How [24]7.ai Reached $300M in Revenue with Over 150 Customers (Interview with PV Kannan)

Introduction and Book Plug

Nathan Latka

00:00Hello, everyone. My guest today is PV Kannan. He's the co founder and chief executive officer of 247.ai, a global leader in intent driven customer engagement. He holds more than 30 patents issued and pending and has been featured in several books as CX thought leader. And his new book, The Age of Intent, is now available on Amazon. PV, you're ready to take

00:17us to the top?

PV Kannan

00:18Yes.

Nathan Latka

00:19What the hell is a guy like you doing, wasting his time writing a book? They make no money, they're a lot of work and they just take time.

PV Kannan

00:27All of them are true, but I think the world deserves to know how the customer service world can be fixed. And there's a lot of wrong information floating around and I thought, let me just correct it by writing a book.

Nathan Latka

00:41Okay, good. So tell us what the company does.

What [24]7.ai Does

PV Kannan

00:44What we do is essentially use artificial intelligence to automate customer service interactions, right? So the conversations you have with brands, today's on demand customer wants resolution right away. They don't want to wait. They don't have patience and artificial intelligence helps in kind of taking, doing the heavy lifting.

Nathan Latka

01:05Yep. Okay, good. And is it pure play SaaS?

PV Kannan

01:07Yes, it is.

Nathan Latka

01:08Pure SaaS. Okay, give me a general sense here of sweet spot. Describe like a sweet spot customer for you.

Sweet Spot Customer Profile

PV Kannan

01:14A sweet spot customer is a brand that has millions of consumers where it's really challenging to handle all the inquiries that come in through email, chat, messaging, phone calls, and so on and so forth. So anyone who's got over a million customers and they have to, in a demanding industry, which is service oriented, we are a perfect fit.

Nathan Latka

01:36So I wanna get more of your backstory, but give me a kind of a general sense here of average, right? So across your entire customer base on average, what's coming to get paid kind of year one to use your technology?

Average Contract Value and Sales Motion

PV Kannan

01:46It may on an average 250,000.

Nathan Latka

01:48Okay, so you're very much an enterprise sales motion.

PV Kannan

01:51Yes.

Nathan Latka

01:51Yeah, okay, cool. We'll get into that more later. Give me the backstory though. When'd launch, what year?

Company Founding and Backstory

PV Kannan

01:55We launched the company in 2000.

Nathan Latka

01:582000.

PV Kannan

01:59Yep, and it's evolved over a period of time. So when we started the company, actually, we teamed up, my background is my first company in the nineties developed chat as a customer service vehicle, right? And I went through the.com boom and then I had an opportunity to visit contact centers all around The US and was just blown away by number of people who are servicing The US economy. So I started asking myself in this new

02:27age of digital, is there a better way to do this? Because what I noticed in the contact centers is chat is still being treated like a phone call, right? They'll say, how can I help you? And then go through the same script that they did if you were on the phone. But if you think about the 800 number system, it was really designed for the eighties when nothing else existed, right? Today customers are on web, on

02:49apps, they're like well informed. So the old paradigm of how can I help you is kind of almost obsolete? The new paradigm is you should already know what the customers are doing and leveraging AI in the backend in real time, be able to predict what they're attempting to do, right? And then be supportive of what they're trying to do online, not like trying to do the task for them. Is kind of what the... And customers love

03:15wanting to control the experience and do it themselves. And especially when you talk about 2019, everything is pretty much on demand, right? Music, content, food, name anything, you can just click an app, order and get it. And the only thing that's missing and full of friction is customer service.

Nathan Latka

03:34Yep. So what I mean, so this was your beachhead, 2000 is launch date. Help me understand this kind of size today, right? How many customers are you serving actively?

Revenue, Customers and Funding Overview

PV Kannan

03:43We're serving over 150 customers.

Nathan Latka

03:45Okay.

PV Kannan

03:45And the company is roughly about 300,000,000 in revenues.

Nathan Latka

03:48That's great. So did you do this bootstrap or decide to raise capital?

PV Kannan

03:52The first round of funding was done by the two founders. That's me and co founder Nags. And then we did one round of funding with Sequoia in 2003. So Mike Moritz is on our board.

Nathan Latka

04:04That's great. So how much total in the company to

PV Kannan

04:06We raised over 20,000,000 total.

Nathan Latka

04:08So you're a breath of fresh air because I get so sick and tired of having folks from The Valley or New York on, it's like, we've raised 180,000,000 and their revenue is like 30,000,000. I like a founder where their AR to funding ratio is like six, right? Your revenue is way more than what you raised. So the question then back at you is why raise the money at all? It sounds like you're on a rocket ship.

04:31Why couldn't you fuel this with customer revenue?

PV Kannan

04:33You know, it's a good question. We were actually profitable when we raised the money. What I think in Silicon Valley especially is whether you like it or not, the type of venture firm you partner with kind of sets up your brand, right? So with a thousand companies, startups around, and like you said, now it's even more frustrating because there were a thousand companies who are all funded 100,000,000, 200,000,000 and 300,000,000. So when you're competing, it cannot

05:00be that you're only competing with salaries and benefits as the only thing. It has to be great, interesting work and that you belong to a venture community where you're treated special. So it's like having the right producer for a movie, right? So we view that as edge in talent. And that's why

05:25we have this partnership Sequoia and it's been a great partnership by the way.

Nathan Latka

05:29So I wanna dive into that in a second, PV, one of my numbers here is wrong, right? So if I take 150 customers times that ARPU you gave me earlier of two fifty, that puts you at 3,000,000 a month. You're doing more like 30,000,000 a month. So where's my math wrong?

Correcting the ARPU Math

PV Kannan

05:42You asked for a typical customer. So we do have customers who spend 30,000 a month or 30,000 a year, right? And the 250,000 we're talking about is per year, right?

Nathan Latka

05:52Yeah. So same question though.

PV Kannan

05:53Not everyone spends $250,000, right? So our average is to do that, it's about 2,000,000 a year, right? That's about 200,000 a month.

Nathan Latka

06:02Yeah, yeah, yeah. I was gonna say that that's exactly what I was building to, right? So that's how you get to where you're at. Now back in 2017, you put out a piece on Reuters, right? Roshika published it, Saddam, that basically said you guys saw revenue crossing 400,000,000 in fiscal year twenty eighteen. Why'd you miss that?

Security Breach, Team Size and SaaS Share

PV Kannan

06:17We missed it because we had a security breach. So had to like pause and our sales pipeline essentially vanished. So it took about a year to recover. Now we are like, last quarter was our best quarter in the company's history in terms of new revenue bookings. And know- What was that?

Nathan Latka

06:37What was new revenue bookings growth like 10, 20, 30% in the quarter?

PV Kannan

06:41You know, it's about 20% growth, yeah.

Nathan Latka

06:44Well, I mean, at your scale, that's pretty impressive, right? Are you, I mean, I can only think of a couple other private B2B SaaS CEOs with your scale of revenues, right? So Reggie at Cvent comes to mind and there's maybe only two or three others. Who do you talk to to brainstorm with?

PV Kannan

06:59The Sequoia portfolio is a very good portfolio. So we have events and other structured time. And I also spend time with other Sequoia partners, not just Mike Moritz, because they're all helping enterprise companies. So you kind of like lean on them to get advice and inputs as to what goes on. And I have my own network of CEOs here that I spend time with. So like you said, you pick the right person for the right type

07:26of problem because some folks that I talk to are very good with people issues. Some are good with customer issues. Some are good with talent issues. Like what kind of talent do you hire? Because as you grow the company for every stage, you need the right management team and the right people underneath to help scale the company. And we've seen it with whether it's Facebook or Uber, you see that as it matures, different types of leaders,

07:52different types of leadership styles start coming into effect,

Nathan Latka

07:54What is your team size today? How many folks?

PV Kannan

07:59Technology side of the company is about 800 people.

Nathan Latka

08:02Okay, why do you say it like that? Is there another side of the company?

PV Kannan

08:05We also have a services business. So one of the secret sauce of what we do is we also employ human agents to teach AI. So we have a few thousand agents in that category as well.

Nathan Latka

08:17Contractors or FTEs?

PV Kannan

08:19Both the combination.

Nathan Latka

08:21Interesting. Okay. When you look at the kind of the revenue over the past twelve months, what percent was pure SaaS versus some kind of other consulted data professional service revenue?

PV Kannan

08:29Two thirds.

Nathan Latka

08:31Two thirds SaaS. When you would do an analysis on your customer base where you have put professional services touch on them, do you see significant lift in terms of net revenue retention on those customers you've put that extra touch on?

PV Kannan

08:45Yeah, I mean, what happens is in that model, you're delivering an actual outcome, right? It's not just you gave some software and walked away. So without a doubt, like what you said is if that service goes to solve real problems and then achieve real project goals, then without a doubt, the retention is very high.

Net Revenue Retention and Gross Churn

Nathan Latka

09:07Have you broken 140% net revenue retention across the base?

PV Kannan

09:11Not 140, no.

Nathan Latka

09:13What can you share where you're at right now?

PV Kannan

09:15About a 100%.

Nathan Latka

09:16About a 100%. Okay, so peel that onion back for me. What's gross revenue churn?

PV Kannan

09:21The churn is about eight to 10%.

Nathan Latka

09:24Okay, and then expansion is the same to get a 100. Why is, so that's a bit of a surprise to me actually, that these ACVs, you typically see expansion revenue being significant to the point where net revenue retention is like 120, 130. Why don't you have that pattern in your business?

PV Kannan

09:38Very good question. You know, The customer success function, we've actually doubled down recently. So if you have a strong customer success function, that's what drives what you're talking about, right? So I don't think we paid that much attention in the earlier years. So there's a lot more of investment in making sure every single account that we have is covered as opposed to a coverage model, which was very biased towards the larger customers.

CAC Payback and Sales Aggressiveness

Nathan Latka

10:04Yeah, interesting. Okay, let's talk about growing into additional customers, right? So how aggressive are you being with CAC? Will you spend the full, let's say it's a 2,000,000 year one ACV. Will you spend the full 2,000,000 upfront to get the customer?

PV Kannan

10:15We categorize our customers into, you know, those who can spend over 10,000,000 a year with us. And then where the potential is probably 1,000,000 or less and maybe less than 500,000, right? So we are much more aggressive in spending a lot more in the greater than 10,000,000 and a lot more conservative if it's less than 500,000.

Nathan Latka

10:38PV, that's like a no shit kind of answer, right? So if I ask on a relative basis, no matter the cohort, are you optimizing for a twelve month payback or an eighteen month payback or more aggressive?

PV Kannan

10:50We are optimizing for a twelve month payback.

Nathan Latka

10:52Okay, and you're at that right now or you're still above that?

PV Kannan

10:55We are at that.

Nathan Latka

10:56Oh, that's great. Okay, good. And no plans to change that. That's a sweet spot for you, you can scale there?

PV Kannan

11:00I mean, right now we are at that and, you know, we hired a new chief revenue officer last year. So his first thing is let me go get the, you know, things stabilized. We'll relook these metrics as, you know, we wanna pump up the growth level that we need to get more aggressive. Right?

Nathan Latka

11:17Yeah. What was gross? So 30,000,000 ARR today, were you, or 300, sorry, where were you a year ago?

PV Kannan

11:23We were about the same.

Nathan Latka

11:25Oh, because of the security breach. Yep. Yeah. So let me ask you a question. I mean, you know, a company like Vista just raises $14,000,000,000 They have to figure out to deploy that money. There's not a lot of companies they can buy, right? Or that's not like a round, a small rounding error to them. You're potentially one of them. Mean, why have you not sold to them for like, you know, $5.6000000000?

Private Equity, Vista and IPO Ambitions

PV Kannan

11:43That's a good question. I think it's about what the aspirations of the founders and the management team is. I think an IPO is more kind of like what the team wants to do and what I would like to do. And we've built the company for the long run. So it's not about get into some stage and get out.

Nathan Latka

12:02Yep, yep, okay. I mean, obviously when you talk to Brian or Robert and they hear you say, wanna IPO, I don't wanna do it. They're obviously gonna try and convince you of the other direction. Right? What are some arguments that they would use to try and convince you to join their team? Because by the way, they love companies like yours because of their ability to cross sell your tool into all their other portfolio companies. It's like

12:25natural built in economics. So how do they try and convince you to work with them?

PV Kannan

12:29I mean, as a profitable company, when I meet any private equity investor, they're very interested, like you said, right? Because it's kind of a sweet spot size, scale, profitability. So a lot of the problem solving has already been done. The question is how much value can you extract all on your own versus teaming up with private equity? So we believe we can extract a lot of value and then continue to serve our customers better by just

12:58being standalone.

Nathan Latka

12:59Yep. You ever do kind of the same reason you bought in Mike and Sequoia, would you ever do a second, call it a billion dollar secondary just to get Vista a little piece of the thing, sweeten it up or no, you don't see them as strategic?

PV Kannan

13:09We'll do it if there is a good reason. A good reason could be, let's say we want to acquire someone in the space that's interesting and it's going to cost a lot of money. Let's say it's going to cost $300,000,000 or $400,000,000, right? So then it's a great thing to partner up with someone like Vista or, you know, the other private equity players, allow them to be part of the, you know, investment family and then, you know, grow

13:34the company together.

Nathan Latka

13:35If you are a betting man, not that you have any insider information or anything, will we see a 300 or $400,000,000 acquisition from 247.ai in the next twelve months?

PV Kannan

13:43You never know.

Nathan Latka

13:46All right, very good. Last question on profitability. You mentioned you're kind of in the sweet spot, problems already solved. You're talking like 20% bottom line or more?

Profitability and the Path to a 20% Bottom Line

PV Kannan

13:53Bottom line, steady state will get to 20%. We are not there yet.

Nathan Latka

13:57What are at now?

PV Kannan

13:57And then we are at about 10%.

Nathan Latka

14:01Okay, and what will get you to 20? Obviously you're not gonna cut costs or cut in the bone. What'll get you to 20? Growth.

PV Kannan

14:06Mean, you know, if you're looking for a great year of growth this year, when we talk, you know, sometime this month, next year, you'll know the full story.

Nathan Latka

14:15Oh, good. So you don't hate me. You're gonna come back on in a year. We'll have a lot of fun.

PV Kannan

14:18Exactly. That

14:20means I did my job.

Famous Five Rapid Fire

Nathan Latka

14:21All right, PV, let's wrap up with the famous five. Number one, what's your favorite business book?

PV Kannan

14:25My favorite business book is actually, what's the pound meters book that came out in the nineties.

Nathan Latka

14:32Crossing the Chasm, Geoffrey Moore?

PV Kannan

14:34I like that book. I really like that book. I also like The Innovator's Dilemma. Right? So it's very interesting book. Yeah, those are all good classics.

Nathan Latka

14:46Number two, is there a CEO you're following or studying?

PV Kannan

14:49I admire both Jeff Bezos and Marc Benioff.

Nathan Latka

14:53Yep.

14:54Number three, what's your favorite online tool for building your company?

PV Kannan

14:56Sorry,

Nathan Latka

14:57Favorite is a online tool for building your company?

PV Kannan

15:00Favorite online tool for building the company. We use messaging a lot internally, right? So currently we use Slack to collaborate globally. So it's a good tool.

Nathan Latka

15:12PV number four, how many hours of sleep do get every night?

PV Kannan

15:15I think about seven and a half hours.

Nathan Latka

15:17And situation, married, single kids?

PV Kannan

15:19I'm married and I have three kids.

Nathan Latka

15:21Three kiddos, how old are you?

PV Kannan

15:23I'm 52.

Nathan Latka

15:2450, and what's your social security number?

15:27I'm just kidding.

15:28Last question, what do wish your 20 year old self knew?

PV Kannan

15:32It's all about having the courage to... I always think that I delay decisions when it comes to people, having the courage to execute faster on people and move on when you've reached a scale of growth and you're not supporting the business anymore.

Nathan Latka

15:51Guys, 247.ai, north of $300,000,000 in ARR, flat year over year because they dealt with a cybersecurity kind of a breach issue. But again, well on track now to drive growth. They are profitable, only $20,000,000 raised to date, which is obviously great. Taking 10% in free cash to the bottom line, helping to grow that to 20% monthly in terms of profitability here shortly. 10% churn annually on a gross revenue basis, but 10% expansion for a 100% net,

16:14spending up to call it twelve months of first year contract value to get the customer in the first place as they look to scale with our team of 800, again, in the chat and customer experience space. PV, thanks for taking us to the top.

PV Kannan

16:25Thanks, Stephen.