The Exchanges

Q And are you still, I remember you saying something last time, like, Hey, Nathan, we're okay churning nine out of 10 customers in a year. Cause the person who starts at 1800 bucks a month will be paying 20 grand a month within 12 months. I mean, are you still seeing this kind of churn and upsell volume?

A Yeah, the successful businesses really grow. And that's the challenge with small businesses is so many of them fail. Um, and so, you know, the way we look at it is our core customers is a customer that's been with us over 12 months and our core customer churns really good. It's like one and a half percent per month. So The question is, how do you get more to core at your new customers? So we look at our first year pretty much as part of our sales cycle. We bring them in and we call it a paid trial. Essentially they're on a paid trial. And our goal is to try to retain them past a year and then upsell them from there. So a good percentage do churn in the first year. It's not nine out of 10, but, um, it is about, you know, probably close to 60%, 50, 60%. We'll churn, but we capture, recapture our marketing costs. So it essentially becomes like a free trade for us to discover the golden customer, which is our core customer.

AI assessment note: “It's not nine out of 10, but, um, it is about... 50, 60%”

Q in September of 2018, you said you had about 10,000 customers, and so you've doubled your customer base. Um, your average ACV then, you told me, was around 10,000, so that shrunk a little, which makes sense, because you have way more volume, uh, and you've increased ARR from a hundred million in ARR up to a hundred twenty million bucks in ARR. Are you happy with all those numbers?

A Yeah, you know, we're pretty happy, and you know, we're still, we have a lot of reactivation still with some of these industries to, to get back on board and put us back on track, but We have targets about this time next year to be in that hundred and fifty million range or so, um, we feel pretty good about, um, so that's what we're kind of marching towards, and we've also really improved profitability over the last couple years since we last talked. That's been a big focus of ours, so we're trying to get that into that 15 to 20% range here over the next year, which we think is very doable, um, which would put us, you know, we're trying to align to that rule of 40, kind of, where our growth is going to be that 25% plus area Um, and our, and our EBITDA is right in that 15 to 20% area. So that's kind of our target.

AI assessment note: “Yeah, you know, we're pretty happy, and you know, we're still”

Q of a cohort of a hundred that sign up last month, we know two years from now that even if only five of those customers stick They're going to have 10 X the price point. We're going to upgrade them 10 times. They're just going to be huge accounts, which makes up for that loss. Is that all accurate and true? And if so, what does that look like today?

A Today, we're, uh, our logo churn on core customers, which a core customer is a customer that's been with us 12 months or more is about 2.8% per month. And we expect that to improve to about 1.5% over the next 24 months with payments and some other business management tools that we've built into the platform. Our new customer segment, which is zero months up to 11 months, essentially, those are new customers. They churn at a higher rate. So, um, it's not 90%. It's improved, you know, quite a bit from there. It's more like 50%. We'll make it to that twelve-month mark. But like you just said, the 50% that we lose, we're making up for with growth out of the 50% that we keep. So, with a small business, you're just never going to have a great churn rate in the first 12 months because 80% of small businesses go out of business in general. So, You're, you're really defeating the market if you're doing better than that, which we are. But the key is not necessarily keeping every single customer. It's about growing the customers that find success. And so that's what we've done pretty good at is when we find success with the customer, we're able to grow the customer and then that makes up for the losses. So the MRR churn is better.

AI assessment note: “our logo churn on core customers... is about 2.8% per month.”

Q One percent. So, so what, how do you, how do you change and how do you try and add, you know, 10% or 15, 14% to your profit margin this year? Especially, you know, obviously during COVID.

A Big piece of it's through, uh, technology. So we launched our new platform, Marketing Um, here about eight months ago, and it's already really increased profitability because we've automated a lot of stuff that used to take a lot of manpower. So for example, when we onboarded a new account was very labor intensive and with the new platform, we have something called smart start, which is you click one button based on the vertical and it customizes the whole platform and automatically builds out the marketing journeys and everything for you. So now it takes no human effort. So Um, right now our 500 people is like 60 in, in tech. We have about 200 in sales. Um, and then we have-

AI assessment note: “Big piece of it's through, uh, technology. So we launched our new platform”

Q And have you bootstrapped this over the, again, over the past nine years or have you raised?

A For the most part, um, in 2014, we did bring on some partners, um, two small partners, um, at that point, and we raised about 7.5 million at that, um, 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. Um, so, and I think that's because from 2009, 2014, we were bootstrapped, so we just got to where we were always just real careful watching our cash, make sure we We wouldn't, didn't necessarily, you know, weren't concerned if we broke even every month, we didn't really want to burn cash. And so we just have that kind of built into our culture and it stayed that way.

AI assessment note: “in 2014, we did bring on some partners... and we raised about 7.5 million”

Q their CAC model and their, and their cash model on an, a, a 13 plus month customer data point, thinking they'd last that long, but then they don't, right? So my question to you is, What is your CAC and how do you tie that back to less than 12 month LTV versus 13 plus month LTV? If you can't predict which one it's going to be at the beginning.

A Yeah, you're absolutely right. And because we were basically bootstrapped, we had to make sure we made our money back quick. So, um, we're profitable with our new customers, um, after about three months. So that covers our CAC. Um, that's, that's based on our average account size. Now our CAC's around 3000. It's a little bit, 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 agreement. And so you have to sign at least a six month agreement. And so that locks in basically profitability of every new account that we sell. And then.

AI assessment note: “our CAC's around 3000... usually in month three is when we start to become profitable”

Q Talk to me about what this perfect new partner would potentially look like. I mean, is this a growth equity firm coming in, buying 60% at a seven hundred million dollar valuation and also putting capital on the balance sheet to fuel M&A?

A Yep. And that also sees that the point solutions are sort of a dying game now. And all those point solutions are You know, they're falling behind because there's more and more platforms that do everything. And so they're seeing where their growth has been moving more sideways. And they're looking for an opportunity where we can probably get a good, you know, a multiple arbitrage there where their valuation is relatively low. We pull the revenue in, it immediately spikes that up. And ultimately an investor looking for a platform that you can bolt into, you know, one platform that you can easily integrate these tools with and the team and the culture. Um, and we have a good process for that. We've done two acquisitions now, both went very well, very smooth, and we'd like to go faster if we could. I just need the capital for that.

AI assessment note: “Yep. And that also sees that the point solutions are sort of a dying game”

Q Okay, about 20,000. That's good. And are you seeing most of your growth these days coming from upselling those folks? Or do you think most of your growth is going to come from go finding a new 20,000 customers over the next two years, three years?

A I think most of our growth is Coming down the road here is going to be upsells as part of it, but I think acquisition will be a big part of that new customer acquisition, but even more so we see a big opportunity for M&A. Um, there's a lot of, uh, a lot of our platform does, but there's also some gaps. So particularly with different verticals, each different business has one or two technology tools that they're using that, you know, we don't have that functionality in the platform necessarily like a HVAC company wanting to, you know, track their trucks on the road or something like that. Um, so there's all these tools and we see it as a great opportunity to acquire the company. We don't need their back office or sales team. We have all of that. We just need their engineers so we can make it extremely profitable. Um, and also it tacks on that growth of revenue and customers through acquisition of which we can then cross sell and upsell from there. So see a big opportunity there and you know, their software engineers are very competitive right now. And so that's also a good opportunity to get a good team with a good piece of technology. That's sticky. That customers using it have good churn profiles. That's kind of what we're targeting.

AI assessment note: “upsells as part of it, but I think acquisition will be a big part”

Q Where, so, incredible growth rates for the SMB space. You know, the SMB, people give up on it all the time. Constant contact got killed in the public markets, and their PE multiple was way below other, you know, public SaaS companies because of their churn rates. You know, walk me through your churn today, and how has the people side of your business enabled you to keep churn low?

A Well, the way we look at churn is in two buckets. Um, we look at new customer and core customer, and we track it that way. Um, in the small business space, as anybody who does business with small business knows, a lot of them go out of business. You know, generally in the first year or two, um, is when most of them will go out of business and we, we take all comers. So a lot of our accounts are new businesses. And so we understand that. So the way that we track churn, that makes the most sense for us and our investors is in two buckets, new customers, which is 12 months or less. And core customers, which is 13 months and older. That weeds out the natural loss that's not necessarily happening, happening because of your product or service. It's just something that's unpreventable. Um, and it, it really looks at the core customers out of our core customer metrics, which is really all we look at for churn. Um, it's extremely good. Um, 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. And so our lifetime value for accounts as of right now goes out like a hundred months and growing. Um, so it's pretty impressive. 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 c…

AI assessment note: “we look at new customer and core customer, and we track it that way.”

Q I don't care about being wealthy, which I just don't believe. Most, once I dig in, mostly they end up saying something about a dividend structure or revenue sharing with their whole team or something like that. So same question to you. If you don't sell and there is no big exit, you keep building this behemoth. How do you increase your own wealth and the wealth of the team?

A Yeah, we do do a revenue share every month and that's to the entire company, even without stock options. So we do do that. 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, um, we're on a good roadway here, and if it's IPO, um, that's kind of where we're, we're targeting over the next two to three years, and we figure that we're just a better company whether we do it or not, if we plan on doing it, and if something better comes along the way, great. If we just become a huge cash cow, um, we'll start, start doing dividends, um, out to the shareholders is kind of our, our thought, and so we don't have a specific Um, target that we're going for, but we're planning to go IPO because we just feel like it makes us a better company. And if we don't, that just means that we're just crushing it. We're a huge cash cow. And then we'll start doing dividends. It's kind of our thought.

AI assessment note: “we do do a revenue share every month and that's to the entire company”

Q In July, how much GMB did you process through your payments?

A Through our payments? Well, it depends. We have his legacy payments accounts, which are more of like an ISO model, because we acquired a company called SilverEdge two years ago. Um, so with them, it's close to a billion, but if you exclude them and just- Annually? Yeah. Annually. Yeah. If you exclude them and look at our, just our new payments products, it's very, very new. So, um, it's only been launched for about a month at this point. And so what we're seeing so far is 65% adoption rate. So users, um, buying marketing three 60 right now, but 65% are activating payments. And the average ticket size so far has been pretty good. It's actually been close to a thousand dollars because we have HVACs and those types of businesses that are using it. So for example, if you have 1000 dollar invoice paid, we make about 30 bucks on that. So it adds up pretty fast. And this is additional revenue that we didn't capture before.

AI assessment note: “with them, it's close to a billion, but if you exclude them”

Q And what is, if you're doing eight million in MRR right now, you know, I mean, what is the right valuation? Is seven hundred million the right valuation?

A Well, I don't know. You know, the eye is in the beholder. Um, you know, we see companies that are very similar. And one thing that was really cool last week that unsolicited to us, but exciting to see is DA Davidson did their top 100 in the herd private companies in the country, um, for tech. And we, we made that list, which was exciting because when you look at the list, it's actually pretty crazy at the capital raise. When you look at that column, it's in the hundreds of millions, some billions And we have an N a next to us. It was so small. It didn't even get anything. It's just N a. Um, and so for us to be competing with those companies, you know, with such little capital raised, I think just shows that we're capital efficient. And if we had more capital, we could really do some damage.

AI assessment note: “Well, I don't know. You know, the eye is in the beholder.”