Scaling to $150M ARR and beyond is no simple task. Grafana Labs co-founder and CEO Raj Dutt and Partner at Lightspeed Alex Kayyal answer the most popular questions about Grafana Labs’ rocketship growth journey at this year’s SaaStr Europa.
First, let’s rewind the clock and look at Grafana Labs’ origin story. How did it come to be?
Grafana Labs Origin Story
Grafana Labs started as an open-source project back in 2014 with three co-founders, including Raj. They decided early on that the company would be remote-first, not remote-friendly. Why did they choose remote first?
You can make an office culture work, but when you mix it up with “remote-friendly,” you can get into trouble. Grafana Labs chose remote first from the beginning because the three founders were located in New York, Sweden, and Australia. It doesn’t get worse than that from a time zone coverage perspective.
They believed talent was global, and the co-founders loved to travel. Plus, some of the best software in the world was being created by geographically distributed teams working in an async manner.
Back then, remote first was a recruiting advantage. Today, not so much. Today, Grafana Labs is in 40+ countries, with great perspectives across the team. People generally don’t have to wake up to solve problems. Instead, support follows the sun.
Building Culture as a Remote First Company
With 1,200 people working at Grafana Labs, how do you build a culture? It’s definitely harder, but if you’re remote-first, you can build a culture that’s purpose-built to be remote.
If you’re remote-friendly, the pattern many people get into is that the remote employee has a second-class career. They aren’t part of the water cooler conversations or close to the center of power and decision-making.
It’s hard to be remote-friendly. At least, as a remote-first company, you can attempt to fix the culture. You also need to get the team together in person and often. Grafana Labs typically meet 2-3x per year, with the executive team in the same room 5-6x per year.
No Physical Office as a Remote First Company
There is no physical office space for Grafana Labs, and even if they have a lot of people in a single city, they aren’t allowed to work in the same WeWork office space. That might seem ridiculous, but you don’t want to create an office or hub that disrupts the company’s remote-first culture.
Will this change as Grafana Labs scales? Probably not. It’s built into the company’s DNA. Of course, there are disadvantages to being a remote-first company. When you get everyone together for a few days, at the end, everyone wishes they were still together.
No doubt working in an office together as a company has advantages.
- Communication is easier
- You can ramp people faster
- You can hire junior people
The tradeoff is global talent. You can’t put together quite the same team if everyone has to be located in San Francisco.
Keeping everyone connected and collaborating requires some extra thought as a remote-first company. There’s no silver bullet, but there are some things you can do to collaborate with a distributed team are:
- Record meetings to allow people to consume information on their own schedule and timezone
- Meet in person at least once or twice a year or as often as possible
- Hire great people managers
Approaching Monetization as an Originally Open Source Company
One of Grafana Labs’ users is NASA, but they aren’t a paying customer. How do you approach monetization as an open-source company? They didn’t think about monetization for the company’s first few years. Those were the innocent days with no customers, revenue, or responsibilities.
Their goal was to build really popular open-source software and a community, yet the goals of open source vs commercial ambitions are in stark contrast. Open source is all about value creation, and GTM teams are all about value capture. Balancing those things is hard.
Grafana Labs’ open-source software is used by some of the largest companies in the world who don’t pay them, like NASA. They have almost a million users and about 6,000 customers. That’s less than 1% of the people paying who are using the software.
When they first started raising money, with Lightspeed being the first VC, they had a slide with impressive logos but no customers. The pitch was, “We have all these amazing companies using our software. We’ll figure out how to make some of them paying customers over time.”
They’ve achieved that goal, but the balance is hard. Grafana Labs still has features and capabilities they hold back that appeal to large enterprises, such as things around security and compliance. But they’re still one of the last remaining open-source companies at scale.
Cloud was a big unlock for monetization.
Less Than 1% of Grafana Labs’ Users Pay
The 6,000 to a million ratio is staggering regarding how much usage there is vs. paid customers. How do you drive business around that? It’s a painfully impressive stat, but Grafana Labs isn’t trying to monetize every use case. They want the overall pie to be as big as possible, and their entire business model is predicated on capturing a small piece of what is hopefully an extremely large pie.
It’s not really feasible to make more than a low single-digit percentage of users into paying customers. Many have no real budget to pay, with tens of thousands of users using Grafana Labs for home lab stuff, like monitoring how their sourdough is baking or how their EV is charging.
They don’t want to monetize that community. But when they discover a large global bank using Grafana Labs, that’s where the product strategy comes in. “We’re set up to monetize people who have more money than time,” Raj says.
The 3 Stages of Growth
Grafana Labs has crossed $250M ARR, and going from zero to 1,200 employees was a journey. The way the co-founders looked at the stages in the early days of no funding and a community-focus were:
- Step 1 – No sales or customers, only building freely available open-source software.
- Step 2 – ??
- Step 3 – Profit
They didn’t know what step 2 was or how they’d make it to step 3. The first move towards monetization was making an Enterprise version of Grafana. All they sold was the visualization layer with no sales team. Just founders and founding employees trying to do sales and pattern match what resonated, and making it a little repeatable. That was stage one.
They decided to become multi-product at stage two. They needed to do more than just visualization to build a large business, particularly in the observability space. They needed to build databases to store data, and that’s where the pain and money were.
During this stage, they built out open-source metrics databases, open-source logging, open-source tracing, and a whole stack. At the time, Grafana had 60 people and about $5M-$10M in revenue.
Going multi-product is a big deal, and a lot of companies struggle with it.
Stage three was going all-in into the Cloud. Grafana deploys a lot of new features that they develop on their Cloud first before making them open source, the opposite of how you might intuitively do it.
In the early days, all revenue came from visualization. Today, metrics is their biggest product, with the most revenue coming from Grafana Cloud, their SaaS offering.
How Founder Management Styles Change from Zero to 1,200 People
As a founder, you must reset and redefine how you interact with the rest of the company at every level of scale. Going from a company with 30-40 people, where you know every detail and are involved in almost every decision, to a company of 1,200, where you don’t even know who works at the company, is a challenge.
Your influence becomes less on the entire team and more around the senior leadership team. You have to ensure you have the right people in the right spot at the right time and hope they’re aligned with the company.
As a founder, you’re constantly figuring out what altitude to fly at. In the early days, you could fly in the trees, and later, you could feel like a satellite.
The Biggest Hiring Lesson
If you want to bring amazing people into your company, you don’t want to over index on someone’s resume. It’s tempting to look at someone’s background and all the amazing companies they’ve worked at.
You can get wowed by someone saying they have this playbook that worked at x company and that they can apply it to yours. If they say that, be afraid. You can’t apply a playbook to an unknown company.
Instead, when hiring, you want to optimize for things like drive, grit, intelligence, a willingness to learn, and culture fit. You want first-principle thinking instead of copying and pasting what someone else is doing.
Lessons Learned as a Second-Time Founder
Raj is a second-time founder, and he learned some valuable lessons from running his first company. For more product-oriented founders, you will find these lessons most useful.
- Don’t underestimate sales and GTM
- Don’t undercapitalize your business
At Raj’s previous startup, they didn’t take sales and GTM seriously enough. If they built a great product, the world would beat a path to their door, right? It was a naive mindset but a common one. The founders almost laughed at the idea of having an Enterprise sales team or the need to take customers out for steak dinners.
They also undercapitalized, always struggling to make payroll, and unable to buy enough servers so that they weren’t able to execute on opportunities.
The Grafana founders didn’t make these same mistakes, which shows in its success today.
Managing Tension Between R&D and Sales
There’s always tension between these two teams, so managing that relationship is important. At some companies, the tension between R&D and GTM teams can be pretty toxic, so how did Grafana combat this dynamic?
By ensuring the R&D team stayed close to customers by talking with them and being involved in deals. Companies often hide engineers from customers with buffers and processes, which can be dangerous.
The tension is real, though. The average GTM team hopes every feature developed doesn’t go into open source, and the average R&D person hopes every feature goes into open source.
At Grafana, they take the approach that “we’re all in customer success no matter your job function.” Every sale is a team sale. They even have a Slack channel where every won deal is summarized with why they won and who was involved in it, which usually has dozens of people mentioned.
By keeping the R&D team close to customers, they can empathize with them. Empathy is what drives a lot of day-to-day product decisions.
