SaaS Learnings from Gitlab’s Q3

We’re review quarterly filings of successful SaaS businesses to understand what makes them successful.?Below are observations from Gitlab’s Q3 report and earnings call which took place Monday (NASDAQ: GTLB).?Much of it is verbatim.

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

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Opensource is key to the product roadmap.?Our company exists today in large part thanks to the vast and growing community of open source contributors around the world. ?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.

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Monthly releases.?We have had a history of releasing enhancements to The One DevOps Platform on the 22nd of every month and, as of July 31, 2022, had done so for the last 130 months. We intend to continue releasing new software at this cadence.

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Land and expand, don’t try to get the entire book of business up front.?We employ a “land and expand” business strategy that focuses on efficiently acquiring new customers and growing our relationships with existing customers over time.?Net dollar retention is 130%+.?The cohort seven years ago are expanding at the same rate that cohorts two years ago are expanding at; it's a bottoms-up land when we land a new customer, it's typically 50 to 100 licenses. In some cases, they have thousands and thousands of engineers and expand over time. And that's why the cohorts are still expanding.

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Give the customer multiple ways to expand.?the number one reason why they're expanding as seat expansion. The second is for tier upgrade to Ultimate. And then the third is increased yield from the customer.

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They cater to small and large customers.?While a “Base Customer” is one that pays $5,000+ annually (6400 customers), the company has 593 customers that pay $100k+ annually.?

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Make sure you can quantify customer wins.?CARFAX has increased the number of software builds by 341% in one year using GitLab.?UBS removed 50 different development tool teams, they're moving to one with frequent app delivery through automation.?Agoda can now process over 1 million pipelines per month. The average billed queue time has decreased from 40 minutes to 32 seconds and their developer NPS score has increased.?A Forrester report the company commissioned showed a 427% ROI over 3 years.

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Gitlab’s is seeing more scrutiny on new sales environment.?We aren't seeing the sales cycle elongate that actually shrank again this quarter.?We have seen some of the deals require greater scrutiny. And so where this is typically done at sort of a division department basis, we may require CFO approval or some C-level approval to acquire new software.

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Make sure your sales commission doesn’t incentivize one product over the other.?When we set our sales compensation, we don't differentiate from Premium versus Ultimate. We try to remove the friction out of the buy process as well as the sell process. And so when you're buying Self-Managed and SaaS is priced exactly the same.

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Financials are strong and there is a path to profitability.?We generated revenue of $113 million. This represents growth of 69% year-over-year.???Non-GAAP operating loss is $21.6 million or negative 19% of revenue compared to a loss of $23.9 million or negative 36% of revenue in Q3 of last fiscal year.?Profitability is expected in 2025, and quarter-over-quarter, if you look at third quarter this year over third quarter last year, we added $46 million of incremental revenue and did that for $2.3 million less.

Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures.?Visit us at blossomstreetventures.com and email directly at [email protected].?We invest in companies with run rate revenue of $3mm to $30mm, with year over year growth of 20% to 100%+ depending on revenue.?We lead or follow in growth rounds and special situations like inside rounds, small rounds, rushed rounds, corralling investors with our term sheet, cap table clean up, and extensions.?We can commit in 3 weeks and our check is $1mm to $4mm.?Also visit https://blossomstreetventures.com/metrics/ for always up-to-date SaaS metrics.