Learnings from the latest SaaS IPO — Gitlab

Gitlab is a software company that just went public. Below are some of the highlights from their prospectus. The key learnings we took away: you might have to sunset smaller/early customers, intentional transparency can be an asset (stop being so secretive), freemium is their way with land-and-expand to follow, smaller/lower risk releases are good, remote works, share meeting materials ahead of time.

What they do. “GitLab is The DevOps Platform, a single application that brings together development, operations, IT, security, and business teams to deliver desired business outcomes. Having all teams on a single application with a single interface represents a step change in how organizations plan, build, secure, and deliver software.”

Opensource is the backbone. “We began as an open source project in 2011 and founded our company in 2014. Our company exists today in large part thanks to the vast and growing community of open source contributors around the world. Our community consisted of more than 2,600 contributors as of July 31, 2021.”

Shoutout to YC. “We incorporated GitLab in 2014 and applied to Y Combinator, a technology accelerator in Silicon Valley. In 2015, we participated in their program, and this greatly accelerated our business.”

They sunsetted smaller offerings. “The DevOps Platform is available to any company, regardless of the size, scope, and complexity of their deployment. As a result, we have a large number of customers on paid trials or with single-digit users. Customers with less than $5,000 of ARR collectively represent approximately 7% of our ARR for fiscal 2021 and approximately 6% of our ARR as of July 31, 2021. Additionally, the vast majority of these customers were part of our Starter tier, our lowest paid tier, which we announced the end of life for in January 2021.”

Enterprise is the focus. “As a result, our Base Customers increased from 1,662 as of January 31, 2020 to 2,745 as of January 31, 2021, an increase of 65%, our $100,000 ARR customers increased from 173 as of January 31, 2020 to 283 as of January 31, 2021, an increase of 64%, and our $1.0 million ARR customers increased from 11 as of January 31, 2020 to 20 as of January 31, 2021, an increase of 82%.”

Intentional transparency is an asset. “We actively work to grow open source community engagement by operating with intentional transparency. We make our strategy, direction, and product roadmap available to the wider community, where we encourage and solicit their feedback. By making information public, we make it easier to solicit contributions and collaboration from our users and customers”

Freemium and easy to understand pricing. “We have a simple and easy to understand open core business model. We offer a free tier that includes a large number of our features to encourage initial use of The DevOps Platform, solicit wider community contributions, and create lead generation. We offer two paid subscription tiers, Premium and Ultimate, which are based on features available and priced on a per user basis. Our Premium tier includes features relevant for managers and directors, while our Ultimate tier includes additional features relevant for executives. Each of our plans provide feature access across every stage of the DevOps lifecycle, making it easier for customers to adopt additional stages on The DevOps Platform and add more users.”

Annual contracts, collect cash up front. “Customers enter into our subscription plans in either annual, or multi-year contracts. A majority of our contracts are invoiced annually where we collect cash up front”

Land-and-expand sales model. “Our customer journey typically begins with developers and then expands into senior executive buyers. We believe serving as this system of record for code and our high engagement with developers is a competitive advantage in realizing our single application vision as it creates interdependence and adoption across more stages of the DevOps lifecycle, such as Package, Secure, and Release. The strength of our land-and-expand strategy is evidenced by our Dollar-Based Net Retention Rate. For fiscal 2020 and 2021, our Dollar-Based Net Retention Rate was 179% and 148%, respectively. As of July 31, 2020 and 2021, our Dollar-Based Net Retention Rate was 153% and 152%, respectively. We believe that this expansion will provide us with substantial operating leverage because the costs to expand sales within existing customers are significantly less than the costs to acquire new customers.”

Cash Burning. “Our business has experienced rapid growth. We generated revenue of $81.2 million and $152.2 million in fiscal 2020 and 2021, respectively, representing year-over-year growth of 87.3%. During this period, we continued to invest in growing our business to capitalize on our market opportunity. Our net loss was $130.7 million and $192.2 million in fiscal 2020 and 2021, respectively.”

Smaller, more frequent releases. “Our technology leadership is an outcome of various factors, including our strong community, network of contributors, and continued enhancement of The DevOps Platform by developing new features and expanding the functionality of existing features with speed and consistency. We have had a history of releasing enhancements to The DevOps Platform on the 22nd of every month and, as of July 31, 2021, had done so for the last 118 months. We intend to continue releasing new software at this cadence.

Which reduces risk. “By reducing the scope of deliverables, we are able to complete them earlier and get faster feedback. Faster feedback gives us valuable information that guides what we do next. We measure and set targets for how many changes are expected from each engineering team. This encourages teams to reduce the scope of what they build and ship changes in smaller increments. We know that smaller changes are easier to review and less risky. The end result is that we are able to get more done as the higher frequency of changes more than compensates for the smaller size of them. We release features and categories even when they are minimally viable. We do not wait for perfection when we can offer something of value, get feedback, and allow others to contribute to features by refining and expanding upon them”

Cohort retention is excellent. “Our ability to retain and expand our customers is demonstrated in the chart below, which presents the ARR from each customer cohort over the years presented. The cohort for a given year represents customers that acquired their initial subscription purchase from us in that year. For example, the fiscal 2018 cohort represents all customers that made their initial subscription from us between February 1, 2017 and January 31, 2018. The compound annual growth rate, or CAGR, of ARR for our fiscal 2016 cohort, fiscal 2017 cohort, fiscal 2018 cohort, and fiscal 2019 cohort from the fiscal year of the cohort through January 31, 2021 is 90%, 71%, 73%, and 79%, respectively.”

Partnerships are new, they didn’t need them to grow. “We believe that our further growth depends in part on our ability to build and maintain successful partnerships, alliances, channels and integrations. In fiscal 2021, we began investing in developing a strong ecosystem and partner network, comprised of cloud and technology partners, re-sellers, and system integrators, as a way to expand our go-to-market strategy.”

Question decisions. “Kamil’s advocacy inspired GitLab’s “disagree, commit, and disagree’’ sub-value. We allow GitLab team members to question decisions even after they are made. However, team members are required to achieve results on every decision while it stands, even while they are trying to have it changed.”

Remote before remote was cool. “From the beginning of GitLab, we have been all-remote as the initial team members lived in the Netherlands, Ukraine, and Serbia. GitLab was founded before remote work was a proven model, so investors were worried about our ability to effectively manage the business and scale. That early skepticism required us to establish explicit mechanisms for value reinforcement. We now have over 20 mechanisms listed in our handbook. Some reinforcements are small. For example, team members have access to a Zoom background that showcases each of our values as icons. Others are more substantial. For example, every team member’s promotion document is structured around our values and shared with the entire company. We have been a 100% remote workforce since inception and, as of July 31, 2021, had approximately 1,350 team members in over 65 countries”

Results, not hours worked. “We care about what is achieved, not the hours worked. Since you get what you measure and reward, we do not encourage long hours and instead focus on results. For example, to discourage team members from focusing on hours worked, team members are discouraged from publicly thanking others for working long hours or late nights. This is intended to prevent pressure to work longer hours or highlighting longer hours as something that is rewarded.”

Meetings without presentations. “When we do have a meeting, we share the discussion topics, the slide deck, and sometimes a recording of someone presenting the slide deck beforehand. This way we can dedicate the synchronous time of the meeting to discussion, not team members presenting material. We also have speedy meetings that are short, start on time, and end at least five minutes before the next one begins. We encourage team members to work together in public chat channels as much as possible instead of through direct messages. This makes information readily available to anyone who is interested or may become interested at a future point.”

Mistakes are ok. “Decisions should be thoughtful, but delivering fast results requires the fearless acceptance of occasionally making mistakes. Our bias for action may result in the occasional mistake, but it also allows us to course correct quickly. We keep the stakes low for mistakes for the sake of transparency. When people are comfortable communicating missteps, risk aversion and secrecy don’t become the norm.”

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