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Good morning! It's Friday, October 13th. Today’s post looks at Klaviyo, a tech and marketing company that recently IPO’d at $9.2B with strong support from industry titans like BlackRock!

THE FEATURE

The $9.2B Tech Company Democratizing Data Marketing

Last month, marketing automation company Klaviyo secured an impressive $9.2B in its initial public offering.

Within just the first 6 months of this year, Klaviyo generated $321M from its B2B subscription model!

What’s the Business?

Andrew Bialecki and Ed Hallen founded Klaviyo in 2012 after working at a software company that did data analytics for big Fortune 500 retailers. While helping these Fortune 500 companies understand their consumer bases, they were amazed at all the customer data not being used to drive leads and sales.

This realization made the two understand that if Fortune 500 companies weren’t sufficiently utilizing consumer data, small to mid-sized businesses certainly weren’t.

With their software and marketing skills, they bootstrapped Klaviyo with a mission to democratize the data harvesting and implementation tools enjoyed by big tech companies and, in the process, unleash growth for small businesses.

Today, the company has clearly achieved its mission with approximately 130,000 customers, the majority being small e-commerce retailers.

In simple terms, Klaviyo provides its customers with advanced data collection and analysis tools that allow them to hyper-segment their consumer base to send personalized emails and SMS messages to each subgroup.

What Klaviyo’s founders realized is that the primary form of human currency is attention (people love to feel seen and appreciated). As such, personalized marketing material tailored to purchase history and consumer interests massively increases customer conversions.

There are three subscription options available to Klaviyo customers:

• Free: This is the default plan for businesses with fewer than 250 contacts and includes 500 monthly email sends

• Email: $45/month for businesses with 1,000-1,400 contacts and includes 10,000 monthly email sends

• Email+SMS: The price for Klaviyo’s highest tier scales with a business’s number of contacts (10,000 contacts=$135/month and 100,000 contacts= $945/month) and allows for SMS and MMS marketing

Small businesses can’t afford to waste money on marketing efforts that don’t generate a sizable return on investment. That means Klaviyo has 130K subscribers because their software legitimately works (stories of businesses increasing revenue by 30% from Klaviyo’s personalized emails alone are common).

How They Win: A Symbiotic Relationship with Shopify

One of Bialecki and Hallen’s first clients was a friend who had recently built a store on Shopify– an e-commerce platform that allows entrepreneurs to create and manage their online marketplaces.

After seeing how Shopify catered to growing small businesses, Klaviyo’s founders realized they were after the same exact consumer base. So, they listed their company on Shopify and quickly amassed a few hundred eager e-commerce retailers looking to drive sales with personalized email marketing.

Rather than view Klaviyo as scalping their business, Shopify realized that the company offered a completely different product that helped their listed businesses grow. Since Shopify’s revenue depends on the growth of its listed businesses, they were more than happy to lend a helping hand to Bialecki and Hallen in the form of detailed product feedback and introductions to online merchants.

Last year, Shopify made its relationship with Klaviyo public with a $100M investment in the company to form a strategic partnership. The partnership seamlessly integrated Klaviyo’s software into Shopify’s platform, leading to 63% YoY growth in 2022.

Key Observation

Approximately 78% of Klaviyo’s revenue comes from customers who also use Shopify, meaning that Bialecki and Hallen created a $9.2B tech company off the back of another company’s leads.

So, Klaviyo’s lesson for struggling bootstrapped companies is simple: you can find consumer demand by soliciting the customer base of a successful company in an adjacent industry.

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