How Retool went from zero to a $3.2 billion company in 5 years
Episode 88
Friends,
Founded in 2017, Retool is a low-code tool that helps companies ship internal software fast. In 2023, Retool hit $93.5M in annual revenue, serving 500,000+ customers like Doordash, Mercedez-Benz, NBC etc. It last raised $45 million in its Series C2 round at a $3.2B valuation in 2022 and is backed by Sequoia, and founders of Github, Gusto, PagerDuty, Plaid, Segment, Stripe, and Y Combinator.
I found out how they went became a $3.2 billion company on 5 years.
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Founding story:
David Hsu founded Retool 6 months after graduating from Oxford University in the UK with a degree in philosophy & computer science. Back in his Uni days, he had started Cashew - a Venmo for the UK market and faced firsthand the problem of building & scaling internal tools for KYC, fraud management etc. He realized that every engineer had to build an admin dashboard but hated doing it. This became the inspiration for David to start Retool.
The problem:
The idea behind Retool is that there could be a much higher level way of building internal tools. Instead of writing JSX, developers could have a drag and drop interface where the user could create standard components like tables, buttons etc and make it do things, like connect to an API endpoint. This way, developers could get to 60-70% of the way super fast and then customize the remaining 30% by actually writing code.
MVP & early traction:
Retool got into YC in the summer of 2017. Their mantra was simple - stay default alive. In order to not burn money, they just didn't spend any money so they didn't even hire anybody, and did everything themselves.
Since Retool was a product that was similar to FileMaker, Microsoft Access, David tried to find similar customers and convince them to try Retool. (FileMaker is a cross-platform relational database application, MS Access is a database management system). This seemed like a very plausible path to finding product-market fit.
Hsu “infiltrated” several LinkedIn groups for FileMaker developers and did extensive outreach. He sent out a few hundred cold emails, received three replies back and got one person on a call. That developer pretty much said that Retool is a horrible idea and wouldn’t ever consider using anything other than FileMaker.
He also experimented with language-market fit. At the start, he positioned Retool as an “Excel sheet with higher-order primitives.” (David even posted on HackerNews with this headline). Nobody knew what that meant. So the team continued iterating on the messaging.
One day, Hsu sent a cold outbound email to a startup called Rappi, positioning Retool as a platform that helps companies build internal tools faster.
Within 15 minutes, Rappi’s CTO replied asking to get on a call - that was the first sign that the messaging & positioning was hitting the right person.
Based on subsequent conversations, he zeroed in on his ICP- software engineers who are building internal front ends with React, Vue, Angular etc. Hsu also discovered that Retool was very useful for a CTO or a VPE of a fast-growing operationally-heavy company, such as a delivery company or a fintech company.
Hsu didn't pivot the product but instead pivoted the market. His research revealed that the market for Retool was significantly larger than originally anticipated. They discovered that 50% or 60% of all the software in the world is actually internal facing.
Hsu sent outbound emails, got demos booked. A lot of people said no while some said yes. Some of the people that said yes weren't ready for them. And so Hsu would go build all the features required to actually get them to use Retool. And he did that over and over again.
One of their first customers was an app that allowed drivers to work shifts with both Uber and Lyft at the same time. This startup needed a lot of internal tools to manage the billing process and be compatible with both ride-sharing apps.
But the company didn’t have its own backend servers and therefore relied on public APIs for integration — something that Retool didn’t yet expose. So their first customer couldn’t actually use the product. Hsu stayed up all night to build it.
Their approach to pricing was pretty simple as well. For the customers David would just quote progressively higher prices (like $2k a month) and see what they would say. If they said no, David dropped pricing a bit back down. This approach worked great because the customer felt like they got a great deal, David got a customer and also discovered that $2K was probably too high for this particular customer. He rinsed and repeated this process over and over again. And he made sure to never quote pricing via email because they might go away and David could not have any idea what the reaction was.
By just doing this, Retool made $500K in revenue in the first 9 months. For the next 9 months, they streamlined their outbound processes.
They scoured Crunchbase pro to identify 10,000 companies that fit the description of the companies they wanted to introduce Retool to. They filtered companies that had raised money in the past 6 months. They used Upwork to hire freelancers to gather verified contact details for these 4 people at the 10,000 companies: (a) Head of Engineering (b) VP of Engineering ((c) CTO and (d) Head of Ops.
David used PersistIQ, a sales automation tool in order to reach out to the 40,000. After A/B testing the email copy & messaging, they finally found the subject line and messaging that worked and hit their inboxes.
At a conversion rate of 8%, 2400 people said they were interested to learn more and they became early adopters. They even signed an enterprise customer pilot worth $1.5M right before YC Demo day. At this stage, they hadn't made a single hire outside the founding team yet.
But growth was linear since it was all outbound. Now they shifted their focus on getting exponential growth.
Public launch
On August 9th, 2018, after a year of growing Retool through sales & cold emails, David posted about Retool on Hacker News once again, kickstarting their inbound lead gen engine. At this stage, they had 40 customers and had $2 million ARR.
Hsu knew that developers had very high standards so he wanted to make sure that when Retool was public, the developers would be able to use a product that was functional & bug-free.
Since the launch, they discovered that 15-20 companies were signing up for Retool every day.
The goal was to optimize onboarding inbound signups. They wanted to delight every early customer—in spite of having a new product that had lots of bugs. The goal was to build a product that generates a lot of word of mouth.
To optimize for customer success, they built 3 tools to ensure they could intervene at any step:
Big fish swimming: This was real-time notification alerting the entire company on Slack whenever a large account was using Retool
Big fish errors - These were Slack alerts when users experienced failures or issues.
Shared channels - These were shared channels with the developers to debug errors together.
Via this, Retool was always spying on their users.Whenever anyone was using the product, the team was immediately notified. They would immediately go and watch exactly what the users were doing.
When issues came up, they immediately called the customer up and said hey, we saw that this error came through, we'd love to help you out. This really helped them build customer confidence - Retool stepped in before the customer could identify the problem and solved it instantly.
Scaling up via PLG & product marketing
In 2022, Retool raised $45 million in their Series C2 round at a $3.2 billion valuation from Sequoia. At this stage, they realized the market for internal tools was huge. Their focus was on triggering user awareness aka how do they get more developers aware of Retool.
This was a challenging problem because developers know how to build digital tools. They're not googling how to build simple stuff related to building internal tools. So it's hard to capture them when users are in the intent phase.
So they invested in brand marketing & content marketing, writing high-quality content around Retool. They also optimized for Google search intent. For example, users would search for the best firebase front end and Retool would show up in the search results.
During this time, Retool also shifted its pricing to a freemium model triggering its PLG efforts.
The goal was to make Retool as open and accessible as possible, and optimize for usage rather than revenue. The idea was to attract a big pool of users who are using Retool’s products regularly (North Star metric: # of active customers) who would eventually become paying customers 3-5 years later.
They tested different experiment iterations like giving a certain number of app building blocks for free versus allowing a certain number of users for free. Retool tested these experiments in Canada and India and monitored the data. They set up a feedback loop with customers of the free plans in order to determine if they were seeing enough value in the free product.
All of this research led Retool to launch a modified third version. The new free plan includes a more generous set of features, an unlimited number of applications, and unlimited collaboration – but a cap of up to 5 users for free. This allowed Retool to show the true value–and full capabilities–of the product, not just a sampling.
Sales-led growth
Retool's earlier outbound sales system became a lot more sophisticated. Account execs work primarily within five sales channels: (a) Inbound leads that come directly to the sales team (b) Outbound leads that come from account execs or business development reps ((c) Conversions from the self-service motion (d) Expansion of existing customers (e) Self-Serve Conversion + Expansion. The entire sales team is optimized around a single metric - Net Dollar Retention (NDR).
80% of Retool’s customers come from their self-serve business. In 2021, 20% of the revenue that Retool’s AEs booked came from self-serve conversions.
Once businesses are using enough seats in Retool, they’re move off of a monthly plan, reach out or their AE and start the conversation around a volume discount on an annual contract.
Inbound leads come to AEs via demo requests. Often these are people who need enterprise features — advanced integrations, security, etc. — and who wants to go and talk to a sales person.
Outbound leads typically come from AEs reaching out to VPs of engineering, directors of engineering, internal tools teams, data engineering teams who will benefit from Retool. The icp is zoned in after years of iteration both on the messaging side as well as the market side.
The deployed engineering team is a technical post-sale team that works with customers on building their applications. Deployed engineering at Retool is active in shared Slack channels, and does paired programming sessions with customers.
Customer Success Managers focus on technical and business relations with customers. This includes everything from onboarding and launching new use-cases to helping them overcome technical challenges.
Community-led growth:
Retool officially launched their Retool community to the public in May 2021 until and has been growing since. Retool’s discourse forum is the hangout place for developers to get tactical help. Devs can ask for suggestions, get fixes, request feature updates, and show what they have been working on.
They also have an exclusive Slack group for Retool power users who have been part of the community for a while & have made significant contributions. These power users get early access to beta features, get to show their best work, and collaborate with the best developers on the channel.
To get into the slack group, users need to be skilled and contribute. To enable this, Retool gives users the resources to learn how to build, deploy and manage software at scale using retool. They have also launched Retool University that includes the A-to-Z of working and building with Retool.
They have built a library of templates to get people to the aha moment and increase user adoption. This helps with viral growth loops similar to how sending webflow and typeform did it.
They have also set up the Retool Documentation for devs. Retool also has built up a marketplace called The Retool Developer Network. It connects companies with qualified developers to build impactful internal tools.
They also offer free Retool credits (upto $200k) to startups. They’ve partnered with HubSpot, Segment, DigitalOcean, and Brex to offer discounts for their software as well when they use it with Retool.
9 key takeaways from Retool:
1. Be default alive
2. Outbound sales led motion at the start is perfect
3. You cant do PLG before you have PMF
4. Language market fit is as important as PMF
5. Stay lean as much as you can
6. Price high and negotiate at the middle
7. Optimize for customer support and retention at the start
8. Cant go wrong with content / brand marketing
9. Community led growth creates a moat
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