Building an Analytics Company to $10M+ in Revenue: Mode Analytics CEO Derek Steer (Part 5)

Sramana Mitra: What did you learn about pricing? What were people willing to pay and how were people willing to pay for your product? What signals were emerging?

Derek Steer: The biggest challenge we had was when people looked at Mode at first. We made this product that targets analysts and data scientists as the core user but part of what made us successful is that their workflow involved sharing.

As an analyst, you cannot do your job unless you are getting across the results of your work to other people and help drive real action to the business. What happens is people invite all these other people like product managers and demand generators. These are people who are analytics-adjacent who want to do some analytical work but not a ton. Originally, we priced it at $3,000 a year per seat for analysts and data scientists. That was fine for the core users, but then other people would get involved like the product manager who wants to do some work but not as much.

These people were asking if they could pay half for them and for a small company, we said yes. We found ourselves routinely negotiating these bizarre one-off deals and it was a lot to manage and unfair to our customers to give different pricing to different people. We tried to fix that.

Most of the companies in our space had this model of having a price for the creators and another for the viewers. We tried that, but it wasn’t consistent with what people wanted to do with our product. Instead of acquiescing to the pricing model that many of our competitors use, we stuck with a different model that we still use today, which is charging the same price regardless of whether you are a viewer or creator.

We do volume discounting. Some pay for 5,000 seats of Mode. The 5,000 seats cost less than the first one. What we ended up doing was lowering the price. It’s no longer $3,000 per person per year. That would not be palatable to every single person at a company. The pricing now is a tenth of that. 

Sramana Mitra: What was the trajectory of the business early on? How long did it take you to get to a million in ARR? 

Derek Steer: The most memorable milestone for me was when we hit $500,000 because I remember talking to an investor who said to me, “If you get to $500,000 of ARR by April, that would be good enough to do a series A.”

I remember thinking about the gap between zero to $500,000. It seemed monumental. We somehow did it and then we went out and raised the round. Our series A at that time was about $7 million. That was considered a good series.

Sramana Mitra: How many customers were in the first $500,000 ARR?

Derek Steer: I don’t remember that off the top of my head. I don’t think it was a lot. Part of it came from one customer who wanted us to do something special for them. They paid us a six-figure amount.

We had several smaller amounts of $10,000 to $20,000 folks. We had one $100,000 to $150,000 customer that was on our roadmap anyway. It was something that would benefit all our customers. It was easy for us to prioritize and to do that commercially made sense for us. 

Sramana Mitra: With $500,000 ARR, you went out to raise your series A? When was that?

Derek Steer: Yes, I think March or April of 2015. 

Sramana Mitra: How much did you raise at this point?

Derek Steer: I believe $7.5 million, which brought our total fund raise to about $10 million. We had raised the $500,000 to begin with and six months later, we raised $2.5 million. Then another year later, we did $7.5 million. 

This segment is part 5 in the series : Building an Analytics Company to $10M+ in Revenue: Mode Analytics CEO Derek Steer
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