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Freshworks slashes losses as founder Girish Mathrubootham steps aside as CEO

Stuart Lauchlan Profile picture for user slauchlan May 2, 2024
Summary:
Dennis Woodside steps into the CEO role as Freshworks makes a significant acquisition to boost its ITSM capabilities.

Mathrubootham and Woodside © Freshworks
(Mathrubootham and Woodside)

A busy day for Freshworks - quarterly results that saw losses slashed, an acquisition announced and a change of CEO. Let’s take those one by one. 

Results

First, the numbers. Total revenue was up 20% year-on-year from $137.7 million to $165.1 million in Q1 2024, while net loss was down 45.3% year-on-year to $23.3 million. Other stats of note: 

  • Approximately 400 net new customers were added, ending the quarter with over 67,500 customers.
  • In Q1, customers paying over $50,000 in ARR (Annual Recurring Revenue) grew 29% to 2,593, representing 49% of total business. 

Takeover

Then the acquisition. Freshworks has signed a definitive agreement to acquire Device42, a provider of enterprise grade IT asset management capabilities. The intention here is to strengthen the Freshservice offering, which is currently the fastest growing part of Freshworks. Freshworks founder Girish Mathrubootham explained the rationale for the takeover, the first since Freshworks went public in 2021: 

We see Device42 in a couple ways. First of all, we've been partnering with them for the last 18 months. so we have a product integration that allows an ITSM (IT Service Management) customer to easily flip into the Device42 environment. We've been co-selling with them to large customers…One of the customers last quarter was a large apparel retailer. Device42 is integral to that sale. 

I was in Europe earlier last week and one of our larger customers, we are now upselling Device42 in and so we know that the product works. We know that our customers, especially these larger customers, they want to buy ITSM alongside a sophisticated ITAM (IT Asset Management) solution and we've seen the product in action. So we feel like we de-risk product market fit. They have 800 customers worldwide. Like most of those customers do not use Freshservice as their ITSM.

So we see synergies in a couple different ways. As those ITSMs come up for renewal, we will know that they're up for renewal. We'll be able to get in front of those decision makers and make a pitch and win some business there. And then amongst our thousands of customers, most of them don't use an advanced ITAM solution from Device42, so we will have a programmatic approach to selling advanced ITAM into our existing base.

We definitely see a need for more advanced capability than we currently have among larger customers, so for us, it eases this move up market. It puts us in a better position vis à vis ServiceNow and Atlassian in particular, which have more in depth ITAM solutions than we did natively, which is why we pursued the acquisition.

New CEO 

Then the really big news - Mathrubootham stepping aside as CEO to become Executive Chairman, while President Dennis Woodside takes over the top slot. According to Mathrubootham: 

Our hiring philosophy takes inspiration from an ancient poem from Tirukkuṟaḷ, written by a Tamil poet and philosopher, Thiruvalluvar 2,000 years ago. Ithanai Ithanaal Ivanmutikkum Endraaindhu Adhanai Avankan Vital, Translated in English, it means find the right person with the skills and resources to finish the job and empower them to do it. After seeing this play out beautifully over the years, the time has come to apply this to the CEO role at Freshworks.

In less poetic terms, Woodside’s ascension to the top slot has been planned for the past 18 months, while Mathrubootham has taken on a more focused role on product development. The latter said: 

This was something planned as part of my succession, Even when we hired Dennis 18 months ago, like our expectation was that he would eventually be my successor. And so we have been working in a similar fashion where Dennis was helping Freshworks get the operational rigor, put in place a world class team, and focus on go-to-market excellence, while I was actually focusing on all the AI stuff that you are seeing right now with Freddy and the product strategy. 

I think the short answer is, [we’re] playing to our strengths. I think I've always been a believer in playing to strength, and we feel that what's right for Freshworks is for me to focus on long term product strategy and AI. Dennis is a fantastic operator coming with world-class experience looking at his experience at Dropbox, where he scaled the company from $200 million to north of $1 billion in like four years or so and so he brings the right expertise. So, this was the plan, and I feel comfortable that this is the right time to do it.

Woodside added: 

We really have been operating in many respects in a way where Gi's been focused very much on technology, very much on the AI initiatives and what's coming and I've been focused on the near term and what we need to do to scale the business. So to some degree, we've been operating in a way that's consistent with where we're headed for some time. Obviously, this formalizes it in a meaningful way, but I think internally it wouldn't be viewed as a sudden change necessarily and we're excited about taking it forward from here.

My take

Woodside suggests that this isn’t a management change that will surprise most people at Freshworks. I think he’s right. It’s certainly not a surprise from where I’m sitting - I’ve assumed this was the direction of travel since my first meeting with Woodside almost a year ago. I think it’s a good move. Woodside has the operational and sales background to open up more enterprise customers, particularly in the US, while Mathrubootham’s strengths as a tech and product visionary are proven. As the two of them say, play to your strengths. I also think it’s a good idea that they’ve decided not to go down the co-CEO route, which so often looks good on paper, but as we’ve seen time and again, often struggles in operational reality. 

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