July 8, 2024

A Multi-Product Case Study 2

In the introductory Brief for this series, I shared the six points of value inherent to a multi-product strategy, and more specifically, multi-product platform strategy.

While looking through some Okta research I'd created in 2023 (I think Okta is doing better than it's ever done while trading at nearly its lowest valuation), I happened upon another point of value related to building a multi-product platform that I believe is worth including in the six points... or seven points, when including this last point.

So, to this end, here are the seven points of value from which a business benefits when it fields a multi-product platform:

  1. Enables a company to spend more aggressively on sales & marketing because CLTV (customer lifetime value) is now larger in the equation of LTV/CAC (customer acquisition cost), and this serves to push competitors out of their various markets, as oftentimes these competitors simply cannot keep up with the sales and marketing spend, especially if they themselves struggled to go multi-product. As time passes, consistent, high quality marketing and the elevated spend buttressing it create brand equity, and, as I noted on a recent podcast, a brand most is the highest form of an economic moat. That is, once a users' identity/self-preservation becomes associated with a brand, they will go to great lengths before they decide to part with that brand, and, in some ideological brand situations, they may even sacrifice their lives. It's a powerful moat!
  2. Diversifies the sources from which a company generates sales; which thereby reduces the risk of the business. Imagine you have one income in a volatile industry. Then imagine you had five different sources of income in a variety of industries. Which would you believe to be the riskier situation? Of course, having a diversified set of incomes leads to reduced risk for the entity to which the revenue accrues. Because risk = return, and return is a function of starting valuations (where higher valuation = lower return = lower risk), a more diversified company should naturally command a higher valuation, which provides benefits such as allowing the company to leverage its equity value as currency for employee compensation and/or future acquisitions.
  3. Expands a company's total addressable market, which serves to expand a company's runway for growth. Instead of having a revenue generation ceiling of $1B with one product, with five likewise commercially viable products, a company's revenue generation ceiling could be $5B, which obviously would result in a higher future free cash flow per share, an, by extension, share price. Going multi-product creates an snowball of compounding growth for a company via a series of multi-hundred million or multi-billion dollar revenue businesses, as has been the case for Crowdstrike, Adyen, Salesforce, SentinelOne, and many other companies L.A. Stevens shares with you.
  4. Expands a company's avenues to go to market. This is very important to note in that a company can be more efficient with its marketing spend. This is often not discussed, but it's very much worth noting that, with five or ten avenues to go to market, a company can adjust its marketing in such a way that it capitalizes on the avenue through which it gets the highest ROI on its marketing spend in any given month or quarter or year. Moreover, because the business is multi-product, it knows that it can wedge into a customers' wallet with one of its five or ten products, then gradually upsell over time after engendering trust via its quality products with the customer that it captured through one of its avenues to go to market. With only one avenue, marketing spend is less efficient, and there's less opportunity to "wedge" into a customer's wallet.
  5. Creates the opportunity to vertically integrate, which can create greater consumer surplus. Enterprises have sprawling tech stacks, with hundreds of software vendors comprising those tech stacks. While no enterprise will go all in on one software vendor, many will want to do more business with the best ones, so having a vertically or horizontally integrated platform can create greater consumer surplus for these buyer personas.
  6. Expands the LTV of a customer through upsells and cross-sells. I've shared it often in the past, but it certainly bears repeating: Remember the Splunk case study in which the company added essentially no new logos over three years, but still 2-3x'd its ARR (annual recurring revenue) in that period. This demonstrates the value of having multiple products to sell to an existing installed base.
  7. Lastly, a multi-product platform increases a business' switching costs, or embedding, moat. For instance, if I, as a CISO (Chief Information Security Officer) or IT director, chose SentinelOne's end point security product to augment my company's security posture, the decision to "rip and replace" this offering later on might be difficult, but it wouldn't be too much of a reversal of course. But, if I chose S1's end point, cloud, identity, AI, threat intel, and SIEM products, bundling them into a platform, and essentially going "all in" on S1, 1) it would be more technologically difficult to rip and replace S1, and 2) it would represent a public mistake on my part, as the CISO or IT director, to choose to bet so big on S1. In short, going multi-product creates a switching costs, or embedding, moat for a company, and this makes "point three" of equity value much stronger, i.e., a stronger embedding moat makes a company's free cash flow more durable, which makes it more valuable to us as investors.

Let's now very briefly review Monday.com's multi-product strategy.

Monday's WorkOS (Operating System) Illustrated

Monday Q1'24 Shareholder Letter

As can be seen beautifully illustrated in the above chart, Monday's multi-product platform consists primarily of its legacy "wedge" product, i.e., Work (Project) Management, and its latest products, Sales CRM and Dev.

The growth of these products can be seen in the charts that Monday has shared with us in the above-linked shareholder letter and which I shared below:

Monday Q1'24 Shareholder Letter
  • Here is Monday's description of this chart: "monday sales CRM enables sales professionals and customer-facing teams to track and manage all aspects of the sales cycle, customer data, and more, all in one place. monday sales CRM is now accessible to all customers.Total monday sales CRM accounts at the end of Q1 accelerated to 16,976, representing 27% growth from the prior Q."

And, below, we can see the growth of Monday's Dev product:

  • Here's Monday's description of its Dev product: "Built on the user-friendly WorkOS platform, monday dev equips product and development teams with a comprehensive suite of tools, enabling them to manage all development processes. monday dev is now accessible to all customers. Total monday dev accounts at the end of Q1 accelerated 2,090, representing 44% growth from the prior quarter.

The acceleration that we saw from both products was a result of Monday finally releasing them to its entire 225k+ installed customer base, which you can see graphically below:

Monday's Total Customer Count

Let's conclude with a brief consideration of each point of value applied to Monday:

  1. Monday has been a master of performance marketing, which, combined with a simple, yet powerful, product, has resulted in the meteoric growth seen above. While Dev and CRM are not yet being marketed as standalone products according to management, eventually they will offer Monday new avenues to Go To Market, which will allow it to be more efficient and effective with its marketing spend, creating greater LTV/CAC (which ultimately feeds into NPV of a business and its stock) and faster and more durable customer growth.
  2. Monday's Dev and CRM products, as well as its nascent App Marketplace, Service, and Code products, will serve to diversify its sources of revenue, ultimately evolving the company from a one-hit wonder, reliant on the vicissitudes of the project management market, into a diversified multi-product conglomerate that's highly durable.
  3. Monday's newer products very obviously expand its long term TAM. This is obvious, especially after performing our multi-product platform studies, but what I'd add here is that productivity software markets are growing and new, dynamic, young companies appear virtually every day; then, grow into giant enterprises over time. One notable example has been Canva, and the best software vendors that cater to these younger companies will win that business and continue to grow themselves. They become beneficiaries of "a royalty on the growth of others," in so doing.
  4. Instead of going to market via just project management, Monday can now go to market via a Dev, CRM, and Project Management, and these avenues will expand as Monday adds new products to its platform. And, as a reminder, once Monday wedges itself into an enterprise, irrespective of the avenue it took to get to that enterprise, it can then do its best to expand the LTV of that customer via upsells using the products on its multi-product platform. And, as we know, increased LTV/CAC flows directly into increased business value, so it's natural for the stock to appreciate when it becomes known that new products are being successfully fielded in a commercially viable way.
  5. Monday has both vertically integrated (e.g., MondayDB) and horizontally integrated (CRM, Dev adjacent to project management). This gives enterprises the opportunity to consolidate their tech stacks into one, high quality, trusted vendor, in the same way you'd consolidate your portfolio upon finding out that you own a multi-product platform business that has tons of cash, no debt, solid free cash flow margins, a huge runway for growth, a great corporate culture, and a penchant for fielding new commercially viable products.
  6. We've already touched on it, but Monday's multi-product strategy affords it the ability to increase the LTV of each of its customers. This can be seen sharply in its strategy to sell its Dev and CRM products into its 225k+ customer installed base first, then transition to selling them as standalone products. We can see that it's a fairly easy motion to increase the LTV of existing customers who've bet on Monday's software vs cold-acquiring new customers and developing their trust over years.
  7. Once a company expands to CRM, Dev, use of Monday's app marketplace, project management, and more, Monday develops a healthy embedding or switching costs moat.
Interesting Chart Depicting An Estimation Of Monday CRM Penetration As A Percent Of ARR (It Should Be Noted That It's Still Relatively Low)

I'll stop here for today. In short, Monday's multi-product platform strategy has made it a more robust, faster growing, profitable, and durable business, and its 2024 guidance reflects as much:

Monday's Fantastic, Highly Profitable 2024 Guidance

Thank you for reading.


L.A. Stevens has rated Monday.com a "buy."

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