In the never-ending stream of venture capital funding rounds, from time to time, a group of startups working on the same problem will raise money nearly in unison. So it was with OKR-focused startups toward the start of 2020.
How were so many OKR-focused tech upstarts able to raise capital at the same time? And was there really space in the market for so many different startups building software to help other companies manage their goal-setting? OKRs, or “objectives and key results,” a corporate planning method, are no longer a niche concept. But surely, over time, there would be M&A in the group, right?
During our first look into the cohort, we concluded that it felt likely that there was “some consolidation” ahead for the group “when growth becomes more difficult.” At the time, however, it was clear that many founders and investors expected the OKR software market to have material depth.
They were right, and we were wrong. A year later, in early 2021, we asked the same group how their previous year had gone. Nearly every single company had a killer year, with many players growing by well over 100%.
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OKR company Ally.io grew 3.3x in 2020, for example, while its competitor Gtmhub grew by 3x over the same time period. More capital followed. Ally.io raised $50 million in a Series C in the first quarter, while Gtmhub put together a $30 million Series B during the same period.
They won’t be the final startups in the OKR cohort to raise this year. We know this because we reached out to the group again this week, this time probing their Q1 performance, and, critically, asking the startups to discuss their level of optimism regarding the rest of 2021.
As before, the group’s recent results are strong, at least when compared to their own planning. But notably, the collection of competing companies is more optimistic than before about the rest of the year than they were before Q1 2021. Things are heating up for the OKR startup world.
A takeaway from our work today is that our prior notes about how impressively deep the software market is proving to be may have been too modest. And frankly, that’s super-good news for startups and investors alike. So much for SaaS-fatigue.
In a sense, we should not be surprised that OKR startups are doing well or that the startup software market is so large. You’d imagine that the historic pace of venture capital investment that we’ve seen so far in 2021 in Europe and the United States was based on results, or evidence that there was lots more room for software-focused startups to grow.
Interestingly, while these companies look similar to outsiders, they are each betting on strategies and differentiators that could help them win in their selected portion of the OKR space. Which also means that the sector may not be as crowded as it seems.
Don’t take our word for it. Let’s hear from Gtmhub COO Seth Elliott, Workboard CEO and co-founder Deidre Paknad, Koan CEO and co-founder Matt Tucker, Ally.io CEO and co-founder Vetri Vellore, and Perdoo CEO and founder Henrik-Jan van der Pol about just what the software market looks like to them.
We’ll start with how the startups performed in Q1 2021, dig into how they feel about the rest of the year, and then talk about how differentiation among the cohort could be helping them not step on each other’s toes.
Rapid growth
WorkBoard is having a strong start to 2021. Paknad’s company, which raised in both March of 2019 and January of 2020, told The Exchange that it hired 82 people in the first three months of 2021, and that it plans on doing it again in the current quarter. WorkBoard is “investing heavily,” Paknad said via DM, and “made [its] Q1 targets.”
WorkBoard grew 90% on a year-over-year basis in the first quarter, she added, and expects to “more than double [again] this year.”
It is hardly alone in doing so. Gtmhub “more than doubled” in the first quarter of 2021 compared to the first quarter of 2020 and is ahead of plan, per its COO. Ally.io is similarly growing like a weed, with CEO Vetri Vellore telling The Exchange that it had a “very strong Q1” which beat its “aggressive” internal plan, expanding revenues 35% compared to Q4 2020. The company “continue[s] to grow at 3x YoY,” per Vellore.
Koan and Perdoo are also seeing good traction. Via email, Koan’s Tucker said his company’s start to the year was “really strong,” adding that interest in trials of the startup’s service that often enjoy a start-of-the-year bump are holding onto gains that normally fade over time. And Perdoo’s Van der Pol said his company “doubled the number of qualified leads compared to last year” in the first quarter, while not spending any more money on advertising.
Not every startup was willing to share the same metrics, so we can’t rank them, but we can see that they are, as a group, growing nicely. And they expect to keep that growth up.
Optimism reigns
Asking a startup founder if they are optimistic is akin to asking a journalist if they could use a drink. The answer is yes. So to get a bit deeper into how the startup group views the rest of the year we asked if they were more optimistic today than at the start of the year.
Gtmhub COO Seth Elliott said his startup was “unquestionably [ … ] more optimistic.” Why? His company’s new capital, an “aggressive growth plan,” and a first quarter in which his company “overachieved.” The net result? Elliott and company are “more optimistic about the growth of the market and more importantly Gtmhub’s 2021 growth” than before.
More capital can, however, mean more competition. Ally.io’s Vellore said in an email that while he viewed the OKR “sales playing field [as] definitely in [his company’s] favor,” the overall “climate is more competitive because the industry and the methodology is getting more attention.”
But rising competition isn’t worrying the OKR startup cohort. Not too much. That’s in part because the startups in the space are finding different angles on their market that provide each with a different flavor of growth over time. Koan, for example, told The Exchange that it is “very” optimistic about 2021, citing its “bottom-up strategy,” adding that the enterprise OKR market is one where it expects a “product-led growth approach will win as time plays out.”
More than three … isn’t a crowd?
One of the things that was striking in our conversations with the companies was how different they each think they are from their competitors; and how bullish each of them is about its chosen strategy. It’s not just pep talk and bashing rivals: It is clear from their answers that they view and attack the market differently.
Differences aside, there’s one point all OKR startups seem to agree on: They are doing it better than companies that provide goal-setting as part of a broader offering. Some of these already abandoned the market, according to Paknad, whose company has been in the market for six years: “The HR players fell out,” she says, explaining it by strategy execution not being their zone.
Competition is still there, of course, but differentiation within the OKR space is becoming clearer. For starters, Workboard’s landing page makes no mystery of its focus on enterprise, up to its self-description as an “enterprise results platform.” Still in the enterprise segment, Gtmhub hopes the saying that “he who can do more can do less” will hold true; if it can satisfy the type of clients who care about SOC 2 type II and SOC 3 compliance (yes, us neither), others will follow, “as we are able to take the product strength that we offer to enterprise and deliver best in class solutions to our self-serve clients,” Elliot claims.
Gtmhub also focuses on another differentiator: addressing the demand for additional consulting and coaching advice via its partner network, rather than handling it fully in-house. The reasoning for not going after it themselves, unlike competitors? “Many enterprises would prefer that this type of advice be offered by well-known consulting companies — so the TAM may be limited here,” Elliot analyzes.
On the opposite end of the spectrum, you’ll find Koan and its bottom-up approach. As we mentioned, it sees it as a huge GTM shift, but it isn’t just about pricing. “Post our transition [to a bottom-up approach], Koan most often gets adopted by a single team, spreads cross-functionally and then expands to org-wide usage after the company knows they love the product,” Tucker explained. This differs both from top-down approaches and from broader products: “The performance management tools are highly optimized for individual growth goals and are just solving a different problem at the end of the day,” Tucker added.
Both Koan and Perdoo added free tiers in 2020, with Van der Pol providing detail on how it has fared: “A few thousand new companies signed up for our free version. The free version is still capped to 10 users. Because we’ve capped it to 10 users, we did make our free version more and more attractive by adding additional features to it.” While Perdoo has always been known for providing free resources and evangelizing OKRs, its free tier is also likely partly responsible for the doubling in qualified leads we reported earlier.
We have heard about enterprise and budget-constrained users, but how about the middle? This is the segment Ally.io is betting on, Vellore told us, and he’s confident it will pay off: “Our focus on the midmarket has allowed us to move upstream while maintaining aggressive growth in our core segment. We’re closing larger accounts and seeing rapid expansion across a huge percentage of our nearly 1,000 customers,” he told The Exchange.
What lies ahead
No VC would be happy to see a software company in its portfolio only serve part of its market forever. No startup that targets the midmarket doesn’t eventually want to own the enterprise. And no enterprise-focused startup wants to allow a smaller rival to attack it from below and take the entire cake.
So our initial surprise at how large the OKR software market truly is could be understood as a mistake of not only market sizing, but also segmentation. That in mind, the M&A activity that we anticipated a year ago could still come, but far enough in the future that it won’t come until the startups in question have exhausted their initial niches.
We will circle back to the category when one of its players raises more money. So, chat with you in a few days.
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