Building a Global ERP Company from Estonia: Katana CEO Kristjan Vilosius (Part 5)

Sramana Mitra: Okay. Now, during these two years, tell me about the pricing model and the revenue. What was happening? What was the market accepting as your pricing model? What were you able to sell at and how was that adding up to your ARR, MRR?

Kristjan Vilosius: The customers that we were servicing in the early days were really tiny micro businesses, so to charge a lot was not an option. So if I remember correctly, we started pricing at $49 per month per company. During the journey, when we expanded the product, we raised it to $99 dollars per month. So it was still below $100 per month.

So, our ACVs were less than 1K per year. If I remember correctly, we raised our seed round when we were probably somewhere around 30K MRR. Back then, it was an average level for a seed round of that size.

Sramana Mitra: What happened to pricing as you were exiting the two-year period of really, getting things going on Shopify? It sounds like you were moving a bit up market.

Kristjan Vilosius: Yes, step by step.

Sramana Mitra: How did you change the positioning? How did you change the pricing to move up markets?

Kristjan Vilosius: In the early days, we’d just one flat pricing plan. So, after the seed round, we started introducing pricing plans and differentiating between the pricing plans based on features. We pushed the more advanced features to higher tier plans, which is a very typical approach in B2B SaaS. At some point, we also started charging additionally for a higher number of users and warehouse locations than included in the standard plan. We’re introducing additional elements that were driving expansion revenue for us.

Sramana Mitra: Okay. So give me an example of the kinds of features that were in higher tier pricing models.

Kristjan Vilosius: In the standard plan in the early days, what we built out was the basics of purchasing of raw materials and finished products, manufacturing, order fulfillment, and inventory management.

Then we started pushing advanced features like end-to-end traceability, for example, batch tracking lot numbers, expiry date tracking, then additional user permissions, and serial number trackings. These days we track their bin locations and various other functionalities that are needed.

Sramana Mitra: In your functionality, you were bringing in warehouse management almost entirely.

Kristjan Vilosius: I mean, the basics of warehouse management was there from day one as we cover everything from purchasing, manufacturing, order fulfillment, and warehousing. But we started adding the features that every sizable or scaling business requires because in the early days it was just very basic warehouse management.

On top of that, since we were focusing in the early days on manufacturers only, we introduced our Shop Floor app for tracking shop floor operations for the teams working on shop floor, doing the assembly or manufacturing or quality control so that they could track tasks, which workstation to work at, what is the next order or product they need to work at. And then that was syncing with our main product, the back office tool that was used then by sales and manufacturing and purchasing teams.

Sramana Mitra: Interesting. So, at the end of 2020, you were only on Shopify and with one flat pricing model. At the end of 2020, you raised your seed round for another two million. So, at this point, your financing is $3.5 million. What happened to revenue as you layered in the new features and the tiered pricing model?

Kristjan Vilosius: That was now the fast growth period for Katana. Our growth rate accelerated and not much than a year later, we raised our series A as we reached $100K in MRR. That was thanks to the fact that we started getting slightly bigger businesses on board, which were in the range of $1-$10 million revenue and 60 team members.

Sramana Mitra: Was it still in the Shopify ecosystem?

Kristjan Vilosius: Back then, we started getting customers also that were not Shopify users, but primarily still Shopify. We hadn’t yet fully built out the functionalities required for traditional B2B sales.

But that was the work that we were doing post the seed round. So the proportion of non Shopify users or customers not selling online at all or traditional B2B businesses started to increase faster than the direct- to-consumer part.

Sramana Mitra: I think it’s a fabulous strategy to work within the Shopify ecosystem. Shopify today is a very large install base in the category that you’re talking about. And you can build a very significant business within the Shopify ecosystem with a very focused strategy. I’m a very big believer in laser sharp positioning and following a very structured go-to-market strategy that is highly repeatable and works within a framework as opposed to spray and pray, as we call it.

Kristjan Vilosius: I absolutely agree with you. I think that was the reason for our success. It’s very expensive to build ERP-like products, so we had to pick the smallest possible, most underserviced customer segment. Direct to consumers manufacturers on Shopify were that segment for us. There was no competitor in the Shopify app store. There were platforms back then offering solutions for retailers and distributors, but there was nothing for manufacturers. That gave us the opportunity to capture that space very quickly.

This segment is part 5 in the series : Building a Global ERP Company from Estonia: Katana CEO Kristjan Vilosius
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