How Wistia CEO Brendan Schwartz grew to $67M revenue and 50K customers in 2024.

just got done editing this interview you guys are gonna love it before i do that though i want you to know that i'm going to be in the comments for the next 30 minutes or so answering your questions if there's additional questions you want me to ask the ceo next time i interview them leave them below or if you're just loving the data points i get ceos to share click the thumbs up button below that's your way of telling me you're loving this stuff and i'll get you more of it additionally again i'll be in the comments answering any questions you have all right for 30 minutes enjoy the interview all right guys what's up nathan lackey here today our guest is chris savage he's the co-founder and ceo of owistia a web-based software solution helps marketers turn viewers into brand advocates to grow their businesses now more than 500 000 businesses across 50 countries depend on wisdos products to build their brands like hubspot mail chimp sephora starbucks and tiffany and co chris you ready to take us to the top let's do it all right man i already told you i'm envious of your video set up here you're totally putting me to shame this i'm just at my desk man this is how it looks it's not just another day in the office all right so we just said on the bio but anything you want to add in terms of wistia for folks that you know if they haven't heard of you guys what you guys do yeah i mean i would just say um we've been around for a long time we're classic overnight success you know failed security for many many years um and then figured out like how to build a freemium business and we just help small medium-sized businesses use video better and that means analytics see how your videos are performing hosting sharing tools marketing tools the ability to build channels like we have a ton of stuff to help people do that yeah now the context of this what i want to talk about is something very unique to what you've done which is an acquisition offer you got recently and decided to do something totally off the rails which was instead of taking the acquisition offer raise debt and buy the folks out so we'll get to that in about two or three minutes but first give us context in terms of where you're playing so would you categorize yourself as kind of smb min market enterprise what's the average customer looking like yeah if we're in the smb space i mean um you know there's a that's where we set our target i think like any business it's freemium you end up you end up with customers across the spectrum right like we're mostly smb there's some mid-market there's a little bit of enterprise in there um but we what it means for like how we've built the business is that like we have to be really efficient how we get customers um we have to make a product experience it's incredibly easy incredibly simple i mean i think also the other thing about the smb space as you know is it just it takes time right like it's hard to find all those folks so it's hard to build that brand equity um and so but that's the path we've chosen and it's it's been good for us so i mean fair to say sweet spot for you guys is your your 99 a month kind of pro plan it was that accurate or no yeah that's accurate okay all right so give us some let's post on a timeline and then we'll get to the recent event so when'd you launch the company what year launched in 2006. okay 2006. so how much how do you rate well first off when did you get the acquisition off for uh what year and how much did you raise prior uh we got the acquisition offer in 2017 and we only ever raised two angel rounds so for a total of 1.4 million we raised 650 000 in 2008 um and another about 800 000 a little less than that in 2010. dude i did not know it was that little i thought you had raised like five six million no no it was it was a very strong i mean especially in today uh when we see how much people race for a seed round yeah um yeah we raised very little yeah incredibly capital efficient and that was from the beginning like when we started the business uh my co my co-founder and i were both very fortunate in that we graduated college without debt uh my dad was a professor and had a good deal um and so we saved the the meager amount we earned the first year of school and that is what we used to to fund ourselves the first two years yeah now 2017 obviously was about two years ago give us before we talk about kind of logistics here give us a sense the size of company at that point how many customers are you serving and if you can kind of revenue range yeah um i think the revenue range was around like about like right at the time of the offer i think we were about like an 18 million dollar run rate or so um and i don't remember the exact customer number offhand at the top couple thousand uh tens of thousands tens up good that's that's good range tens of thousands okay so the acquisition offer comes in were you expecting it was it a surprise did you solicit it you know what's funny is that we actually had three companies approach us at the same time that all said we want to acquire you and i was quite surprised because you know people have pinged us over the years and poked around but never have we had three companies at once and it was the fact that those three companies came at once were like oh maybe something's changing in the market and so we should take these offers more seriously um and then it just kind of evolved right like you know you don't really expect to be spending your time doing that then suddenly you're spending all your time talking to people about um selling your company it took all your time i mean it was super time intensive it became very time intensive because you know there was like we were we really were not sure what we wanted to do with the business actually so it was like we had the acquisition offers coming in we also had thought maybe we would raise a growth round so we were talking to growth firms um how much what were you what were you if you did go vc that that time what would you raise i mean when i was being sold what they were trying to convince me to do is to raise you know 40 million bucks something like that um and so we were spending a lot of time like looking at our data and looking at the unit economics of like how things were changing and evolving um and thinking through what we would do in each of the different scenarios yep okay good so you're looking at kind of the vc site now did that actually mature into a term sheet or you shut that kind of down quickly um it was returning it was turning into a term sheet almost exactly the same time that um we were getting like the real offers okay were they did any of the acquisition offers turn into a real loi or a real term sheet real diligence um we were just we had gotten the numbers and like we were get i think we had gotten to one one of them like the loy to sign okay so where did i mean when did debt enter your head so it's funny because we're basically sitting there with this offer trying to decide like should we go to the next step and um we realized in that moment a couple things like well what would we do if we sold well if we sold the company we would work at this new company for two years and then we would leave and then my co-founder and i at this point we've been working together for 11 years we think we've worked together really well um so we thought we'd do something together again and we thought we'd probably try to build another company and we talked about the type of company we try to build and we're like well we really like the smb space we want to build a company with a strong brand we think there's a lot of stuff we can do in video you can see where this is going where we started to realize is that we were like we saw the business we're going to try to rebuild with and then they were like why do we need to rebuild it and that was the funny part was like i didn't expect that like you know why why rebuild and it was in that part of the conversation that we actually admitted to each other that we were not happy why we had been throwing the throttle down on growth for a couple of years and we had you know we'd been profitable in funding the business uh through having customers and we and we had cash reserves and then we had just been like throwing the throttle down like hiring like crazy spending tons of money on advertising because we gotten so much advice and we looked at the market we talked to all these growth funds and all these smart people who said if you're profitable then you're actually probably not growing as fast as you could and so we were trying to grow faster and it had made the company incredibly short-term focused because like if you lose 250 000 in february and you're planning on losing another 250 in in march but revenue is going to go up revenue doesn't go up and you end up losing 300. it ends up creating some stress how low was the bank how low was the bank account did it get in that time frame um i mean we let's that's a great question i think we we started with uh before we started to throw the pedal down um we had i can't remember the exact amount multiple millions and we were we're trending lower like i could start to see at time horizon where we went from like living forever to it was going to be more like seven months or something yep yep um so that was very stressful and but what was happening is because everyone was so short-term focused we couldn't even execute on the long-term ideas like we do a long-term thing and then everyone be like why isn't that working why are we putting effort into that and it just made everything really short-term and it just was no it seemed like it was just going to be programmatic as opposed to like um longer term bets on things and more creative work in our marketing and you know focusing on the experience of the product those things like kind of fell away towards just kind of short-term growth things okay so did you end up having to lay off a bunch of people to get profitability back or so we we did not so we're very fortunate so we decided not to sell we realized that create that did create a misalignment with our angel investors so we had to do right by them uh because of course they want us to sell because that was going to be a great return so how much do they own by the way the 1.4 million um i can't say exactly okay but i'll say you know what i will say is that when we raised it was a different time and uh harder to get a higher value so they they own more than i would want them to yeah yeah i mean can you give a range and say between like ten and fifty percent ten and five zero percent i can yeah sure they're in that's a big that's a big range right so that's a huge i mean the reason i said is because um i'm thinking going okay an 18 million ar company that's raised 1.4 million him and his co-founder are unhappy why do they feel like they need to do anything unless those early folks owned a material portion that's exactly right and it's it's because like we raised our first round our mrr was literally one thousand dollars or like 1500 bucks so it's like we were very very early and there was a lot of risk in the business yep i mean i give credit to our angels like i if i saw a business it was just doing 1500 mrr and it was like the stage this i don't know that i'd be able to make the investment um so i give them tons of credit but yes it meant that they owned a material enough amount that they you know their their shares also were preferred shares and so it meant that they had rights to a board seat they could block a sale they we tried to set ourselves up because we assumed we were going to raise venture money so we tried to make the terms pretty venturey so that if we did the venture capitalists would come in and be like oh these seem like fair terms we'd hoped that they would like be closer to aligning with that did any of the the second eight hundred thousand dollar round in in 2010 was it a priced round or was it another note or something it was a price round okay so there was at least a valuation kind of beach head for you to look back on yeah okay totally so i'm one of your early investors i'm going dang chris i wanted you to sell for 180 million dollars you guys aren't going to sell i'm bummed like now what yeah so basically we started hitting on this idea of um what if we were to raise debt and we kind of like took future profits and brought them now and we were to create a tender offer for our investors and um we structured this i talked to an entrepreneur who had done something similar and the idea like got in there and i thought this is a very interesting idea because it was the same terms to everybody and so we decided not to sell in like june of 2017 hit on this idea of doing debt in probably july um and by october we had terms and so we worked with excel kkr um to fund the debt and they were willing to write debt against a company that was not profitable like we said we're going to be profitable but they had a growth fund side of the bus they have a growth funds out of their business so they looked at the unit economics of wistia they they were taking a bet that they understood our union economics we understood them and they could see a path to profitability and we had a range of debt that we would raise from them and so what was that right they were it was like 15 million to 20 million they were comfortable underwriting that so then we went back to our investors but we also went to the team because the team had options and especially early people they've been taking a huge risk and making incredibly small amount of cash in return for equity so if we're not gonna sell the business we have to take care of them too um and so we basically went to everybody and give them the exact same terms which was like here's a valuation you can decide how much you want to sell and write in how much you want to sell um but for the investors what we told them is like brent and i are going to run this business for the long term we have common shares if you don't sell your shares are actually going to convert to common as well how could you force them to accept that except that term you guys just had control so basically what we told them is like uh we've been doing this a long time the business is materially different than it was before we're gonna ask your class of shares to vote to turn into common and that will trigger the ability for you to sell your shares how did you convince them to vote yes to that was there anyone that stuck out and said no i want to stick with my preferred and stay with it um there were some people who wanted to stick with preferred but there was enough people who were excited about the return and so thankful for the return that they were able you we just needed a majority of people to do it so that was not that hard to do i will also say we built up so much trust because they've known us for so long um and they we had basically done what we said we were going to do like even when we raised our second angel round we said we're gonna get profitable on this or said no you're not but like we still think it's a good business then we did they're like you didn't no one ever does that and it was just like kind of continued on that path um and so i think there was like definitely a trust element involved what return did you i mean did you pitch them on a return when you raised did you say hey we're gonna optimize this to get you a 10x return you know we didn't i i was not a fan of saying an exact number at the beginning i was always a fan of like when someone asked me what the market size was i'd be like i don't want to tell you what the market size was but i will tell you if you look at webex you look at goats meeting you look at the people over there if they were spending just 50 a month that would be a big market people be like that would be a multi-billion dollar market you said it not you're like that's the math i mean because that is what we thought it was going to be and you know there was things that were a lot of stuff we're right about i think one of the things we were very wrong about um in the early days was just like the speed that our market would grow yeah we thought our market would be like two years giant i mean what we didn't understand was that like at least for business video people wanted to be they were nervous about the brand impact and then they're nervous about getting a camera and they're nervous with the roi and all of these things have been like a governor on our market so our market's been a very very good market but it has taken way longer than people expected and you can look at that the list of competitors we've had in the past and many of them were over funded actually and that's why they failed because they tried to get the market and the market wasn't there then they had a giant team and they couldn't support it and so they'd get sold off or whatever what's your team size today about 115 people okay and was it about the same back in 2017 no 2017 we're about 78 people okay so back to the question about convincing enough of those series those early investors to want to convert to common you had to have i mean there's a negotiation there you had to have given them a return that made at least the majority sign off on those terms so what was that i mean what can you share what that multiple was um yeah i can i so there's the two rounds there's different um returns but uh it was around 20x okay on kind of both of them yeah one was a little one was a little less than that got it so if i put some money in the 800 000 round in 2010 uh your i mean what you're saying was that's essentially turns into 16 million bucks yeah yeah okay got it and then so 16 million plus again called another 20x on the 650 that's where you get up to like basically what i mean you didn't raise 25 30 in debt though you raised what 17. we raised 17.3 so here's the other interesting thing is that we're getting um pressure for liquidity people wanted liquidity and don't forget we also want to take care of the team who were selling their shares um but people didn't actually want to sell the whole thing like oh you know so we had probably had like 12 individual investors we had a couple people who didn't want to sell anything because they're high net worth individuals and they have lots of investments like this and they're like well let's just let it ride yep and they they knew that they would be incentivized the same way brenda and i are like running the business to figure out how to take money out of the business at some point so of the 1.4 how much did you can you buy out basically the 1.4 million um that's a good question uh it was 40ish percent 40 okay well that's less than what i would have thought okay so 60 of people said i'll go to common i want to ride this bad boy out yeah i mean that was actually one of the people who gave me the most pressure for liquidity i was just so certain they're going to sell like you know 60 or 70 percent he came back he's like i'm going to sell like 20 percent i'll like are you serious it's like he's like well you guys are doing great i want to i want to be in this business so that's so funny so 40 on the 1.4 million from the 650 you raised in 2008 and the 800 you raised in 2010 comes at about 600 000 of the 1.4 you bought out at a 20x right so 600 thousand times twenty x is twelve million there you then had more debt on t hey i think you said you raised 17 in debt so you have five left to play with did that go out of the balance sheet and early employees who exercised i was really there was nothing one of the balance sheets okay okay it exactly matched okay cool so that's really helpful so so out of curiosity i mean did you ever do the math how many team members sold at least a dollar worth of shares on the tender offer i'm most did so we actually when we did the offer what we said was we want to have one incentive structure for everybody um so you can either you know hold on to your options or if you sell your options you can participate in profit chart so we introduced profit sharing starting in 2018 um where we take a percentage of the pool of ebitda and put it directly toward for the employees and it's divided up based on people's salaries um and we did that for a bunch of reasons because we audit salaries multiple multiple times a year to make sure people are paid fairly and equitably um that way it acts as like a bonus and there's a very clear connection between how the business is doing and um how people are compensating so in in this year rapping out of 20 2019 let's just assume let's say you took 5 million to the bottom line do you split the full 5 million or do you take a percent of ebitda and split that we take we take a percent of ebitda because we're serving the debt we got to pay taxes a bunch of other things but okay um that's how that's how we've done it and it was actually very interesting and it it was a huge lesson for me because you know we've given people options forever and they would talk about like what's the evaluation of the business wait before you talk but wait before you tell the story what what percentage do you end up splitting uh 10 okay now tell the story yeah yeah so we basically you know we people would ask like how much is the business worth we'll be like well you know you can look at sas multiples and they look like whatever 5x to 20x and you look at like these other industries it was this like fuzzy math and i think it made it really hard for people to understand what to do like how valuable is this thing like you don't know when liquidity is going to be and so it used to be the case like on a monthly basis we'd go through our financials we would open book at wistia so we'd talk about the financials and like any questions and usually there'd be no questions so the first time we went through the financials after we introduced uh profit sharing it's like any questions and like you know half the hands of the group this is your audience you're all hands meeting yeah and they're like why why do we have this extra office that like doesn't have enough you know we're basically we're wasting space now like we should be subletting this like why are we doing this thing over here and why do this thing over there and it was ludicrous actually it's crazy to see the difference and then after that one of our uh our infrastructure teams came to me and they're like hey guys we have an idea we think we can improve gross margin well by the way your video how bad was your gross i mean not not bad but what was your margin our gross margin matters like it's expensive um uh the cost of goods of delivering video and hosting video the storage everything is very expensive so they came to us they're like we think we'd improve gross margin like all right great like how long do you need like we need a few weeks so they went and they spent some time and they came back and like um we've made some changes we've reworked how some things are are working and we've got us three points of gross margin that's amazing so what does that equate to in terms of bottom line profit they added just by doing that um well i mean that is just three percent of revenue right yeah uh three percent of 18 million yeah yeah i mean look at the point is like this is so fascinating to me people don't understand equity they understand like profit because now you said these are dollars that are not in your wallet if you don't figure out how to save them exactly yeah and i think it's it's also it's been interesting too because like you know we're still growing we're adding a lot more people we're trying more things but the by having this it's almost like it forced us to be profitable the debt and that allowed us and forced us to be long-term focused which again these are like the opposite things i expected way before all of this would happen like i always assumed that you know people said profit was bad and profit was short term um it's just been interesting because it's been the opposite well so now fast forward your two three years into this experiment how many customers are you guys serving now today um a lot more um so i could say that are you over 50 000 um yes okay and i would say and i would also say like the revenue is really strong um we are more than double where we were then which is awesome so you'll break up four wait double 18 is 40 you'll break 40 million this year yeah we're right right past there that's great yeah so chris is amazing because so there are so many vc firms that sell entrepreneurs on this idea that you're never gonna double growth unless you like raise capital but like you've proven in a very opposite way that like it actually is doable even though you yourself will say your market is not a massive multi-billion dollar market yeah i think that it is totally doable and i feel like i i look at a lot of actually i take inspiration from companies like mailchimp that i've done without any funding but i also take inspiration from companies like i feel like a lot of the direct to consumer companies are showing us what's possible like if you can find the people who really care about what you're doing and you can figure out how to finance the um the business like through customers through cash flow uh it is it is possible to do and it's also just like people underestimate focus man yeah you know we were we were doing so many different things like searching for growth and then the second we focused on our product we focused on the experience because we had to guess what all those things got better and move the needle yeah one so how what did you remove then you know you said since 2017 you doubled but if you're doing 40 today what would you start that you're at what um i don't know okay yeah okay but yeah i guess the reason i'm asking is has the team because the team can save money and it essentially ends up in their pocket have they made irrational decisions around cac right they could have spent a dollar profitably but they didn't because they wanted to save it for their pocket it was a guaranteed thing oh that question um no we haven't had that experience because i think the other piece is that the profit sharing is um it's a you know it's it's a part of your compensation but it's not a huge part yeah so we're also just like making sure that we're paying people really well and and doing that throughout you know as we update um where people are at throughout the year and so i think it's ends up being like important but it is not like the key piece of compensation i think we get a very different result if profit sharing was like 50 of people's compensation it's much smaller percentage when you look at like your marketing team again with this profit sure model and cac i mean are you are you still optimizing like a kind of a year-long payback period or is it shortened or lengthened um yeah it's we're optimizing for about a year i think if anything it's lengthened a little bit because uh now that we have this this buffer of profitability we can continue to do those long-term things um so yeah that's that's an interesting one because i agree with you it would have been easy to see it like change behavior so that people didn't want to invest but we haven't seen that that's i mean that's a good thing and then breakdown there's a 115 on the team how many engineers the product and engineering organization which i'm just going to lump those together uh is about i think like 45 people okay so healthy and then at your price point i mean do you have inside sales reps with quota or no the inside sales doesn't make sense uh no we do have sales oh okay how many quota carrying reps uh like aes bdrs you mean yeah yeah however whatever you want to label yeah 16 okay did you change anything about their comp plans because now you know usually a base plus commission right but now they actually take their profit that they can share and do you change their structure at all or no we no we didn't change their structure okay cool all right last question if an entrepreneur's listening right now they're thinking about raising debt i mean what what terms are good terms i mean what what should they be asking questions about yeah i think you want to know so there's obviously the interest rate um in our case you know when we did the deal the initial interest rate was high because we didn't have evidence of profitability and so we were not going to go get the deal from from a quote normal bank yeah what i mean can you give me i know you probably can't give i'll say it's like i i can't say specifically it was like over ten percent okay um and we had a five-year term and um fortunately we had like a the it was interest only for a while and then eventually went into principle and in our case the things we were looking at was like the interest it was okay to spend that the the money on interest because we were thinking like what would the value of the company be in the future like you're kind of taking a bet will it be worth more than 11 a year um and then the there's always going to be covenants and so you want to look at how the covenants are going to restrict how you run the business and so um things to look out for are like minimum revenue requirements um the amount of cash you have on hand to pay for the debt payments um trailing ebitda and leverage ratio so leverage ratio is the amount of debt you have to the amount of ebitda you have and like if you even use your top line arr um ebitda ebit okay so when you the if you are at like four times ebitda so if you have a million of ebitda you could have four million of debt from there on down like three three to one two to one one to one that's when you're getting into a range that you can like talk to normal banks yeah so you were over like five you were over five or six right oh we were like infinite ebitda when we started talking because you weren't because you weren't profitable yeah yeah so they had a plan and we like worked with them on this like we built projections and i was like all right in 18 months we're gonna have a leverage ratio it's gonna start at 20 x and then it's going to work its way down and that was one of our covenants was like can we get our leverage ratio to...