monday.com：工作管理软件——[Business Breakdowns，EP.217]

In August 2011, Marc Andreessen penned his famous essay, “Software Is Eating the World,” and if there was a poster child from this era, monday.com certainly deserves consideration from the committee. It was founded just 6 months later, in February 2012, and today has a market cap of over $14 billion. I was joined by Ben Hensman, portfolio manager of Square Peg’s listed equity strategy, a global tech fund, to break down monday.com and how it emerged as a winner amid plenty of competition. I walked away from this one with a true appreciation for platform flexibility, and why monday.com has said it’s like having a bunch of LEGO bricks you can assemble at will to build exactly what you want.

Ben, I am excited to have you here to break down monday.com. In the world of software, it is an area that has very much been the market theme for many years now, but not a sector that we cover a ton. We’re not over-indexed to it, so maybe we could start by painting a broad picture of what monday.com is, what they do, and just a general sense of the business itself.

Thank you for having me. monday.com is a work management platform. It’s been thought of in the past as a simple platform to run tasks, but it’s much more than that. It helps teams and organizations of all sizes plan, track, and run workflows of any kind. They’ve expanded from task management and project management into functional verticals like CRM, service management, and software development tools. Customers can easily tailor workflows to the way they work within these products and between teams, really maximizing efficiency.

That’s interesting to think about in terms of the different markets where monday.com touches. The flexibility of the platform means that it can serve an incredible number of use cases and solve problems across different teams in any organization. That starting work management product is such a large market partly because it touches labor budgets, how people work, and the efficiency with which they work. There are a lot of areas we can go into, but it’s a very, very large market opportunity across any business size.

I was impressed that, rather than being very niche in one particular segment of the market, they’ve been able to expand and have touchpoints in so many different workflows at this point. Before we really talk about what’s going on today, we can go back to the beginning—the origin story of monday.com, some dynamics around who founded it and why they founded it. Just those early days would be useful.

In 2012, Roy Man and Eran Zinman, the current co-CEOs, founded the business, and they launched what was called daPulse back in 2014. The name daPulse came from the desire to keep your finger on the pulse within the business. It was originally spun out of Wix.com. Roy and Eran built a prototype of that original product to use within Wix. It was a really popular tool, but they spun it out and built it into a much broader platform.

Eran had his own previous startup as well and learned a lot from the failure of that startup. He’s talked about that publicly. They built monday.com together, and it was an incredible story of growth once they built that original, broad product.

If you look at where they were in their first year, in 2014, they finished with $400,000 of ARR. By the end of 2016, that had come up to about $6.5 million of ARR. Over the next 3 years, they grew 10 times. After that, they grew another 12 times in 5 years to reach over $1 billion of ARR, where they are today. The product had incredible cut-through in those early years, and that hasn’t really changed all the way through, despite it being a very competitive market.

If we look at what made them special, the original ethos of the product was for it to be as flexible as possible. Customers were using different software products, but in very specific ways. The way those products were built was the way you had to use them, and their view was that this limited the way teams could work together. It limited not just their productivity, but their capability and the things they could do within their teams. They wanted to build a platform that was really flexible and based on primitives—building blocks. Think of monday.com as LEGO blocks of software that you can construct and work with in any way you want.

Those early years were also informative in terms of how they built the team and the financial profile of the business. In Eran’s case, his business, while it didn’t succeed, generated some really rich learnings. One of them was moving quickly, getting products into the hands of customers, and getting feedback quickly. He talks a lot about the lack of speed, iteration, and impact they were having with that first startup. He talks about excessive overthinking and the tendency to strive for perfection in product development. That has really flipped at monday.com, where they learn quickly about what their customers need, build according to that need, and get it into their hands quickly.

Roy, in his time at Wix.com, learned many lessons. There were 2 practices that come up a lot from that period. The first was not offering free trials to customers very early on, which is counterintuitive when you look across the software space. Products typically give customers a lot of flexibility in how they use them, but that also allows them not to commit or to churn quickly after trying something and perhaps not seeing any immediate value. Wix, and monday.com thereafter, really tried to show customer value and demonstrate ROI very early on. One of the tactics to do that was not offering free trials.

The other thing they did in driving willingness to pay was to test that willingness while accompanying it with a bias toward upfront billing of the customer and incentivizing that. That showed that when customers were really using the product for a core workflow, they were making that commitment upfront. It also helped build the company in a really cash-efficient way, rather than relying solely on external capital. You see that today in monday.com and in the way they have built out the organization. Speed and efficiency really matter.

New product ideas and launches are core to any software business, but what you often see is 20, 30, or 50 developers being thrown at new products in other businesses. If you look at monday.com’s CRM product, which was built on the core primitives of the platform, it was built with just a team of 4 engineers. That product now has over 27,000 customers and is growing accounts at over 100% year-on-year. They really push developers to think about what can be achieved in short time periods, rather than how long an entire product build might take, and to maximize feedback and improvement. That all came from those early days.

On billing and efficiency, you can see the output of this across the venture-capital years of monday.com’s journey and its IPO. They raised around $800 million in capital, and the vast majority of that was never burned; it’s still sitting on the balance sheet. They now have about $1.4 billion in cash, with no debt on the balance sheet.

The other thing they learned through that time is that transparency and trust are absolutely critical. That applies not just to each other. Roy and Eran have always worked unbelievably well with each other and with their leadership team, but they have a certain leanness and efficiency in the way they run the business. You can only get there through trust and really empowering people. For them, that means a really high-performance culture, but also high care, where they’re giving people the chance through transparency.

This was even more radical before they went public, when everybody in the business could see what was going on. Every number was available, and they would often share a lot of that publicly. Practically, when you go into monday.com’s offices, you can see this. Every team in the business has its own KPI screen. They know what metrics matter to them, and they also see what metrics matter to other teams. They can always pass comment, get involved, and help each other out, and everyone can own the success of the business. We’re seeing that transparency and trust scale to an amazing level with a team size of 2,500 people today versus hundreds in the very early days.

I have to say, I’m embarrassed to note that I did not appreciate that it came out of Wix. I noticed that the Wix founder is a very large shareholder, and it would be obvious to connect the dots there.

On that point, was that a major opportunity for cross-selling? Was there an ability to do that, given that Wix is obviously this outward-facing customer platform—essentially, you can build a storefront out of the box with a website—which I think was very innovative and, in a lot of ways, helped a lot of small and medium-sized businesses?

Was monday.com able to tap into the customer base, or do any cross-selling, in those very early days to get that start off the ground with customers?

In the very early days, it was really a single-use-case, single-product platform. We met them very early on, in 2015. The business was growing very fast. I mentioned that at the end of 2014, they had about $400,000 of ARR, and that grew to $6.5 million by the end of 2016.

During that period, when they were a single-use-case, single-product company, the usage patterns were extraordinary, both in terms of depth of usage and retention. By 2017, they had 3-year-old cohorts with 100% net retention. While we see software companies today with 115% or 120% net retention, 100% net retention at an early stage, when you don't necessarily have product-market fit with every customer—you've got plenty of customers churning who don't have product-market fit—is extraordinary. To maintain that 100% over 3 years for your first annual cohort is extraordinary.

The reason for that is that the product was so incredibly flexible. You had customers coming in and using it—we can talk about some broader use cases—for a single project, and that was starting to evolve into using it for multiple projects. That would often require more teams, so you'd move into expanding and pulling in data from other teams, pulling in approvals from other teams. Sometimes you'd be pulling in approvals from external companies.

You saw this incredible pattern of usage across many, many use cases, but without separate products for each of those. It was very much a flexible and open platform. The way that Monday solved that problem very early on—it was effectively a discovery problem for customers—is that you need to know what you want to use it for.

In solving that discovery problem, they turned to solution-based selling, or product marketing. In the early days, the use of YouTube and other content, aligned with their performance marketing, really went to customers with solutions. Instead of saying, “We are a task-management platform,” it was, “We are a CRM,” or, “You can build workflows within your business in any way that you want,” or, “Here’s a very specific problem that a customer could solve.”

That very quickly allowed customers to start using them for core workflows early on, and that pattern has continued all the way through. If you look at Monday today, it’s built across its platform, with individual products on top of the platform. The usage statistics are really interesting, but they’ve actually been quite similar for a number of years.

Sixty percent of customers manage 2 or more core customer workflows. What that really means is things like CRM, service—that could be IT service or external service—HR functions, and recruiting functions. Twelve percent of the customer base today uses it for HR, 47% use it to manage their clients, 14% use it for finance management, and 21% are using it as a ticketing system.

It’s an incredibly broad system, and you saw that in the early days, but really on an open platform in a way that today is much more organized across different building blocks.

It’s interesting to hear. As much as you can talk about your flexibility as a platform—and I’ve heard the Lego analogy, which is one that I like—you need to spell it out sometimes just to give the end customer a sense of what they can use it for. You’ve hinted at some of the use cases. Maybe you can bring it to life with examples of how customers might have used it early on and how that’s evolved. Anything you can spell out with a clear example, I think, is particularly helpful.

Absolutely. The rough framework to think about is that often companies will start with an individual team, or an individual person will start with a one-off project. They’ll be managing a specific need within a business, and that will typically evolve into daily, ongoing core work. That will often then evolve into different departments, and then together those teams start to invest in core workflows and standardize across the organization.

There are some really interesting examples. If you look at Monday’s customer base, they serve businesses across 200 different verticals. About 70% of the customer base is nontechnical or blue-collar, in industries like manufacturing and other industrial categories, managing really interesting and difficult processes inside Monday.

One example at the technical end is Canva. They’ve been a very vocal proponent of the platform for some time. Their marketing operations team was the starting point for that account. This was a set of teams that were pushing requests into the marketing team from all over the business. They were doing that in very different ways—through email, through different tools, and through some task-management tools as well. Some people were managing in Jira, some in Atlassian, one or two were using Monday, and a lot of emails and communications were flowing in.

They standardized on Monday, and they did that with the monday WorkForms product to bring data from those teams in a standardized way into a core platform. They then built a set of automations across all the activities they needed to conduct inside the pipeline, and integrated those with all the other tools that they work with and execute in.

If you look at Monday more broadly, there are about 80,000 integrations active every single week. They act as a bit of a hub and allow teams to really orchestrate their workflows. If you look at Canva’s ROI—and this is the most important thing for a customer, ultimately, what changes—they were able to improve marketing production time by 40%. They were able to increase their creative output for the business by 3 times, and this was before the era of generative AI. So it’ll definitely be moving faster now and managing concurrent projects more effectively as they rapidly scale and go into a whole lot of new markets.

McDonald’s is another really good example. The business process team was spending 20 hours a week tracking approvals, processes, and different projects across emails, Excel, and other documents. They created a series of interconnected boards on monday.com across all of their work areas and projects within each work area. That all funneled up to a master dashboard at the top.

They built 150 different automations to limit duplication and repeated processes and steps. They measured all of this. It was having such a significant impact on the business and speeding processes up, allowing them to smoothly orchestrate important partnerships with external parties and give them access to boards with the required permissions, security, and enterprise-grade protections.

The measurement was really interesting. They reduced internal emails by 20,000 per month. They calculated that they saved 1,200 hours per month in productivity, which they measured as about 7 FTEs. The overall ROI in dollar terms was about 6 times. So, really, really compelling.

Another interesting use case, which I’ll share—and we can dig into a few more if you’d like—is Bloomberg. It’s a large organization that’s been around for a long time, with lots of different ways of working, but with sophisticated systems that it provides to its own customers and significant internal proprietary systems.

Monday has a really flexible API that allows external customers to connect their own environments to Monday and orchestrate them from Monday, pull data into that environment, and run different workflows. Bloomberg is one such customer that’s made that investment and gone really deep using the API, and we’ve seen that a lot.

It’s very interesting to hear. I can think of our own internal use case, where we implemented software. It wasn’t monday.com, but the unlock at the time was going from emails and messages to having one single system that was pulling from Google Drive, our email, our Excel files, our RSS feeds, and external and internal sources. It was just unbelievable in terms of the unlock that created.

But we did run into issues where the ability to connect into other systems started to break down, and there are all types of issues. So you need to keep evolving it to meet our needs, let alone the needs of a McDonald’s or a Bloomberg.

That’s one of the points I did want to get to. It seems like Monday is, by all means, an incredibly successful business at this point in particular, but I’m sure when Vanta started working with monday.com, they were probably smaller. Compared to a McDonald’s or a Bloomberg, there’s a big gap there.

My impression was that it was very much small and medium-sized businesses, and the larger enterprise or larger organizations have started to come more recently. Can you talk about that evolution and how that played out—whether it was just an organic, natural evolution to go upmarket, or if there were particular things that really drove that?

I mentioned that Monday really differentiates through this Lego-blocks approach to software, which allows organizations of any kind to build, run, and automate the way their team or their organization works. This has always been really important for larger businesses.

I think the move upmarket was always something that the founders were interested in doing and wanted to pursue, but it did happen organically. Their early customers, many of whom were large customers—Forbes 500 customers in the US, or other businesses globally where they had low levels of penetration—were coming into a single team.

Over time, the effectiveness of the product, the ease of use, and the flexibility of the product meant that it started moving from team to team. But if you go back even as recently as 2019, the business had very few large customers. In 2019, they finished with 76 customers that spent more than $50,000 a year with monday.com.

Today, that’s 3,200 customers, still growing at 40% year over year, and they now have 1,200 customers spending more than $100,000 a year with them.

That’s changed really significantly. Part of that is the different capabilities across automations and workflows, but part of it is also creating a really organized matrix of how customers can use the product, a really extensive template library, and starting to build out other parts of the commercial strategy as well. Those have really assisted customers in scaling and discovering different ways that they can use the product through partners and application developers, who have been building around the platform to solve other problems adjacent to the core use cases of monday.

All of these things have worked together to enable enterprises to invest in the monday use cases. What’s been really interesting is that, over time, as users have scaled on the platform, internal champions have typically formed. These are people—individuals who might be team leaders or who might be really passionate about how successful monday has been for their team—but they strongly advocate for bringing in other teams and linking collaboration together within the platform to achieve much better outcomes.

You see that in the numbers. If you look at cross-team interactions in the platform today, there are 33 million monthly cross-team interactions. On a daily basis, 73% of customers are collaborating across departments. That’s really what’s driven this incredible expansion into the enterprise.

Of course, there’s also been significant investment in enterprise-grade features, permissions, and security. This is all really critical, and perhaps a nice segue into what makes monday different—and we can dig into this a bit more—is mondayDB. Scaling these sorts of horizontal use cases on a very broad product can be technically difficult, purely based on database limitations.

monday has built an incredible underlying architecture, which it continues to advance. In fact, that is the product. It’s very different from traditional software, where you’re using a defined user experience that is calling a database layer in the background. The really interesting thing about monday is that it is the database.

They’ve built a proprietary, schema-less database architecture that allows users to instantly customize the workspace—dragging, dropping, and adapting workflows at any scale—and do so in a way that’s defined with software rather than the rigid schema of a fixed database underneath. That’s required real investment and innovation from inside the business to allow the database to scale for the enterprise. A couple of years ago, in 2019 or 2020, when they were predominantly an SMB-focused business, mondayDB wasn’t yet built and wasn’t ready for the kind of scale that we see now.

With that investment, we’ve seen incredible feedback from customers, incredible change in speed, and the ability to run many hundreds of thousands of items and columns on boards. That’s changed significantly and facilitated the move up into the enterprise.

Can you dive into that a bit more? I’m thinking about the best example, but in the most layman’s terms possible, in terms of the database differentiation versus a traditional software package. Let’s pick Salesforce, or whoever it might be, as a CRM, which might look different, and tell me if that’s the wrong example to use, but how that differs from the way that monday.com approaches it and the ability to scale.

Typically, in the first year of software, you would build a schema that you were going to use inside the application, and you would build it in a relational data model. That was very, very difficult to update without a significant upgrade. By doing it in a schema-less way and building it in a flexible way, where data is put together not just on a rows-and-columns basis but using separate databases in a columnar way and in a row-based way, you can conduct queries in any way for the customer.

In that way, you can conduct them in whatever way best suits the data model. But if you think about Salesforce, they built an entire ecosystem around a core product that is used in a very specific way and has a very specific data model. If companies want to engage with and feed data into that model, they have to do it in a certain way.

monday.com is the opposite of that. By having an open, very flexible database with a flexible schema, and so many integrations and points where data can come in and then flow back out to execute work, they provide a very different experience for customers that enables a totally different level of flexibility. Hopefully, that makes sense.

Is using the LEGO example a decent way to look at it? If you’re carrying around a completed LEGO set and you have to bring that completed LEGO set around everywhere you go, that’s obviously taking up a lot of capacity, versus bringing the individual blocks and putting together whatever you might want. It’s going to be smaller in size, and you still have the ability to customize it and make it look different. Is that a fair way to represent it—that it’s chunking out the individual pieces that can then be put back together in whichever way you want?

That’s a good way to look at it. If we define the platform as a set of services and capabilities, then however you want to use it is a set of building blocks. That could be a specific column performing a defined task. It could be using one of their pre-built products, like CRM, but also building a whole lot of flexibility around it and connecting it into different data sources that you wouldn’t otherwise be able to in a really fixed and defined CRM.

A competitor of monday in the CRM space, for example, is HubSpot, for both small businesses and mid-market in particular. HubSpot has a largely fixed data model. You have to use their CRM in a very specific way. monday.com comes with all of the same functionality, but then you can build around it in the way that your business works and the way that your customers interact with you, bringing in any data that you want and linking it to any other tools that you want in an incredibly flexible way.

That’s what we’ve seen with customers. Early on, they might start with more rudimentary use cases and then eventually build out the way that they work in a way that makes sense for them and for their customers.

Talking again about the customer base and how that’s evolved over time—working your way up into the larger enterprises and working across teams—does the go-to-market function, from a sales perspective, have anything unique when they’re thinking about targeting these larger businesses and then expanding within them? Is there anything specific to how they approach it that’s noteworthy?

Sales has evolved really significantly. We’ve been using this time scale of looking at the business pre-IPO in 2019 and coming through to the present day. The primary path to market back in 2019, primarily to small businesses, was self-serve. There was a significant performance marketing and solution-based selling approach, driving inbound and self-serve onto the platform.

Those were also the very early days of expansion-based selling and using customer success reps to identify use cases within businesses, as well as champions and decision-makers within the organization, to advance those use cases. Those were also the early days of monday’s partner channel, which is now materially scaled.

If you look at the mix of ARR added in 2024 versus 2019, it’s completely different. Self-serve—and this is added ARR for the total year—was about 40% of the dollars added. Expansion or outbound sales were about 40%, and partners represented 20%. Back in 2019, it was 70% self-serve, with the remainder mixed between sales and partners.

That’s a totally different mix, and it was really important for serving the enterprise, as well as defining the product and the use cases in more specific ways for the enterprise. But many, and I would say most, customers that are enterprise-scale with monday.com started as a very small individual team or a small initial deployment of somewhere between 10 and 100 seats.

It’s only recently that they’ve started selling much, much larger seat counts. If you look at the last couple of years, in 2022, their largest customer was 7,000 seats. Now, in 2024, that’s 80,000 seats.

Wow.

Those customers have expanded over time, but the initial deployments for some of those larger enterprise businesses—which are large banks or large health services companies—have increasingly started with much larger deployments and sometimes top-down sales.

You’ve alluded to the various structures, but what does a contract look like today? You have seat-based pricing—is it usage-driven? How do they go about structuring the pricing of a contract, the term, and anything else that’s relevant in there?

Sure. This is a traditional SaaS model. It’s priced per seat, but it’s tiered based on usage, the depth of usage, and the functionality that customers are using. At the small-business end, prices range from $10 to $30 a month, and the tiers are based on how customers are using different automations and integrations. Those have different tiers and limits, as well as monitoring-type functionality.

If you’re using multi-team or multi-project dashboards, moving into dependencies and calculations, and using more sophisticated functionality, you move into another tier. Then there’s another tier for enterprise. When you’re moving into enterprise-grade scaling, SLAs, security requirements and governance, permissioning, and premium integrations, all of those things are possible in the enterprise plan.

What you typically see—and this has historically been true of monday, and we can talk about how this flows through to financials—is that about 70% of customers have typically moved into upfront billing. I mentioned that was a feature from the very beginning. Today, that’s about 80% of customers running upfront billing, and so that leads to a very efficient cash model.

You've got different areas of expansion that customers can move through and that allow those accounts to expand really, really quickly. And so, beyond those tiers of pricing, we think of the revenue model as really having 5 key levers. The first is seats and team expansion, the second is the tier expansion that I've talked about. And then, recently, we've also seen them move across geographies in a much more concerted way and give autonomy to individual geographies.

They've been selling into many, many countries from the very beginning, but now, in recent times, there's been a real concerted effort to build capabilities individually in APAC, in EMEA, in North America, and the rest of the world. We've also seen them move into product cross-sell. And so, those can layer on top of the original use case: if you come in as a customer on work management, you can then expand to the CRM, expand to service or dev. And then, most recently, pricing has been a lever of growth as well. It historically hasn't been part of the mix, but in 2024, the company went through a material pricing adjustment across products and segments, and they've executed on that really successfully.

That drove an additional 30 million of revenue in 2024, or about 4 points of growth, and price will continue to flow through into their 2025 and, to a lesser extent, their 2026 numbers. But it was an interesting test of how deeply the customers use the product and how important it was to them and to the partners that sell monday.com as well. The feedback was very positive, and churn has actually improved to record levels in terms of gross dollar retention.

On that point of stickiness—the ability to retain customers—when you think about the various offerings that they have, work management and the CRM system, are there certain segments that really have stickiness in terms of low churn? Is that something they break out or differentiate? And how do you think about it?

Yeah, I think the way that we think about churn within monday.com is twofold. One is the importance of the use case, and the other is the level of commitment from the customer. Often, that is correlated with size, but it's not always correlated with size. You have a lot of small-business customers who are incredibly committed and use it for core workflows.

There are 2 things that define whether a customer will move into a really favorable churn profile. One is the importance of the use case and how quickly that scales, and the second is the billing and the commitment. Are they billing and paying upfront? Are they willing to expand and explore other use cases?

In my mind, the investment in a CRM system is insanely painful, so to consider changing is a major overhaul. Whereas with project management, once you cycle off a project, you can theoretically switch with a bit less friction.

Yeah, I think what you often see is that while an individual project might be the starting point for using monday.com, it might be the catalyst to try it. What we typically see is that customers will see the benefits of it and see how they can use it on an ongoing basis and will make that switch. And that's when you start seeing champions emerge or the introduction of other teams.

And you referenced pricing and the impact that that had on top-line growth. This was a business where the growth numbers were just off the charts for many years. It's still growing at an insanely high level from a revenue perspective. How do you think about those different levers, and what is driving the majority of growth, to the extent that you can break out whether it's seats or moving across geographies? What level of detail can you share there in terms of growth results and drivers going forward?

If we think about the major successes in software that have surpassed 10 billion of revenue, extraordinary companies like ServiceNow or Salesforce, they have 3 things in common among many others, but they have 3 things in common. The first is they're able to deliver multiple levers of growth that can work together over time through solving many problems across a range of areas of overhead and labor within their customers. The second is that they can continuously evolve and scale multiple go-to-market pathways to enable business from new customers to scale, but also generate the majority of their growth from existing customers—and I'm going to talk to that. The third point is that they execute that with financial discipline and efficiency to create enormous value for the business.

Interestingly, a lot of these businesses that have reached that scale—and there are only a few—were led by the passion, drive, and vision of founders. We think monday.com has all of these attributes.

But looking specifically at multiple levers of growth and tying that to the go-to-market pathways, something that we've seen these successes do consistently is really evolve product and evolve go-to-market at a pace that makes sense. And monday.com has achieved that. If you look at the levers I mentioned, they can expand across seats and teams within organizations, they can expand in usage tiers, and they can expand across products. They can use pricing as a lever, and they're moving consistently across geographies with customers and into new customers. These levers all have really significant longevity.

If you look at the typical pathway into a large customer, it often starts with a very small deployment, and that moves through use cases and becomes more and more important over time, becoming a large account. We've seen incredible cohort behavior akin to the kind of cohort behavior we've seen in the early years from companies like ServiceNow, where you're seeing 3-, 4-, and 5-year expansions of very, very large 40% or 50% increases per annum in spend. And that's happening across teams. It's also happening with the tiers, and increasingly, it's starting to happen with product cross-sell.

If you look at the 2 key products that have been launched, there have been some really interesting statistics that have come out that indicate we're starting to see the same sort of behavior that we did in the early days of Salesforce or ServiceNow, although those businesses were really focused on the enterprise. If you look at monday service in its early days—still very early—80% of the deals they've done to date were multi-product deals. So, not just selling work management or the core platform, but actually selling multiple products on top of that platform.

90% of ARR to date has come through the partner channel or through direct sales. So, these are large accounts, large enterprises, as well as mid-market and small businesses, that are looking to third-party partners to help them build out the use cases, expand their capabilities, and also conduct services with them. 60% of the deals were cross-sell from existing monday.com accounts. This has been a really important feature, and we think it has real longevity. We're very, very early, particularly with large accounts. And so, across those 5 levers of growth, we think there's real longevity.

If you then look at the go-to-market side of the equation, they've gone from having a single approach to go-to-market, very focused on the SMB and self-serve, driven by performance marketing and product-led growth. They've moved that to having not just an inbound approach to growth, but also moving through the partner channel and really scaling that partner channel, incentivizing the partner channel to go really, really deep, celebrate the wins amongst their partners, and give them the data to be competitive with each other in the same way they do internally.

They have an incredible amount of trust with their partners. They feed them leads on a regular basis. They train them really closely, and they incentivize them to build a services business around monday.com, like we've seen with businesses like ServiceNow, Salesforce, and Atlassian. And this is something that they've done with incredible discipline and innovation as well in terms of incentive models, and really helping to build that out. And that is scaling incredibly well.

As I mentioned, that's gone from about 12% of new ARR in 2019 to about 20% of new ARR in 2024. They've also built out a solution-based approach to expansion that's now evolved into a top-down sales motion as well. And those things together are scaling very, very well.

The other element of their ecosystem, which has turned them into a broader platform in addition to the partners and the services that they bring, is that they've also built a development ecosystem around them, where developers are bringing apps onto the platform, many of which are built by the partners themselves, and the vast majority of those are being monetized by partners. And this is allowing the platform to solve long-tail use cases and move into niches and verticals.

Given it is such a horizontal and flexible platform, these partners and developers can really work around monday.com and use it to access those markets, and use monday.com's distribution to get into all of these different parts of the market. And so, we think that together, all of those things, across the different areas of product, pricing, and expansion within the business, as well as the different go-to-market motions to go with it, can enable monday.com to grow at really high rates over time.

One of the things you've referenced a few times is the partner program. Can you give a tangible example of what the sale via a partner would look like? If you have examples of businesses or a description of a business and the ultimate buyer, that would be helpful as well.

Absolutely. So, there are 2 types of partners. Typically, small-business partners will be very focused on monday.com as their primary service offering, and they will have a set of sales motions or specific problems that they go out and solve for customers that they've often built themselves on monday.com, and they take that out to customers. Then there's a resell model as well.

And then if you go up the scale, we'll also see monday.com partnering with large consultants and platinum, large-scale partners that are very focused on not just monday.com, but other software providers as well. They're going to customers themselves or taking leads from monday.com to go into the customer and explore the problem that they have. So, it's less about selling a specific product through the partner, and it's about exploring that solution: What does the customer need, and how do you build a solution around monday.com with that?

One of the things that we really liked early on about the partner channel, and felt that it could really scale materially, was an analogy that we've seen in the accounting industry. As the accounting industry moved into the cloud, one of the things that bookkeepers and other folks who use the likes of Xero and QuickBooks benefited enormously from was the automation that came from that. So, that actually improved their margins significantly because they didn't need to adjust their prices, typically.

What we're seeing is a very similar dynamic with partners, where they can provide enormous value to their customers, but they're doing so in a way that doesn't require code, doesn't require significant resources from them to build, and can be reused. And so, there's a real incentive for them to build products on platforms like monday.com, and they can see the value when they come in for the initial build. But then they'll often sit down with customers and work out, over the next couple of years, what are the things that we want to step through? What do we want to build? And we've seen that pattern consistently emerge across the partner channel.

Yeah, it's very interesting how these ecosystems are open architecture in some ways, where there are different use cases that can extend into new hubs, essentially, that these partners become, with a bunch of spokes that are customers as well. I always find it interesting, particularly in the software world. It seems to be incredibly popular and a delicate balance to manage all of that.

I think you've painted the picture in terms of the outlook from a revenue perspective and some of the key things that are happening right now. If we go back over time, you mentioned net dollar retention being an incredibly important metric within software. There have been some periods where we've seen ups and downs, and it seems like it's very much back on the upswing right now. Can you just talk through some of the periods of time that were noticeable or stood out, and what we can take away from any volatility that's existed in that metric?

Yeah, sure. I mentioned in the very early days what the net retention looked like over 3 full years in those early cohorts. They were about 100%. If you wind the clock forward to 2019, the time scale we've been using, net dollar retention in 2019 was 100%. But if you look within the disclosure, net dollar retention for accounts with 10 seats or more was 116%.

So, there was really healthy behavior from larger customers, even as small as 10 seats, compared to the small end or individuals using the product, which naturally are going to have a much higher rate of churn and also a lower rate of expansion. If you fast-forward to today, the overall business net dollar retention is 112%, and those larger customers—both 10 seats or more, $50,000 or more, and $100,000 or more—are sitting around 115%. That's been consistent for the last 2 years, with $100,000 accounts actually a little bit higher, at 116%.

But to your question, there was a period between the start of COVID and the start of 2023 where that net dollar retention ratio went up incredibly quickly. That reflects both the incredible growth during 2020 of new customers looking for solutions in the space, but also their initial foray into the upmarket and larger organizations, and just incredible expansion.

If you look at 2021, the NDR for $50,000 customers reached 150% for the full year. It's an incredible level, and we saw similar activity across the software space during that period, where the best businesses in software were delivering net dollar retention ratios at those sorts of levels. Snowflake, Datadog, and others were incredibly high.

In retrospect, that kind of expansion in a short space of time was very much pulling forward and wasn't a sustainable level of expansion. But in monday.com's case, while that wasn't a level that they could maintain permanently, it did reflect that initial surge into the upmarket and the incredible success they had as they started to move into larger organizations.

In a best-in-class, post-COVID, more normalized world, even though for the last several years there hasn't been the same level of demand in software markets as we've seen in the past, and particularly during COVID, achieving 115% net dollar retention while also growing that group of customers by 40% year-on-year is extraordinary. It's not something that we typically see across the software universe.

It effectively means that, at 115%, the average existing customer who's already been using monday.com for a year further doubles that spend roughly every 5 years. So again, that's a really significant shift in the business. They're growing still so quickly at a very, very healthy net dollar retention ratio.

The other thing to bear in mind as you look at monday.com's net dollar retention ratio is that it is a trailing 4-quarter weighted average. And so, that's one of the reasons why, post-COVID, that net dollar retention continued for some time at such a high level, because it was reflecting many of the gains in 2020 and 2021.

Hearing that in terms of reaching more normalized levels and then marrying it into what you mentioned before in terms of the growth opportunities, is that 115% level an ideal threshold for them to be meeting, at least near term? I think over time it might be unreasonable for any business to do that into perpetuity for obvious reasons, but near term, is that a threshold that you think is relevant? Anything else around the ranges of that number and metric would be helpful.

Yeah, I think this is a really important part of the monday.com story. When we look across those revenue drivers that I talked about, and going through them again, those are seats, or team-based expansion; consumption with their AI pricing, which we can come back to later; tiers, products, geographies, and price. Those 5 levers together are producing a net dollar retention ratio of 115% today.

Our view is that that can actually be a little bit higher in a more favorable economic environment and be sustainable at that higher level. If you look at businesses that have been through this journey—and I grant you these are enterprise examples—but if you look at cohort histories of ServiceNow and Salesforce, the breadth of those software portfolios and their ability to solve problems, as well as having similar levers of growth, enabled incredible cohort growth over a long, long period of time.

If you look at Salesforce in 2010, at around $1.2 billion of revenue, with a similar margin structure to monday.com today and a growing portfolio starting with CRM and starting to move outside CRM, ServiceNow came a little bit later. Those businesses were able to advance net dollar retention at close to 130%, blended across a 10-year period for some of those cohorts.

So, I'm not saying that monday.com can exactly replicate that profile, but it's an example of where you get these factors right, and you're able to solve many problems for the customer, and you have the ability to capture some of that surplus value created for the customer through an ROI-based mechanism or by having these different levers of growth. You can sustain that dollar retention at very high levels for a long period of time.

monday.com is not quite at those incredible levels of Salesforce and ServiceNow yet, but we think it has the potential to get there. It's one of the reasons why we think that it can really grow into this very large addressable market, selling into effectively any business in the world. There aren't very many categories of software or businesses that you can access on the public markets that have that ability to look at any vertical, any size business in the world. It's an incredible set of growth levers that they can draw on, and they do so in a very efficient way.

Yeah, it's helpful to at least have a precedent for a business that's done it before to prove that it can be done, if nothing else. You mentioned the theme of the year, or the theme of the past 2 years, which is AI, and rather than wait to get to that, it makes sense to address it now. What type of impact has that had on the business, either from a top-line perspective or from a cost perspective? Just from an overall perspective, talk a little bit about how AI is impacting the business.

Yeah, absolutely. I think there's a theme running through the software industry here, which is that monday.com has really changed the way that customers use software, from a fixed, rigid model to an open and flexible model. AI takes that to a different level again, where customers can automate and work with software in a way where they can use natural language and have much greater capabilities themselves.

And so, that puts a really high bar on what you do with software and how powerful it is. There are definitely risks ahead for monday.com and other software providers, but we also think it's a really significant opportunity. We have to think through things like the evolution of the user interface, and we have to think through things like how the business model changes, which today is predominantly tied to seats.

But as I said, we think the starting point that they have contains really exciting opportunities. The flexible platform of primitives that they have and the trust that they have with large and growing customers, particularly non-technical customers, put them in a really good position to be a carrier for these rapidly evolving technologies, and they can do that while keeping the experience and context really unique to each customer.

It's a different experience compared with how scaled incumbents like Salesforce and Microsoft are making similar capabilities alongside their rigid software products in a Copilot-type format. What we're seeing in the early days of monday.com releasing products and AI is a clear starting point of customer context that gives them the ability to help drive value in a way that's really accessible, and I'll give you a clear example.

They have 3 core areas of AI products that they're focusing on today, and this is definitely going to evolve, but it's given us clues as to how powerful this can be. It can start to accelerate some of the discoverability within customers and drive expansion over time. They're pairing this with a consumption-based model, so it's an ROI-based, or per-workflow, per-action-based business model that will scale with customers generating value.

The 3 products that they have are called AI Blocks, AI Power-Ups, and then the AI Digital Workforce, and I'll talk to these briefly. AI Blocks is the first product that they've launched, and it is embedding AI in the columns of the monday boards that all customers use in really, really simple ways.

A simple example is if you're ingesting tickets on monday service or candidate responses in a hiring pipeline, you can use out-of-the-box functions like categorizing that text, extracting, summarizing, and translating to quickly triage and move items to the next step of the process with an automated trigger. You can also dive into the prompting layer, but without too many bells and whistles. It's just a really simple interface where you can create custom columns with natural language, test those, and adjust them to eliminate further manual steps and add a layer of leverage before human intervention.

We've got a taste of how well that's going. By Q3 last year, they'd seen about 3 million total actions using these AI Blocks. That jumped to 10 million in Q4, and then up to 14 million by January. We haven't had any disclosure since, but it's an incredible growth pace, albeit from a low base, and it just shows how straightforward it has been for customers and partners to adopt this functionality.

The second product that they have is AI Power-Ups. These are sitting on top of each of the core products. A good example within work management is a predictive risk-management tool.

I mentioned before that McDonald's has an overarching dashboard that looks at every area of project and campaign work that they're doing. This predictive risk-management tool will sit on top of that and allow managers and folks operating teams to quickly understand the health and risk of all the projects in the organization with deep context—not just into the timelines and whether something's actually running on schedule, but much, much more than that: all of the detail within the boards, surfacing the key issues and the key takeaways.

This has been really helpful for companies like Bloomberg, which I mentioned before, that have been able to quickly triage projects across the business. It's been useful on the go-to-market front, as well, that we were talking about before around top-down selling to executives and really understanding the value that comes from multiple teams driving processes and workflows on monday.

The third—and I think this is where the greatest potential is, and where they will need to run really hard and be competitive—is the AI Digital Workforce. That's really just agents, but based on specific functions inside monday, depending on the customer's use case.

The first of these to launch is monday expert, which identifies areas of overlap and use cases in different boards. It allows you to use natural language to customize the board, build workflows and automations, and then adjust them purely through a chat interface. Then it can go away and create entirely new use cases for customers, helping with that discoverability and smoothing expansion.

What we're going to see in the coming months are sales and service agents that are actually members of your team, executing on your behalf to close out a ticket or progress deals through a pipeline in a really trusted way, and in a way that you can control and that's really accessible to customers. So there's clear opportunity there to accelerate all of the factors we've talked about and the flexibility of the platform in solving more problems for customers, which can flow through to the financials and success.

There's a piece in here about change management and trust, which we've written about recently, and that's incredibly important, particularly for non-technical customers, to really feel that they can trust their use cases for AI. That's going to be a process to go through. We think monday.com is very well placed. Their approach to account management allows them to be very well placed in navigating that.

On the risk side, I mentioned the fact that they're a seat-based model today. This means that the value of the product is tied to how many individuals are actually using it, as opposed to the specific value, even though a lot of their pricing and a lot of their pitches to customers are ROI-based.

There'll be a process to go through over the next 5 to 10 years, depending on how much AI is flowing through the product and how it interfaces with customers, to move to more of a hybrid model of seats or organization-level pricing, and consumption- and ROI-based pricing. That's something that they will have to navigate, as will all existing software players.

One thing that we're excited about is that they're not sitting on a fixed and rigid software model where they are building software to serve an existing and very, very successful business model and product. They're building products on top of a platform of primitives, and monday service is a great example of this. It's effectively an AI-native product built with a proactive-first approach to handling internal and external service, rather than an existing service product built in a certain way where they're having to layer in AI in an artificial way.

So we're really excited about what they can achieve. In terms of cost internally, monday has always been a very efficient business and a very lean business. I mentioned their approach to development earlier in ensuring that they aren't over-resourced and are getting to feedback really quickly. You see that flow through in other teams.

Their starting point is already very efficient and very commercial. But it has been incredible to see the pace that they've executed internally, and their democratization of data over their entire history means that all teams have access to the beating heart of monday, whatever part of it is relevant to them—whether it's the marketing team, how they interface with external parties, how they interface with other external teams, or how customers are using the product.

Their ability to see ROI and test is really enhanced by having that level of data transparency within the organization. So, very early days on both the demand side and on how they use it internally. That's the same for the entire industry, but we think they're making really good progress and we're excited about what's possible.

Just from the management team, obviously they're making a lot of moves to go along with the wave. When you hear them speak, is AI taking up 50% of the remarks at this point, or how would you frame it in that regard—in terms of the most extreme, everything is going to be AI-driven, versus more prudent and taking it one quarter at a time?

It's an interesting way to frame it. I would frame it slightly differently, which is that when Roy and Eran are speaking publicly, especially when they're speaking to customers, they speak very much like their sales teams do, which is talking about solutions and solving customer problems.

I think where we've seen a lot of success for companies utilizing AI or building products on top of AI is that it's still rooted in the customer problem. I think that's very, very clear for Roy and Eran; it's a real strength of theirs. But at the same time, they acknowledge that this will change everything.

We haven't had a change in form factor in software for 25 years, and AI will potentially enable that to change relatively soon and improve and become far more effective for customers. That's something that we have to lean into and not shy away from, and they're very conscious of that.

That flows through to the organization and the way that they use tooling internally, and the urgency with which they build products. So that's something that's clearly very front of mind for them and has been in the conversations we've had with them as well. I think any business that doesn't see how product, customer interactions, customer usage, and internal operations of a company will change over the next 5 years is going to be really challenged.

Mm-hmm. Yeah, it's interesting to hear, for such a thematic thing, how different companies and investor bases are approaching it. I derailed us a bit from the financial discussion. I will have to ask about the gross margin of this business, but because it's a software business, I'm sure it's absolutely outrageous.

If you could just touch quickly on gross margin and operating margin, the beautiful software model is really a miracle from a financial regard, but can you outline a bit about that and any trend lines or dynamics that you think are interesting there?

Yes, and monday has been at scale for some time in terms of incremental costs. For a number of years, they've been sitting around 90% gross margin. That's been very consistent.

I think the main variable there over time will likely be AI costs and just how those input costs change versus customer usage. That may end up changing where their gross-margin profile lands at a much larger scale. But at the moment, both the company and, in our view, there's no reason why that needs to change materially.

If you look at the business over time, over the last 6 years or so, it's had a fairly consistent cost profile around R&D and around general and administrative costs.

Where the leverage has really come through in this business, enabling it to be significantly profitable, particularly in cash flow terms, is in sales and marketing. I mentioned that back in 2019, this business was driven primarily by performance marketing as well as product-led growth. So, they were spending a very significant amount on sales and marketing. In 2019, it was $115 million US. That was 150% of revenue that year.

One really interesting thing about monday.com is that it’s always been a very cash-focused business. From a free cash flow perspective, the business has been incredibly cash-efficient and really focused on cash collection versus spend, as opposed to accounting revenue versus spend. That’s because they can fund their customer acquisition cost, the head count within sales and marketing and partner solutions, and all of those folks primarily with customers paying up front.

If you cycle through the P&L today, at $1 billion or so of revenue, that’s generating nearly $900 million in gross profit and about $145 million of EBITDA. On a free cash flow basis, they’re generating about $300 million of free cash flow. That includes some interest revenue, so without interest, it’s about a 25% free cash flow margin. That’s been similar for the last couple of years, and prior to that they were broadly free cash flow neutral.

The reason for that free cash flow dynamic is the 80% up-front billing I mentioned. When the company is continuing to grow so fast and fairly evenly throughout the year, free cash flow is always sitting meaningfully ahead of that smooth EBITDA profile. That gives the company a lot of valuation support, given that they’re generating so much cash. Over recent years, we’ve seen them start to include free cash flow in guidance as well, so we’ve got a very clear view of how those margins and that profile are evolving.

They’ve also really effectively managed dilution in recent years. While GAAP operating income has only recently turned positive, and there is a significant delta between GAAP operating income and non-GAAP operating income from stock compensation, that has, for the last couple of years, been about 13% to 14% of revenue. But looking at net dilution itself, it has actually averaged about 1.8% over the last couple of years. Given the level of growth and the level of value creation, this is a reasonably manageable level for the company to be incentivizing staff using stock.

To round all of that out, what this flows through to is the Rule of 40, or Rule of X, which, while being a bit of an arbitrary term and combining 2 different metrics together, does give you a sense of just how efficiently and how fast this business is growing. In the last 2 years, it has been a Rule of 60 company. There have only been a couple of companies sitting at that level. In 2024, that was 64%. In 2023, it was 69%, combining free cash flow margin and top-line growth.

So, it’s an extraordinary story in terms of not just the top-line growth and the drivers of that—the move to multiproduct, the move to a platform, and the scaling of those go-to-market functions—but also the efficiency with which they’ve been able to do all of that. How that’s flowed through to the bottom line and free cash flow generation has been really impressive.

Rule of 60 is a whole different territory, but I’ve seen the charts and where they show up in that upper-right corner. On capital allocation, one of the things that I meant to ask earlier is that with a business like Salesforce, M&A became a key piece of the strategy in terms of deepening their roots within different businesses and different offerings. Have they done anything from an M&A perspective, and is that something that you would expect them to explore in the future?

They haven’t. Today, the business has $1.4 billion on the balance sheet and no debt. That gives them a lot of optionality, and to date it hasn’t burned a hole in their pocket in terms of their uses of cash. They’ve been very disciplined. It’s obviously generating a lot of interest revenue right now, which is helpful.

But in terms of what they can do with that cash, they really highlight 3 areas, none of which they’ve executed on as uses of that cash. Their first priority, of course, is always investing in organic growth, and that’s continued to be the focus. But they haven’t required additional cash for that, given they’re generating so much of it.

The other 2 options are inorganic M&A and share repurchases. On the M&A front, they haven’t acquired a business to date, but they have been looking at businesses in areas that really complement the workflows and allow them to build depth in specific areas of the product.

I’ll give a really specific example. We’ve talked about marketing ops quite a bit. This has been a really fruitful area for them to start in. It’s one of the verticals that they created and focused on in the early years, when they were a broad and horizontal platform and needed to help customers understand what the value proposition was.

Marketing ops has been an area where a number of small businesses and startups around the world have gone in and filled different parts of specific workflows. It’s a really niche operation. That’s an example of where you might do a tuck-in acquisition to bring that capability into that specific part of the platform for marketing ops customers. They haven’t chosen to do that yet, but that’s where they’ll focus.

The other area is acqui-hires, where there are businesses with really impressive talent, fantastic ideas, and capabilities that they want to bring into the business. Share repurchases are the other option, and that’s something that they can definitely take advantage of at points when the business is not valued particularly highly.

Have they ever done share repurchases in the past?

No.

Yeah. Pay the employees in stock, wait for it to come back to buy back. There are some interesting options, particularly when you mention the dilution versus the percentage of revenue. It’s an interesting delta between the 2.

And then, I guess, when I think about the business, I’m sure they have high aspirations and a long runway ahead. Have they ever been targeted in M&A talks? Is that ever something that gets floated around?

They have been targeted in the early years in particular. I mean, they’re a $14.5 billion company now, so it’s a much bigger undertaking for a large company. But we have seen that happen in this space before. Salesforce bought Slack for $27 billion to plug a hole in their product portfolio.

I think what stands out about monday.com from the very early days—and this is something that we often talk to early-stage companies about when they’re in the early years, doing incredibly well, and growing fast—is what happens when an offer comes. What we’ve seen with them is their hunger and their ambition to build something really significant in the next generation of software, and their willingness to take material risks to get there.

They’ve talked about this publicly in interviews. They really felt, and certainly felt back in 2016, 2017, and 2018, that they were building the next Salesforce or Microsoft. That’s a big statement, but they genuinely felt that monday.com’s underlying vision and that platform capability really had that potential, and we do as well.

They’ve said very clearly that they don’t see any reason to sell the company, and they’re having the time of their lives. That’s been a very consistent feature for them. If you look at some of the things that indicate the level of ambition, one really good example is when they changed their name from daPulse to monday.com.

There are always going to be lots of views on whether name changes are a good idea. They had to pay a lot for the domain name, but it’s been an incredible shift for the business to do that. It’s really opened up the way that they go to market and the way they talk about the brand.

At the time, they had 15,000 paying customers. They were already at material scale, and that was a really big bet: focusing on the upside, being bold, and going after that. I think it’s a really good show of force from them on what they’re trying to achieve. So, I think it’s pretty unlikely that we’ll ever see them sell.

Yeah, I have to mention Wiz was in the same category of having no reason to sell, and the price just got higher and higher. I think that turned out well, but the ambition is clear.

One of the things that I usually bring up earlier—and when we were discussing the episode beforehand, you mentioned that TAM is a difficult thing to measure here—I think you’ve laid out exactly why. When you think about the market opportunity, they’re, let’s say, at $1 billion in revenue right now on a run-rate basis. How big do you even categorize this market as? It seems incredibly huge, but how do you think about that market opportunity and whether it’s them taking advantage of a growing wave, capturing more market share, or just some of those more competitive dynamics?

Absolutely. I think the starting point for monday.com is its original home, project management, which today, as defined by IDC, is about a $45 billion addressable market, but growing really healthily. What we’ve seen over the years is that monday.com has expanded into more and more use cases—some defined use cases, like CRM, service management, and product development, but also a whole lot of other use cases that are really just labor and internal processes and workflows.

The defined size of their market, according to IDC, is growing to about $150 billion by 2026. These are very large numbers. That’s growing about 14% to 15%, and so at a pace of 2 times that, or a little bit more, monday.com is clearly taking meaningful share within that defined market. But we don’t think of that set of definitions across those core categories of functional software as the bounds of what they can achieve.

They can effectively sell to, or be bought by, any business in the world, and so perform and help drive most processes for those businesses. So long as they're core workflows, and they retain those customers and expand them meaningfully over time, this is a business that has no upper limit on its scale. Its ability to get there will be tied to the value it creates for customers and then how it's able to capture a share of that value—a fair share of that value—as it unlocks productivity and capability within those customers.

In terms of the competitive dynamics, I think at first glance this is a very competitive market, and we shouldn't be surprised because it's so large. It's always going to have a significant number of competitors vying for that large, large opportunity set. You also see a lot of different approaches. There's room for a number of winners, and you see a lot of different opinions. People like different tools, and they like using them for different reasons.

I think of competition in 3 main buckets. One is that original category of project management: companies like Asana, Trello, ClickUp, and others. There are many in that space. I think the second group of competitors are functional software players: Salesforce, ServiceNow at the enterprise end, HubSpot, Atlassian, and Microsoft. These are all businesses that are in those defined software categories.

Then you have a third category with more flexible players that have a similar philosophy, but very different form factors to monday.com—companies like Notion or Airtable. Those companies are solving some of the same problems. There's definitely overlap, but we think the power of what monday.com has built and the flexibility of it cascades across those 3 different buckets and beyond, and makes them a very different competitor.

It's probably one of the most impressive things if you look across their whole history. The entire time that we've known them, since 2015 through to today, this has looked like a red ocean, but they have consistently been able to innovate, have really high product velocity, and have that cut through to customers. That's something that a couple of those names have obviously done incredibly well, particularly at the enterprise end, in companies like HubSpot, but it hasn't been as easy for others to continually cut through, particularly after COVID and after a lot of the capital and the ability to grow came out of the sector.

We saw that be an incredibly strong period for monday.com, where they were able to lean in and invest more in performance marketing and take market share really significantly during that period because of the quality of the product, but also the quality of their execution against these competitors and the capability that they've built in-house.

Yeah, Asana is a very interesting counterexample, or different example, to look at in terms of how everyone has tried to navigate, and some more successfully than others, to put it lightly. When you do try to approach the valuation for this type of business coming out of the IPO, you have incredibly high valuation levels attached to an incredibly high revenue growth rate. But when you think about trading and how to evaluate this, what is your methodology or approach, factoring in so many different dynamics going on with the business, but having a very optimistic view of the runway?

I think 2021 was a very strange period for software valuations, and for all valuations of high-growth businesses, putting it lightly. monday.com was no exception. I think it reached incredible highs at a very early stage of the business, comparatively to today, which didn't make much sense, as we all found out in early 2022, which is when we invested in the business.

monday.com's characteristics align with the Rule of 60, which we talked about as a very blunt measure of how it sits against some of these other businesses. monday.com has a lot of the characteristics of the best software businesses: very high gross margins, high NDR, and really healthy gross retention. It has a different profile from many of the absolute best businesses that are in the enterprise in terms of gross retention because of its small-business long tail.

It probably sits somewhere in the mid- to high 80s on gross retention, but net retention is right up above 110% within that base. Of course, you've got enterprise customers that have really low churn and are at similar levels to the ServiceNows of the world, between 95%.

What we see is a company that has all the financial characteristics of the best companies, but it has this anchor in small business from its history. That'll always be important to monday.com. If you hear the founders talk about small business, they think maintaining those roots, both from a product velocity and experimentation perspective, but also just the flexibility of that platform, is important. So long as they can have the right level of focus and how they go to market, they can maintain it.

We do expect, though, that large customers will move that gross dollar retention up over time and consequently help move the net dollar retention up over time. More and more large customers means more and more core workflows and really sticky product, with an ecosystem around it in this incredible platform. You're starting to look a lot more like a ServiceNow, a Salesforce, or a CrowdStrike.

In terms of the comparables for those businesses, monday.com trades at a discount to those highest-quality enterprise software businesses, but we think over time that will start to close. The way that we price this business is on a revenue multiple, but it is a business that's generating significant EBITDA and free cash flow. So we look at what that implies for EBITDA and free cash flow, and we look at that over a 3- to 5-year period.

We think that in 5 years, monday.com can still be growing north of 20%. We think they can be delivering meaningfully higher margin structures, and the company has articulated what it thinks they will be. They're at a free cash flow margin of 25% today, excluding the net interest that they generate, and they think that over the next couple of years that will be similar. But over time, that can move up into the mid-30s.

The operating margin, while being lower because of that upfront-billing dynamic, will also move up. There's no reason why that can't be closer to 30% over time as well. These characteristics mean that monday.com should deserve a premium multiple, and today that would be defined as around 10 or 11 times revenue.

If you look at monday.com's stage today, with that growth at the top line around 30%, guiding to around 26% at the midpoint in 2025, depending on foreign exchange, we think that's sustainable for the next 3 years. Of course, there's a lot of uncertainty at the moment, so there may be some near-term noise there, but all of those levers of growth can persist over a much longer period.

At the same time, you've got EBITDA compounding at 40% to 50% as margins expand. Today, you've got a free cash flow multiple in the high 30s, an EBITDA multiple that's materially higher than that, and a revenue multiple around 10 times. We think that effectively means the business can deliver returns at a similar rate of growth to the top line, which is a really exciting prospect if that's how it plays out.

If you look at other businesses over the last 10 to 15 years, we actually don't have a long history of software businesses, besides ones like Microsoft. We don't have a long history of businesses going from high growth and being valued on revenue multiples to being valued on earnings multiples. But the efficiency and the quality of the financial model of monday.com mean that, at least on our projections, it's possible for the business to have an EBITDA multiple in the 20s even when it's trading on 10 times revenue in 3 to 5 years' time.

Yeah, I'm of the belief that the revenue multiple for a business that has a gross margin of 90% and a free cash flow margin of 25%, potentially 30%, is all shortcutting back from those numbers at the end. It makes way more sense for this type of business than for some others to which it can be applied.

This has been fascinating. You've spelled out a lot of things where I'm very much a tourist in the software market, but I think it is clear where execution has differentiated this business. If you were just to step back and think about the lessons that you can take away from monday.com, that's our closing question. What would those lessons be that really stand out to you?

I think there were 2 that stand out when we reflect on the history of software businesses, and not just the journey of monday.com. The largest businesses in software have been able to broaden the problems that they solve for customers and become really important to them over time, generating the majority of growth from their existing customers as well as scaling new business.

But also, the most valuable and defensible software businesses have not just built out a multiproduct portfolio. They've built a commercial platform around them, with services partners, with developers, and with an ecosystem that thrives around the customer, helping to fuel the customer.

We've seen that with Microsoft. We've seen that with ServiceNow. We've seen that with Atlassian. They're extraordinary businesses that have been through that process. They've all looked slightly different, but they've all had similar traits.

We think monday.com has those traits and is executing really well in balancing the movement through solving those different problems, the movement upmarket into larger and more complex workflows with large customers, and then surrounding them with the support and the ecosystem to drive growth over time. The lesson there is that very few companies have been able to make that journey work or execute consistently over that long period of time.

I think that one of the other things that's consistent is taking time to achieve that in the right path and the right order, and not rushing that. We've seen in small business, we've seen businesses like Datadog and Cloudflare make a really impressive jump from serving small customers in particular with a self-serve approach, moving through to solving those enterprise problems, but doing so in a really concerted way. We think monday.com's following a similar journey and that it can end up as one of the most exciting and largest opportunities in software over time.

Well, Ben, this has been an excellent, very long, detailed, and informative discussion. Thank you very much for sharing some of the evolution and getting more into the details as well. It was a pleasure.

Thanks, Matt. I really appreciate you having me on.