How Activedemand CEO Sean Leonard grew to $1.3M revenue and 500 customers in 2024.

hello everyone my guest today is sean leonard he's the ceo and co-founder of active demand as an entrepreneur he boasts more than 25 years of success books experience launching owning operating and growing companies amongst other specialties are product marketing technology startups global sales expansion and many other items now playing in the marketing automation world with active demand sean you ready to take us to the top you betcha how are there so many companies doing so well in marketing automation i mean i can count multiple 50 60 70 million ar companies in the space where are you carving yourself out yeah so i think that uh if you also look at the stats i think there's even though marketing automation there's a lot of companies there the adoption of marketing automation is really low right there's very if you look at the amount of companies that are using uh marketing automation the uh the percentage is low and growing so i think it's a case that it's a big pie and there's lots of slices for everybody and uh the slice that we're taking is uh uh is uh marketing agencies so it's a case that we provide a platform for those people that uh are marketing for many interesting okay so you're selling your customer is the agency yes it is primarily agency or the pattern that we look for is those that are marketing for many like a marketing agency has many clients seniors care multiple seniors facilities automotive dealerships multiple locations franchises multiple locations that's sort of our sweet spot and i'm sure you have many different cohorts we can't don't have time to talk about all of them but on average what would you say that the average kind of one-to-many customer pays per year for your tech um one-to-many so sorry could you repeat the question like how many clients does one of our clients typically have no i'm asking on average what is one of your customers one of your one-to-many customers one of your agencies what do they pay you on average per year to use your technology oh boy on average i think it is um that specific cohort cohort i'd say well do your entire cohort that's why this question's a little bit challenging on your entire customer cohort right are we talking like a grand a year or a million year 100 a year per client you're talking about your your customer your take total revenue divided by total customers the average is what yeah so the average is i think five six hundred bucks per month okay fair enough let's keep role playing on that specific use case if i'm paying you 500 600 bucks a month how many customers of mine am i probably using you on um yeah so our average agency has 20 clients at the small end yeah average i'd say is 20. we have some that have 100 we have some that have uh 10 but usually we're not dealing with a lot that have 10 but usually 20 plus clients is what they do put this on a timeline for me when did you launch the company so we launched the company as an agency in 2012 and then we pivoted i think it's been i think it's four years three years ago so when did you write the first line of code for the sas platform 2012 okay was 2012. and when did you have your first dollar revenue on the sas platform ah boy uh so we were operating as an agency so it's we were allocating revenue from day one but we weren't selling the tech and they didn't know they were buying the tech it was sort of a line item so uh yeah i would say subscriptions starting at zero like when we said okay we're starting to sell the product because when we did the pivot so three years ago so that's what you're talking 2016 yeah 2016 2015 yeah yeah how much capital did you spend on the mvp for the sas side of things before your first subscription sale oh yeah um we were burning uh a lot of cash to to to write it so you know i probably in myself invested uh a million dollars uh in in in my money to to to write the software now is that essentially cash flow from the agency that you kind of redirected yeah a big portion of it was some of it was cash out of hand because uh cash out of my pocket because it was uh yeah it was it's a case that uh these things cost money is the reality right yeah many people will hear a million bucks and go oh my gosh this sean guy's rich of course he's having success where'd you get your money from um so my previous i was an executive at a another company and uh uh we sold and i had uh i had stocks so it was a case that i had money yep okay so you launched the agency now what size was the agency in terms of head count before you pivoted full throttle to sas oh boy um yeah that's a tough one because everybody is wearing dope yeah i would say just the agency side we were uh we probably had 10 people okay 10 folks on the agency side now today how many people are on the sas side of things so on the sas side of things uh it's we do a lot of outsource work for our development so it's sort of a why i'm pausing on this is because uh if i was talking full-time equivalents people that are uh on the payroll i would say we're probably at about 25 people but they're not all uh getting paychecks from the company as employees how many of the 25 would you consider to be engineers um i would say [Music] 10 and how many how many of them are how many of them carry any kind of quota sales reps with quota sales reps of quota four four okay now how did you place is always a big question when you're launching a sas company how did you how did you model those sales people in terms of what their quota was relative to your price point and things like that yeah and it's a good question um so we drove the initial sales as sort of a self-serve model so really it was but it was a longer sales cycle so it was uh we're feeding the sales people based on leads and uh they were really chasing chasing stuff so as far as uh how we model the quota i just look at contribution on mrr and each sales person i'm going to say has to contribute uh x number dollars per month in that new mrr to the company what is that x like you're talking 10 20 grand a month yeah so right now i'm saying five grand a month so it's i think it's something being uh yeah being nice but uh so over and over over their first 12 years over their first 12 months and if they're adding 5k of mrr every month they're essentially adding 60 000 a new mrr at the end of their first year one or about you know call it 600 000 in ar yeah so it's what is the number 45 times uh times that number is what their total rolling uh rolling revenue is 45 times what their net new mrr monthly yes yeah so five thousand number well i'm trying to figure out why you're multiplying by 45 well because um it's a uh uh if i bring in let's say let's say let's say the number is five thousand dollars by bringing five thousand dollars today tomorrow i bring in five next month i need to bring in five thousand dollars and now ten thousand dollars in mrr and then the next month i i bring in five thousand dollars is now fifteen thousand dollars mr that i'm that i'm that i am correct so that's what i was saying the first 12 months they essentially build you a 60 000 a month stream yep yep very which is 720 in arr so my question is at full quota at a sales person who hits full quota what is their full comp look like in terms of sales person profitability is like a 5x or a 10x or yeah i don't have that number okay did you did you model it that way or no that's not how you hot no i i didn't model like that i basically and i probably you know it's bad but it's uh sometimes we fly by the seat of the pace that's fine have you just put into leads yeah have you just put in your own money or have you raised additional capital that's good okay so bootstrapped i love that now that means you break even today right are you still covering losses with your own money um so we are uh so i think there's a ratio like it's like uh uh this 40 ratio where you know growth and uh and profitability totals 40 for health and so we're break even or a little bit below break even uh if if uh if but i get the growth as if i do a little bit below break even but it's yeah i'm i'm running the company at as close to break even as possible okay uh so just so let's go back 2012 you launched the company you have agency clients we're probably your first customers on the sas side of things how many customers do you now have today [Music] um yeah that's a again another difficult question um because we have a couple of very big oems that represent a do i count them as a customer or not how many are paying you about 600 a month oh boy um yeah i don't know that that number off top my head unfortunately it's it's a good question well when you guys talk about customer accounts internally what number do you use i mean everyone has a customer account how you measure it obviously differs but what's your customer count um so our customer account is about i would say 500 okay and that includes like an oem like if an oem signs up 10 people do you include 10 in the 500 or one of the 500. okay so minimum 500 customers paying 600 bucks a month you're doing about 300 000 a month right now on revenue that sounds like the number okay what were you doing exactly a year ago do you remember so we're growing we've been growing about 40 year over year okay so caught something like 250 000 a month exactly a year ago yeah where did most that growth come from new customer ads or upsell revenue um most of it is actually upsell and expansion yep okay right can you quantify i mean do you quantify that at all when you look at your gross churn plus your expansion net revenue retention is what um so i don't know the answer to that that's okay yeah i don't know the answer to that when you say expansion's really big do you can you quantify what i'm saying i'm saying it's a negative churn rate on on on revenue right so it's a case that if i look at the uh the growth in mrr our average sales price is much lower than our average revenue per client yeah so the weight of that is expansion so somebody comes in to sell them at a hundred dollars and then well let's use real numbers you sell on an average of 600 bucks a month at the end of year one what have they grown to a month so when they walk in the front door they start it off at a hundred dollars okay right so at the end of year one they should be uh six hundred dollars plus yep now you don't keep six x'ing them and you're two three four five because your numbers get really big really fast that's correct yeah that's the case that the the major growth is in the first year and then after that you know it's it's basically a very small percentage of growth when you look at the past 12 months in terms of rev gross revenue churn is that like 10 20 where's that coming at so gross revenue churn yeah um i would say negative gross gross can't be negative um if you're talking revenue churn gross revenue churn yeah gross gross churn cannot be negative because you're not including expansion revenue just gross i see i see yes yes yeah i don't know the number of that okay i look at that i'm focused all completely on how much the top line is is moving from an mrr perspective because i'm climbing the mountain well yeah but that incl that net revenue does not include new customers anything that is that is gross churn or expansion revenue or net revenue retention that ignores all the new customers you signed up over the past 12 months that only measures how the historical cohort performed that you signed up a year ago you know what i mean so what i'm focused on myself is uh uh total mrr growth whether it's coming from uh uh new customers or expansion sales and i know that i'm getting significant growth in the expansion side um as far as how it plays out if somebody is uh uh uh you know comes in at fifty dollars and then grows to six hundred dollars or a thousand dollars then no i'm just i'm just churn is a silent killer of sass so i'm trying to get a sense of what your churn is what i'm hearing you say is you don't measure it so i measure customer churn and i measure uh um uh uh net mrr what's customer what's customer churn so customer churn is uh you know somebody comes in they leave right that's customer churn the person that person uh of course carried with them some some some uh um uh mrr right uh but net uh so customer churn is the number of customers which is what my my customer customer charm yep it's uh i would say three percent monthly per month okay so call it that would be about 36 annually um and uh and i guess that what you then have to look at is what revenue right those customers actually made up are they big customers or small customers yes so uh if they were big customers my net mrr churn rate would be positive correct my net mrr churn rate is negative which is a fancy way it's an inverse way of saying that your expansion revenue on only the customers you signed up a year ago so this does not include new revenue from new customers just the court you signed up a year ago 36 percent of that churns you expand and upsell that same court by more than 36 percent which drives your net negative churn or the inverse which is net revenue retention of more than 100 yep yeah that's great what are you spending fully weighted cac to get a 600 a month customer in will you spend the full first year acv um so we're trying to keep it at about that right 12 12 month payback yeah yeah okay fair enough and where are you spending that money typically um it is absolutely on marketing and sales but like commissions or direct ads or what so i'm i would say uh so there's a couple of things we're doing on the marketing site we're not just doing paid advertisements we're doing a lot of content we do partner webinars we do uh uh affiliate marketing with our clients this type of stuff so we do spend money on bodies we spend money on on paid advertisements and external commissions as well as sales people and their commissions when you look at your cost of goods sold last month your total affiliate uh payouts how much is that yeah i don't know the percentage of the is it meaningful uh it's not okay it's like less than less than 30 grand a month yeah i would like it to be meaningful right well the reason i'm asking there's a lot of companies that build hundred million dollar companies but it's they give a hundred percent to affiliates so net like gross margin is like nothing so so you're paying just be clear you're paying out less than 30 grand a month back to affiliates correct okay and you'd like it obviously to be bigger because the margins work yes yeah very good any plans to raise capital um it's something that uh uh it's i'm constantly thinking about it and uh the answer currently is i'm uh no and uh uh the reason there's two reasons for it is one is that uh um i need to get the formula right as far as i put money in and absolutely i'm going to see a uh the exact measurement of growth and we're still messing with that formula so we're feeling pretty good about it right now we just really also released another product on the sales side uh because everything we've been doing is marketing automation and one of the gaps is uh that we see that is coming up all the time is sales automation or sales process automation so we released a product called funnel flare that is taking the tech stack that we have and uh driving it towards the uh the sales side but that's your question is we're still messing with the formula once we have the formula and we're confident on the formula then of course it makes sense to raise capital well you know it will never be a perfect formula the question is do you have enough confidence uh in it to go raise capital and test it so the answer today is no that's that's that's the reality on that note sean let's wrap up with the famous five number one favorite business book um execution number two is there a ceo you're following or studying right now it's uh yeah it's lame but it's elon musk number number three what's your favorite online tool for building your company uh active demand number five besides your own oh well that's all we use it's it is an online uh software it's a software for building building that's building only all i find that very difficult way that is the only tool that you use online rush right because semrush semrush great number four how many hours of sleep to eat every night uh i'd like to say eight okay and what's your situation married single kids um i'm married with a kid married with a kiddo how old are you um i'm 53 53 last question what do you wish your 20 year old self knew um uh yeah that's a that's a good question is um yeah have fun while you're young that's that's it right you're still young guys sean leonard active demand they're serving uh call it uh they're serving about 500 customers today paying 600 bucks a month doing 300 grand a month in revenue from 210 grand a month a year ago 40 year-over-year growth burning but just slightly burning capital they've raised no no capital to date so sean's obviously funding this himself spent a million bucks building the mvp out of his agency revenues now 25 people on the sas side of the business 12 engineers four sales people 36 gross revenue churn 36 or north expansion for 100 plus net revenue retention 12-month payback as he looks to add new customers via affiliate channels webinars and other marketing channels sean thanks for taking us to the top no worries have a great day