May 17, 2019 · 19m · top-founders
1392 $104m in ARR and Bootstrapped?!?! How?!
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this interview, host Nathan Latka speaks with Madwire co-founder and co-CEO JB Kellogg about scaling their hybrid SMB marketing platform past $100 million in ARR while remaining largely bootstrapped and cash-flow positive. Kellogg breaks down the company's exceptional unit economics, company-wide profit-sharing culture, churn bifurcation strategy, and operational preparations for an upcoming IPO.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Nathan holds 37.7% of the talking time here. How this is scored →
Nathan as informed peer 6.2 Guest teaching 2.8 Guest disagreement 1.2 Nathan pushing back 3.2
speaking balance: gold is Nathan, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 7:51 Kellogg defends taking high-risk small business customers
Kellogg rejects conventional SaaS filtering of risky SMB accounts, arguing that trying to filter bad customers merely shuts out good ones, defending their 50% year-one churn bucket.
Hardest push from Nathan ▶ 9:30 Latka challenges CAC model against unpredictable early churnLatka firmly challenges Kellogg's churn methodology, questioning how a business can safely invest CAC without knowing if a customer will survive into the profitable 13-month cohort.
Biggest teaching moment ▶ 7:51 Kellogg breaks down two-bucket churn methodologyKellogg educates Latka on managing SMB customer lifecycles by dividing churn into unpreventable business failure (sub-12 months) and net-negative churn core accounts (13+ months).
Nathan holds their own ▶ 3:08 Latka cites 25,000 employee revenue benchmarkLatka demonstrates command over SaaS operating metrics by citing proprietary data on the $137k average ARR per employee to evaluate Kellogg's workforce efficiency.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Nathan as informed peer | Guest teaching | Guest disagreement | Nathan pushing back | Why |
|---|---|---|---|---|---|---|
| Hybrid Business Model and Revenue per Employee Metrics | 7 | 3 | 1 | 3 | Latka demonstrates industry expertise by citing his dataset benchmark of 25,000 SaaS employees averaging $137k ARR per head and evaluates gross margins on tech-enabled services. JB Kellogg comfortably explains their hybrid model and $175k revenue per employee metric. | |
| Company Origin, Bootstrapped Growth, and Revenue Scaling | 6 | 2 | 1 | 3 | Latka rapidly calculates annual run rates and average revenue per customer ($875/month for 10k customers) and clarifies historical growth rates. Kellogg provides granular color on new vs old account pricing and capital efficiency. | |
| Customer Churn Segmentation, CAC Payback, and Inbound Lead Generation | 7 | 5 | 2 | 5 | Latka challenges the high churn risks common in SMB tech by citing Constant Contact and presses Kellogg on how CAC payback models work when upfront churn is unpredictable. Kellogg clearly explains their two-bucket churn model and six-month mandatory contracts. | |
| Co-Founding with Family and Transitioning from Trading | 6 | 3 | 1 | 4 | Latka brings up bootstrapping case studies like iCIMS and HubSpot's agency margin dynamics to question wealth generation and IPO planning. Kellogg details their monthly revenue share structure and upcoming IPO milestones. | |
| Famous Five Rapid-Fire Questions and Leadership Philosophy | 5 | 1 | 1 | 1 | Standard Famous Five rapid-fire segment where Latka helps Kellogg recall a book title and closes with a comprehensive analytical recap of the company's unit economics. |
Statements from this episode (16)
Kellogg: Madwire's service gross margins range between 60% and 80%
“With our service based businesses or services the margins right in that. 60 to 80% range.”
Kellogg: Madwire generates approximately $175,000 in annual revenue per employee
“It's changing a little bit with our onboarding, but we're right in the 175,000 range.”
Kellogg: Madwire is pacing at a $105M annual revenue run rate
“Right, right on pace for that about right now in terms of the run rate.”
Kellogg: SMB software requires a 'do-it-for-me' managed service layer
“Even if we had the greatest, you know, small business platform in the whole world for small business, there wouldn't be a lot of utilization without the service piece. We literally need to do the work for them. So we put together kind of the do it for me model…”
Kellogg: Madwire has about 10,000 active customers
“Total customers right now, when you, we just acquired a payments company, so that, you know, added to that total, but it's about 10,000 active customers right now.”
Kellogg: Madwire new incoming accounts average $1,500 per month MRR
“So the incoming accounts now, the average account size is around 1500 a month MRR.”
Kellogg: Madwire raised $7.5M in 2014 and has never spent it
“In 2014, we did bring on some partners two small partners at that point, and we raised about 7.5 million at that juncture. We really haven't used any of that capital. We really just felt like we needed it. It's still there. It's literally still there.”
Kellogg: Madwire cohorts hit negative churn after 18 months
“It actually after 18 months turns to a negative churn, which means essentially people are upgrading at a higher rate than we are seeing in loss. So the book is actually growing month over month.”
Kellogg: Madwire sees roughly 50% customer churn in their first year
“The churn in the new account bucket is usually about 50%. So of the accounts that we open, about half of them will move into the core customer. SPEAKER_01: That's annually. Nathan Latka: That's over the first year. JB Kellogg: That's over the first year.”
Kellogg: Madwire reaches CAC payback in month three with six-month agreements
“Now our CAC's around 3000. It's a little bit more than that. And so when you look at our average account size coming in the door, which is right around 1500, usually in month three is when we start to become profitable on that account. We have a six month agre…”
Kellogg: Madwire generates 6,000 inbound leads per month with no outbound
“We don't do any cold calls of any kind. These are all inbound leads off of our website. Currently we generate about 6000 a month.”
Kellogg: Sales reps maximize closing ratios at exactly 60 inbound leads
“We try to give our sales team about 60 leads per person. They have the highest closing ratio if you supply that many. If you give them less, they have too much time on their hands. If you give them too much, they close not as many because they don't have enoug…”
Kellogg: Madwire reserves 10% option pool for leadership
“There is a small pool that we've set aside for leaders. And so we give them stock options when you move into leadership. And so that it's about 10% is what the pool is.”
Kellogg: Madwire distributes monthly revenue sharing to every single employee
“Yeah, we do do a revenue share every month and that's to the entire company, even without stock options.”
Kellogg: Madwire is targeting an IPO within two to three years
“We have talked about dividends in the future and that sort of a thing, but for us, honestly, I think our vision is all that we're on a good roadway here, and if it's IPO that's kind of where we're targeting over the next two to three years, and we figure that …”
Kellogg: Tolerate weak employee performance only if attitude and effort remain high
“The way that we rate employees now, which is attitude, effort, performance. If the attitude and effort are good, we'll be very long suffering on performance. If either one of those is very short leash, so it's kind of a short leash, long leash look at it.”