How 15Five Reached 1,500 Customers and 120% to 130% Net Revenue Retention with a Land and Expand Model (Interview with CEO David Hassell)

Introduction and Background

Nathan Latka

00:01Hello everyone. My guest today is David Hassell. He's a serial entrepreneur and the co founder and CEO of a company called 15Five. His foray into entrepreneurship began nearly twenty years ago co founding three companies in ad tech, kite surfing adventure travel, and leadership coaching before starting 15Five, where he sees the opportunity to help organizations and everyone in them reach their highest potential. He was formerly serve... He formerly served as the president of the San Francisco chapter

00:24of the EO organization or Entrepreneurs' Organization, and was later named by Forbes the most connected man you don't know in Silicon Valley. David, are you ready to take us to the top?

David Hassell

00:33I am. Alright.

What 15Five Does and How It Makes Money

Nathan Latka

00:34So you're doing EO and you just you just got to... You said, gotta get back in the game. I gotta start my own thing. Let me jump in with 15Five.

David Hassell

00:34Exactly.

Nathan Latka

00:34Alright. Tell us what the... What's the company do and how do you make money? Is it pure play SaaS?

David Hassell

00:47So we're we're a SaaS. We're a SaaS. We we charge on a per seat subscription basis and we build software that helps leaders and managers be great managers and leaders, help bring out the best in their team.

How the Product Works

Nathan Latka

00:59And how... So how does that work? Is it a feedback loop kind of thing or how does it work?

David Hassell

01:03It is a feedback loop kind of thing. The the core 15Five and the reason it's called 15Five is the basic practice. Employees spend fifteen minutes a week writing a report that takes their manager no more than five minutes to read and answering key questions like how are they feeling? Where are they... What are they... What are their challenges? What are their successes? They give high fives to each other, peer appreciation. All that rolls up into quarterly

01:26performance reviews.

Nathan Latka

01:28Okay. And so my obvious question to you is, you know, sales, you know, CMOs have, or heads of sales have a tough time getting their, you know, account executives to use Salesforce, right, for data entry. How do they convince people to actually use this thing on a weekly basis?

David Hassell

01:40You know, and and it's actually pretty popular with sales teams. It's it's one of these things that once people start to use it, they see the value for themselves. They see they have access to their leader in a way that they didn't have otherwise, where where asynchronously, they can be getting feedback on their challenges. They can be looping in other people from their team. They can have conversations. The most important, their issues get surfaced to leadership

02:02in the company without having to necessarily go through that VP of sales.

Nathan Latka

02:06I see.

David Hassell

02:06And so things start to happen organization wide.

Nathan Latka

02:09And what's your revenue model? Is it SaaS company?

David Hassell

02:12It is a SaaS company. Yep. Per seat subscription. So

Nathan Latka

02:12Okay.

David Hassell

02:12Have a 100 people you pay per per person per month.

Nathan Latka

02:18And on average, what does somebody pay for a seat?

David Hassell

02:21Anywhere between 7 and $14 a month.

Nathan Latka

02:24Okay. So I assume you're kind of high volume, but low ARPU kind of business model.

David Hassell

02:28We're actually with two business models. We have an inbound self-service that is that, and then we have a sales driven model. That, you know, the ARPU there is probably 10x the self-service. So as, you know, large accounts with multiple multi thousand... Multiple thousands of employees that are sales driven, and then small teams say, you know, three to a 100 people that's more self-service.

Nathan Latka

02:49Is the effective though per seat cost even on the enterprise deal still between 7 and $14 or is there a big volume

02:54discount or it's getting

David Hassell

02:54There tends... We do do some discounting. It depends on which version of the software people go with.

Nathan Latka

02:54Okay.

David Hassell

02:54Yeah.

Nathan Latka

03:03And put all this on a timeline for me. When was launch date?

David Hassell

03:07So we launched the product in March 2012. And by June, we've been picked up in Inc Magazine and it was phenomenal phenomenal launch. They they wrote about us. We've got our first 100 customers right out of the gate. And so we've been in the market about, what is it, six and a half years now.

Customer Count and Team Growth

Nathan Latka

03:23Okay. And what have you scaled to today in terms of total customers?

David Hassell

03:26We've got a little over 1,500 customers. The company's really hit a big inflection point lately. We were, you know, we were 20 people at the beginning of last year. We were 50 people last month, it'll be 65 next month and, you know, 120 by this time next year.

Funding and Capital Efficiency

Nathan Latka

03:41And so, I mean, did you raise capital to drive some of this this hiring spree or is it all funded by revenue?

David Hassell

03:46Currently, it's all funded by revenue.

Nathan Latka

03:49Yeah. Okay. So you're bootstrapped today?

David Hassell

03:52Yeah. We're not bootstrapped. Relative to our competition, we've raised a very small amount of capital. Raised about 3,700,000 today.

Nathan Latka

04:01Okay.

David Hassell

04:01We have, you know, some some of our our our, you know, kinda HR tech competitors have raised between 40 and $100,000,000.

Nathan Latka

04:08And who are some of those competitors? Who do see yourself competing with?

David Hassell

04:11I'd say the the the three most... The the three companies we bump into most often are a company called Reflektive, another company called Lattice, and a third called BetterWorks.

ARR and Revenue Scale

Nathan Latka

04:20Yep. Yep. Very good. And and help me understand what you've scaled to today if you can in terms of like ARR or even a range is fine.

David Hassell

04:28Yeah. I I would say that I can't disclose that. Sorry.

Nathan Latka

04:32Okay. Well, no. It's okay. Give give however big a range you wanna give to stay as big as you want. I mean, generally speaking.

David Hassell

04:38Yeah. So I mean, we're, you know, we're, you know, I I would say near 8 figures at the moment.

Nathan Latka

04:43Okay. Good. So so, you know, getting close to approaching that 10,000,000 ARR mark.

David Hassell

04:47Right.

Nathan Latka

04:47Is that fair? Okay.

David Hassell

04:48Yep.

Nathan Latka

04:49Now is is it an aggressive goal for you to say that you're looking to, you know, hit that by the end of this year or that's a pretty comfortable goal?

David Hassell

04:55No. It's it's... We're moving very, very quickly

Nathan Latka

04:55Okay.

David Hassell

04:55The moment. So what it... Yeah.

Nathan Latka

04:58Okay. Very good. And and so you've obviously been able to hire from that kind of revenue. Walk me through what's driven most of the growth and maybe let's us actually do this from your team size first. So so the team you said today, believe is like 55, 60 people?

David Hassell

05:1250 people.

Nathan Latka

05:13Fifty fifty people. And break that down for me. So how many of those are inside sales working enterprise deals?

David Hassell

05:18So we've probably got... The sales team now is approaching 15 people.

Nathan Latka

05:23One five. Yeah.

David Hassell

05:24That's... Yeah. But that's, you know, we've probably got six six account executives. We've got SDRs. We've got, you know, now we have a chief revenue officer. We've we've rolled customer success and sales together because a large part of our business has to do with acquiring the customers either through a self-service or sales driven approach, and then we have a land and expand model that goes from there.

CAC Payback and Unit Economics

Nathan Latka

05:44Of course, yeah, that makes a lot of sense. Just for the landing, of maybe it's just even one $7 account at, you know, Uber, right, or something like What is that costing you to acquire that again, just that one landed account?

David Hassell

05:57I think right now our CAC to LTV anyway, which would be a good measure of that is probably have a five or six to one.

Nathan Latka

05:57Okay.

David Hassell

05:57So without going into specific costs, know, it's obviously very profitable on that front. A lot of that comes in, you know, through a combination of inbound self-service, the expansion deals I talked about, and then some outbound as well.

Nathan Latka

06:18Let me ask that a little bit differently. How aggressive are you being in terms of your patience to recover CAC? Are you happy to wait twelve months, six months, twenty four months?

David Hassell

06:27I would say today we're below twelve months.

Nathan Latka

06:29Oh, that's great.

David Hassell

06:30We've been extraordinarily capital efficient. I would say that a lot of companies who are building SaaS companies will kind of front load their hiring and then make the make up costs on the back end. We've hired in arrears. So as the business has scaled, we hire more people. The business has scaled, we've hired more people. We've maintained cash flow positivity for quite a while. So whether we continue to do that is a question what I think

06:57it probably makes sense to raise additional capital in the near term.

Churn by Cohort and Net Revenue Retention

Nathan Latka

07:00Yep. We'll talk more about that later, but let's keep going on the economics here. So anytime you're talking about a price point that's sub a $100 per month, even per seat, churn is obviously an issue. You gotta get the accounts to expand their seats. You gotta get retention, expansion activation, What all that is your churn at today?

David Hassell

07:16It varies. So it varies based on the segment. Like I said, you know, we have one product, but we're servicing two two cohorts of customers. Right? So you've got the the inbound self-service. Those folks tend to churn somewhere in the in the twos percentage wise. And then you've got the folks who are, you know, kinda sales led, say a 100 account, hundred hundred employees up to to say 3,000. Those tend to churn well well below 1%.

Nathan Latka

07:41Yep. And just to be clear

David Hassell

07:4210, 10% a year.

Nathan Latka

07:43Okay. So that that 2% number you were giving me in your self serve model, that's 2% logo churn per month.

David Hassell

07:48Right. Right.

Nathan Latka

07:49It's logo churn or revenue churn?

David Hassell

07:50Logo churn.

Nathan Latka

07:50Okay.

David Hassell

07:50The revenue churn we've always been... Or or at least net MRR churn have always been strongly negative. Yeah. We have more expansion.

Nathan Latka

07:50Right.

07:59I was gonna say you have... It sounds like you do have an expansion path. You have axes to drive these accounts into larger ones. Are you at... Are you above a 100% in terms of net revenue retention annually today?

David Hassell

08:08Yeah. A 100 and, like, you know, a 120%, a 130% sometimes.

Nathan Latka

08:11And and where is most most of expansion coming from besides just adding additional seats?

David Hassell

08:16It's primarily additional seats.

Nathan Latka

08:16Okay.

David Hassell

08:16It's primarily additional seats going into different departments. We tend to work with growth, you know, growing organizations who are adding employees. And also there's, you know, other expansion opportunities when we sell into a particular department and and then we close another department and then we go company wide. Those are, you know, kind of obviously larger expansion opportunities.

Growth Channels: Content and Word of Mouth

Nathan Latka

08:37And how have you... Let's just focus on the free self serve model first. I guess that probably feeds your leads to SDRs and account executives to do larger accounts. But but, you know, you mentioned a little bit about your CAC to LTV. I mean, generally speaking, which kind of distribution channels have been most effective for you to get these new $7, $14 a month customers?

David Hassell

08:56Well, this this our our most effective distribution channels have been content marketing and word-of-mouth. And and that's why we've been able to build a very capital efficient business. We actually haven't spent a lot on paid acquisition.

Nathan Latka

08:56Mhmm.

David Hassell

08:56That's that's a game that I think can be played with a lot of with a lot of capital when you're figuring things out. Obviously, you know, as as you as you hit on something where you can essentially buy customers

09:20at a certain cost, you tend to go through that at a certain certain point and have to continue to find other ways to buy customers. Right? But I think the most sustainable way to build a business is by is building a product that people love, that they talk about, that has high net promoter score. And so if you go online, you look at like G2 Crowd, you'll see all the ratings. We've got, you know, 700

09:39or 800 customer reviews. We're ranked number one in employee engagement, number one in performance management. We have customers who rave about us and love the brand and the product, know, very high net promoter score. All those things lead to, you know, when people are deciding to buy a product like 15Five, we have a seat at the table.

Nathan Latka

09:55Yeah. What do you do to drive that behavior in your app? You know, a lot of people, you you might put up with a very soft reminder, hey, if you're enjoying this, go leave a review on on G2 Crowd, for example, specifically what do do to drive the reviews?

David Hassell

10:07Yeah, that's a good question. So we've asked in the past, one of the things when we started working with G2 Crowd, know, lot of companies that do do this, you know, they emailed our customers on our behalf with with no incentive. You know, there's no incentive or anything like that. People left reviews did so because they wanted to, but there was a nudge and a reminder.

Nathan Latka

10:24Well just to be clear David, I'll say there's a lot of very popular tools that have no ratings because they don't give a nudge.

David Hassell

10:29I mean

Nathan Latka

10:29I'm not I'm not asking do you bribe

David Hassell

10:29Yeah. For sure.

Nathan Latka

10:29I'm saying what you do in the onboarding or what do you do to make sure that if they do love the thing, they're going and leaving that review?

David Hassell

10:39Yes, exactly. One of the things that we've done in the past, I'm not sure if this is actually set up right now, but when people would leave their net promoter score, you know, if they were a promoter or gave, you know, even if they were neutral or a promoter, we might say, hey, if you're really enjoying 15Five, consider going here or there to leave a review. So when they're in the mode of already giving feedback, asking

11:01them then, that has worked in the past. At this point, we're not as as focused on it because we've had so much you know, kinda so much feedback. There's not a a strong need to continue pushing that necessarily, but we've done those things in the past.

Year-over-Year Growth Rate

Nathan Latka

11:13You're pushing 10,000,000 in ARR today. Talk to me about growth a year ago. Where were you at?

David Hassell

11:18We've grown we've grown the business probably about 75, 80% across the board. The the the... What we call our mid market business, the sales business has grown north of a 100% year over year.

Nathan Latka

11:18Mhmm.

David Hassell

11:18And and and there's no kind of sign of letting up. I think there's, you know, like I said, the word-of-mouth is one of those things. When we started 15Five, there was no market for what we were doing. We basically, you know, we

11:42thought this was some way we could add a lot of value to the world. We thought, you know, creating more transparent, open communication in organizations, supporting managers in bringing out the best in their people, that's the value we wanted to create. But we were kind of market leaders in that way, and that we were basically pushing this thing and having to get into things like Inc. Magazine and Fast Company to get the word out. Fast forward

12:05five or six years, and there's now a movement toward this very thing that we do. A lot of key analysts in the space are saying everything's moving toward what we call continuous performance management. So we're really riding that wave of now there's an awful lot of pull from the market as well, and that's what's driving, you know, a good part of our growth.

Enterprise LTV Calculation

Nathan Latka

12:23Mhmm. Now last question here on economics before we move on and wrap up with the famous five. Lifetime value can be dangerous because a lot of times you're extrapolating numbers and it can or cannot be accurate. But generally speaking back at a napkin, what do you assume lifetime value is on dollars in your enterprise cohort conservatively?

David Hassell

12:41Yeah, it's a good question. I mean, you know, the

12:45shorthand way to figure out your lifetime value is obviously to take your, you know, one divided by your churn rate, which gives you a number of months and you multiply that by your...

Nathan Latka

12:52That would be fifty months for you at 2% logo churn per month, right, multiplied by your ARPU.

David Hassell

12:57Right. Yeah. So 3%, you're about 36. Right. Yeah, exactly.

13:02And 2% you're there and under 1%, obviously, it starts to stretch out where you're like, well, you know, is that really the length that people are gonna stick around? We now have a number of customers who have, so we kind of balance between, you know, that churn number and also, you know, kind of also looking at the tenure of our longer accounts. The other thing that's I think worth worth noting is that, you know, our churn

13:22rates have have trended lower and lower and lower over the past two years because the product has gotten better. We've gotten better product market fit. We've increased our, you know, capacity in in terms of in terms of our customer success skills and things like that. So getting back to your question, you know, I think that, you know, looking at an average account paying, you know, roughly about a, you know, 20... Say 25 k a year, you

13:47know, times four or five years or six years, you know, you're looking a 100 to 150 k in lifetime value there.

13:52Yeah. That's...

Nathan Latka

13:53I did the math on my end just because I'm curious how it would pan out, but if you if you... And maybe a power law is obviously at play here too, but at 10,000,000 ARR or about $800,000 per month and divide your 1,500 customers into that, that means each one would pay about $500 or $600 bucks per month.

David Hassell

13:53Right. Again,

14:09yeah. The problem with our our business when looking at averages is that we've got a whole load of little self-service accounts.

Nathan Latka

14:14I totally get it.

14:15I totally get It's a land... Typical land and expand.

David Hassell

14:18Yeah. Exactly. But what was interesting is they both have their unique kinda average revenue per account and lifetime values. Churn rates really, know, so so our our sales driven accounts roughly pay 10 x what the what the self-service accounts pay.

Nathan Latka

14:31Yeah. What I found across, you know, about a thousand or 2,000 of these interviews though is typically speaking when people are looking at payback periods because payback is relative, right, it's a relative function of ARPU plus CAC on that account. Generally speaking, payback periods are the same across very very different cohorts and that's usually...

David Hassell

14:46They actually are very similar.

Team Distribution and Office Locations

Nathan Latka

14:47Yeah. It's based on the CEO's aggressiveness. That's great though. So... And 50 people, is everybody based kinda spread out or where are you guys at?

David Hassell

14:54We're pretty spread out. Our headquarters is in San Francisco. We've got about, you know, approaching 20 people there. We've got a a pretty big office now in Raleigh, North Carolina that's almost as big. We've got folks in New York City. The engineering team is mostly New York City and and Eastern Europe. And then we've got a number of other people who are just remote in Washington and San Diego, Vermont, etcetera.

Plans to Raise a Series A

Nathan Latka

15:15And take us home here. So raising capital, you said you might consider doing it. Why would you raise? And if so, what would you try and how much would you try and raise? What would you spend it on?

David Hassell

15:24We've never done a formal series A. And so I think that, there's a number of things that are really, really working for the business right now. We've got clear product market fit. The market is there. There's a kind of dramatic pull from the market. I think that there's a lot of interest in the space from other outside investors. So if we were to close a round, we would focus on continuing to invest in product, it would essentially

15:51be product marketing and sales. And I think that there's a good case to be made that given the CAC to LTV and these other things that we look at, that we could invest that that capital really effectively to grow and scale the business because we already have a... Also a very solid foundation in terms of team and culture.

Nathan Latka

16:07And and what would you aim for? You call it a 10,000,000 raise or 20,000,000 raise?

David Hassell

16:10No. Probably smaller than that. I would probably say six to eight.

Nathan Latka

16:13Sorry. Six to eight?

David Hassell

16:14Yep. Yeah. Yeah.

Famous Five: Rapid-Fire Questions

Nathan Latka

16:15Yeah. I mean, looking at that run rate, that means that means you could probably get away with giving away probably less than 10% of the company for that amount of money. So that's that's obviously great. Very good, David. Let's start off here with the famous five. Number one, what's your favorite business book?

David Hassell

16:26Favorite business book. You know, as you can see, I'm... I love books. So, you know, I I was thinking about that. And I actually, the first book I was given right out of college, first company I worked for was The 7 Habits of Highly Effective People. And I... And I've actually found a hard hard book to to to match mainly because, you know, I think the best business books are the books that have you be better

16:47at business, like as a human being working with yourself and working with other people, and that one has some timeless principles.

Nathan Latka

16:53Number two, is there a CEO you're following or studying right now?

David Hassell

16:57That's a tough one. I I think that the, you know, the two CEOs who I really admire for for very similar reasons are Yvon Chouinard, who's no longer CEO of Patagonia, and Richard Branson, both because they had a real focus on caring for their people and also making sure that they created environments where they delegated effectively, found great leadership, and also didn't sacrifice things on on the personal side where they were still connected to nature and

17:27doing things that enlighten them.

Nathan Latka

17:29Yep.

17:30Number three, what's your favorite online tool for building your business?

David Hassell

17:33New one I got exposed to recently was an email client called Superhuman, which isn't quite out yet, but so far, it's definitely making me over... Much more productive.

Nathan Latka

17:43Number four. How many hours of sleep are you getting every night?

David Hassell

17:46About eight.

Nathan Latka

17:47That's good. And then what's your situation? Married, single, kiddos?

David Hassell

17:50I have kid. I have a five year old kid. Yeah.

Nathan Latka

17:52Five year old.

17:53And how old are you?

David Hassell

17:54I am 42.

Nathan Latka

17:5542.

17:56Last question. What do you wish your 20 year old self knew?

David Hassell

17:5920 year old self, I would say that my advice for my 20 year old self would be to to just be patient. Know, life is is an unfolding process. And I think that, you you know, I definitely caused myself a lot of stress along the way of like wanting things to happen sooner than they would have naturally unfolded. And, know, things need to ripen.

Nathan Latka

18:18Guys, be patient. Let things ripen. Again, coming from David, launched 15Five back in 2012. Again, scaling nicely approaching 10... A $10,000,000 run rate across 1,500 customers, two very different cohorts, so 7 to $14 kinda no touch plans, and then they have an all inside sales team dedicated to more enterprise accounts, you know, 100 seats, 150 seats even in in in even larger than that. Growing at a nice clip about 60% year over year, $6,500,000 in ARR

18:43last year. Again, rounding up get... Growing to about $10,000,000 today. They're doing this really capital... In a capital efficient manner as well, $3,700,000 in the company, which is great. Healthy economics, 2% logo churn per month, a 120%. Net revenue retention annually, CAC to LTV or LTV to CAC about 6x which is great and he's, you know, totally comfortable waiting, call it six to twelve months to recover that CAC. Team of 50 people based in San Fran

19:06and other remote locations, again building 15Five to help people with continuous performance. David, thank you for taking us to the top.

David Hassell

19:12Alright. Thanks so much.