviyo's mission is to level the marketing playing field, ensuring the best products reach the right people at the right time.
• Klaviyo's competitive edge lies in its focus on e-commerce businesses and its user-friendly platform.
• With over 100,000 active users, Klaviyo boasts a substantial and expanding customer base.
• Klaviyo's financial stability is evident in its growing revenue and positive cash flow.

Challenges & Solutions Making Long-Tail SaaS Work (00:07:46)

• Klaviyo is a publicly traded company that offers email marketing and automation services to businesses of all sizes.
• Klaviyo's product and technology are scalable and customizable, making it suitable for both small businesses and large enterprises.
• The company's success lies in its ability to understand and cater to the specific needs of its customers, reducing churn and increasing retention.
• Klaviyo sees serving SMBs and larger enterprises as two different businesses and tailors its approach to each segment accordingly.

Effective Product Marketing Across Diverse Channels (00:12:55)

• Experimented with separate brands for different customer segments but found it confusing.
• Now have one brand for all customers and bifurcate product marketing experiences to ensure everyone finds their home quickly on the website.

Lessons on Pricing Increases & Customer Love (00:14:16)

• Customers love Klaviyo but didn't love pricing increases.
• Klaviyo tries to align pricing with the value it drives through metrics like CAVO attributed value.
• First price increase in 10 years was met with understanding from customers who wanted certainty about future pricing.
• Klaviyo educates customers and partners on how they think about value and pricing to help them understand their costs as they grow.

Choosing Bootstrapping Over Fundraising (00:16:40)

• Klaviyo co-founder Andrew Bialecki explains why they chose to bootstrap their business instead of raising venture capital.
• Bialecki believes that software businesses can be profitable from the start if they focus on building a great product and getting close to customers.
• Klaviyo reached $1 million in annual recurring revenue (ARR) in their first year of operation.
• The company's growth accelerated after reaching the $1 million ARR milestone.

Challenging Growth Benchmarks in Venture Investing (00:21:24)

• Andrew questions the common benchmark of reaching $10 million ARR in 18 months for great software businesses.
• He believes that taking time to achieve product-market fit and building customer love is more important than rushing revenue growth.
• Forcing revenue growth without product-market fit often leads to mediocre results.
• Successful companies that build enduring products and community take time to get it right and believe in the power of compounding.

Milestones in Funding & Revenue Growth (00:23:04)

• Klaviyo co-founder Andrew Bialecki raised $1.5 million in seed funding at a 20x ARR valuation when the company hit $1 million in annual recurring revenue (ARR).
• Bialecki emphasizes the importance of finding value-add investors who can serve as advisors and mentors, rather than solely focusing on the amount of capital raised.
• Klaviyo's subsequent funding rounds included investments from Summit Partners and Excel, and the company scaled to around $50-60 million in ARR before raising its next round.
• The company raised over $100 million in funding, with a mix of primary and secondary capital, and sized the funding round based on the prevailing wisdom at the time, which suggested it should be around 20% of the company's valuation.
• Klaviyo's fundraising strategy was to be slightly ahead of the market multiple but not to push the price too much.
• The company believes that providing liquidity to its employees through secondary offerings is beneficial, as it allows them to participate in the company's growth and wealth creation, and does not demotivate employees but rather has a positive impact on morale.

Turning Points: MailChimp & Shopify (00:29:30)

• Klaviyo gained increased awareness and customers after MailChimp's removal from Shopify.
• Andrew Bialecki, Klaviyo's CEO, highlights the importance of product quality, marketing investment, and seizing opportunities.
• Successful partnerships should be mutually beneficial, aligning economic incentives and focusing on customer value.
• The Klaviyo-Shopify partnership helped Shopify's customers drive sales, creating a win-win situation.
• Shopify CEO Toby Lutke regrets not having more control over the relationship with Stripe within Shopify.
• Stripe gradually acquired a portion of Klaviyo's business through ongoing collaboration and discussions.
• Klaviyo and Shopify's partnership led to increased visibility and customer acquisition for Klaviyo.
• The success of this partnership showcased the potential for mutually beneficial collaborations in the software industry.
• Effective partnerships in the software industry require clear communication, honesty, and aligned goals to prevent conflicts and ensure success.
• Klaviyo's partnership strategy involves transparency about its strengths and weaknesses, fostering a collaborative ecosystem with its partners.

Reasons Behind to Go Public (00:37:16)

• Klaviyo's CEO, Andrew Bialecki, explains their decision to go public despite unfavorable market conditions, emphasizing the importance of a long-term view and preparation for the workload.
• Bialecki stresses the significance of building relationships with potential investors and clearly communicating the company's goals and strategies.
• He compares the process of building the buy book and going public to a fast-paced wedding involving numerous parties.
• Klaviyo successfully raised funds and celebrated by ringing the bell, but the founder received a text message from his wife reminding him of routine tasks, highlighting the return to normalcy after the celebratory moment.
• The fundraising event was viewed as a wealth creation opportunity for the company.

CEO Shift: From Private to Public Company (00:41:42)

• Andrew Bialecki discusses the transition from being the CEO of a private company to a public company.
• He mentions two positive changes:
  • Access to smart investors who provide valuable insights.
  • The quarterly check-in process helps set milestones and keep the business focused.
• Before going public, Klaviyo had many areas that were under-optimized, such as software development processes, long-term product visions, and marketing programs.
• Bialecki compares Klaviyo to a sprinter with good timing but poor form, indicating that there was room for improvement despite their success.
• The company has been working on improving its processes and becoming more rigorous in its approach.

Understanding Valuation Discrepancies in Growth & Scale (00:44:35)

• Klaviyo is an undervalued public company that focuses on long-term growth and revenue rather than short-term stock price fluctuations.
• Klaviyo's core products are essential for businesses, driving growth and revenue.
• The company plans to expand its reach beyond retail e-commerce and enhance its offerings through improved user experience, integrated interfaces, and AI-driven software.
• Klaviyo believes in the potential of AI as an enabling technology and aims to leverage it to make its software more intuitive and valuable.
• The company recognizes that AI can automate processes, optimize algorithms, and potentially extract more value from customers or provide a better product at the same price.
• Klaviyo's software helps businesses increase their output and efficiency, which can be measured and assigned a monetary value that customers can easily understand and appreciate.

Are We Underestimating Consumer Behavior? (00:53:58)

• Klaviyo outperformed HubSpot in the last quarter and has a strong track record of growth and profitability.
• Consumers are being more thoughtful about spending but are building deeper and more loyal relationships with the businesses they love. Businesses should focus on delivering great experiences to their customers and building deeper relationships with them.
• Klaviyo focuses on the cash cycle rather than LTV to CAC and has a strong competitive advantage due to its focus on e-commerce businesses.
• Klaviyo is a publicly traded company that is currently undervalued and provides email marketing and automation services to over 265,000 businesses worldwide.
• Understanding the cash cycle is crucial for investors as it varies significantly over time.
• Minimizing the cash cycle is essential for rapid growth without substantial capital requirements.
• Strategies such as partnering with marketing agencies and paying them based on customer growth can optimize the cash cycle.
• Strategic management of cash flow mechanics can reduce fundraising needs, dilution, and promote capital efficiency.

Quick-Fire Round (01:00:43)

• Andrew Bialecki, CEO of Klaviyo, emphasizes the importance of multiple touchpoints for consumers and admires Microsoft as a business, considering the potential value of adding someone from Microsoft to Klaviyo's board.
• Despite facing challenges, such as losing a major customer during the holiday season, Bialecki highlights the significance of resilience and teamwork.
• He identifies areas for improvement in his leadership, including storytelling and explaining the company's vision.
• Bialecki attributes Shopify's success to its focus on building high-quality products and its commitment to an extensible ecosystem.
• While personal branding is not a high priority for him or his co-founder, Bialecki acknowledges its value in sharing knowledge and attracting like-minded individuals.
• Financial success, such as an IPO or building a successful business, can change one's financial situation, but beyond a certain threshold, wealth ceases to matter.
• True happiness comes from spending quality time with loved ones, and money can provide the means to do so.
• Disconnecting from work and engaging in activities like listening to audiobooks, podcasts, or exercising are essential for mental well-being.