How Adthena Reached $7.5M ARR and 200+ Enterprise Customers in 2018 (Interview with Ian O'Rourke)

Introduction and Background

Nathan Latka

00:02Hello, everyone. My guest today is Ian O'Rourke. He's been involved in technology and businesses and startups over twenty two years and has built businesses in Australia, Taiwan, Silicon Valley, The UK. Today, he's working on Adthena, and he's been doing that since 2012, building it to its current position as the premier global provider of competitive intelligence. While Adthena itself has won many major industry awards, Ian's entrepreneur determination has also been recognized with the Developing Entrepreneur Award

00:29at the WCIT Enterprise Awards, commonly regarded as the Oscars for technology entrepreneurs. Ian, are you ready to take us to the top?

Ian O'Rourke

00:36I am. I am. Thanks for having me.

What Adthena Does and Revenue Model

Nathan Latka

00:38You bet. Alright. For the folks that have not heard about Adthena, tell us what you guys do and how you make money. What's your revenue model?

Ian O'Rourke

00:44Okay. So we're a classic SaaS business. In essence, what we do is we use insights about your competition in search marketing to drive customer acquisition for yourself. Tends to work with fairly serious large enterprise search advertisers are doing a lot of B2C customer acquisition. So the likes of hotels.com, Toyota, BMW, Progressive, various big B2C organizations across the world.

Nathan Latka

01:13Mhmm. So you're very much in that kind of high touch enterprise space versus low touch high volume?

Ian O'Rourke

01:19Yes.

Nathan Latka

01:19Got it.

Ian O'Rourke

01:19We tend to be inside sales predominantly, and we will sell fairly fairly short sales cycles to marketing teams.

Nathan Latka

01:33What's what's short?

Ian O'Rourke

01:35So sixty days

Nathan Latka

01:35Okay.

Average Contract Value and Customer Profile

Nathan Latka

01:37And and what are you selling? What's the average customer paying per month would you say?

Ian O'Rourke

01:41So our average is roughly $50,000 per annum.

Nathan Latka

01:45Okay. $50,000 a year.

Ian O'Rourke

01:46Yeah. And that that goes up and down.

Nathan Latka

01:46Sure.

Ian O'Rourke

01:46There's some very large customers and some some slightly smaller than that. But we're really used by organizations where search is an important acquisition channel.

Company Founding and Early Days

Nathan Latka

02:00Yep. Now when was the company created? When was it launched?

Ian O'Rourke

02:03So we legally founded the business

02:08commercially launched it at the end... At the start of twenty thirteen.

Nathan Latka

02:11Okay. And what was happening in between there? Just building up the dev, hiring the team, things like that?

Ian O'Rourke

02:16Yeah. Just getting started for a few months there. It was really only a couple of months, but I like to think of us as as being out in market doing commercial things at the start of 2013.

Funding History and Investor Mel Morris

Nathan Latka

02:25And did you bootstrap the company or you raised capital right away?

Ian O'Rourke

02:28Yeah. So we had no institutional funding. So we... I tipped in a little my my own money and business partners, and and then we have taken on a couple of angels here and there. We have a quite famous investor did a series A in the guy who was the original chairman and investor in Candy Crush, a guy called Mel Morris came in and did a series A personally and is a six time successful entrepreneur. And so

02:57he's been sitting on the board and helping us greatly. But in essence we're not VC backed.

Nathan Latka

03:03Yep. So total kind of capital in the company today, what have you guys raised in total?

Ian O'Rourke

03:09Around about $5,000,000

Nathan Latka

03:09Okay.

03:115,000,000 USD. And where would you say most of that has gone? An engineering team or user acquisition or both?

Ian O'Rourke

03:18You need to get spread really engineering and sales. Sales and marketing.

Team Size and Inside Sales Structure

Nathan Latka

03:22Okay. Break down this kind of machine. It sounds like you mentioned inside sales a few times. What's the team size today and how many of them are focused on inside sales?

Ian O'Rourke

03:30Good question. So the team overall, we have offices in Austin, Texas. London is the headquarters and Sydney in Australia. And we're probably 80 plus people

03:42who's in inside sales. I think there's probably 15 to 20 people in sales.

Nathan Latka

03:42So pretty

03:48healthy, call it 25, 30% of the company dedicated to inside sales.

03:51That's great. When did you hire your first inside sales rep and how did you work out the initial economics of what the ramp should look like, what quota should be, things like that?

Ian O'Rourke

04:00That's a good question. I found it very useful to have benchmarks. So there's I think Insight Ventures does a periodic table of insights of sales and field and insight. And so you can look at the benchmark ratios on that. And then places like SaaStr have a whole lot of blog posts about how to structure comp plans. I have a sales background. I used to be a director of sales running a whole Asian operation out of San

04:29Francisco. So I had a reasonable idea of it, but then I had to translate my old, you know, old time on premise sale, perpetual license selling to the SaaS model.

Nathan Latka

04:29Selling selling SLAs and maintenance contracts. Right?

Ian O'Rourke

04:29Exactly. Selling a big bubble up and then moving on to the next one.

Nathan Latka

04:29Yep.

Ian O'Rourke

04:29But, you know, SaaS is SaaS is a better arrangement than that. And and, yeah, there's a lot of thinking and a lot of testing that has

04:56to go on into how you design those comp plans. And then we've had to revise them as well. You know, each year we look at are they are they fit for purpose? Are they doing the right motivations and so forth? So we're getting, you know, better and better every year.

Sales Rep Quotas and Comp Plans

Nathan Latka

05:11So when a salesperson, one of your sales people today is fully ramped, what's their target in terms of new ARR they add and call it a given quarter or given year?

Ian O'Rourke

05:22I have to translate this into dollars. They're probably doing a bit north of a million dollars.

Nathan Latka

05:28Okay, that's their target.

Ian O'Rourke

05:30Yeah in a new business environment.

Nathan Latka

05:32So over a year you want them kind of closing a million bucks in new ARR.

Ian O'Rourke

05:38Yeah, yeah we're work and it's different for different segments of the market and so forth. We're

05:47working more on multiples of on target earnings.

Nathan Latka

05:50Tell us what that means.

Ian O'Rourke

05:52So if you come in and you say, look, I wanna earn a $100. So you're gonna be 50 base, 50 on target, then we're gonna say, alright. We need you to deliver five or six times that at least.

Nathan Latka

06:03Yep.

06:04So you let them set their own.

06:06They'll come in and say I want to make $250 a year. You're going to say okay here's your 50% base if you agree that they're worth it and then you're going to say in order to get the other 50% here's what you need to close a new ARR?

Ian O'Rourke

06:17More that if the on target is 100, then the minimum we need in quota is 500.

Nathan Latka

06:24I see.

Ian O'Rourke

06:27They look, I'm the best person in the world. I'm a bit more senior than anybody else. I've got a big book of business, a Rolodex, whatever, and I wanna be paid 75, 75, then we're gonna say, alright. Well, know, knock yourself out. Here's... We're gonna give you five six times that in quota.

Nathan Latka

06:46Yep. Not a five, six times the the the one fifty, not the 75.

Ian O'Rourke

06:51Yes. Yeah.

Customer Count, ARR and Growth Rates

Nathan Latka

06:52Yeah. Interesting. Okay. Good. So launched in 2012, obviously, months later today, what have you scaled to in terms of total customers on the platform now?

Ian O'Rourke

07:01So we're a bit over 200 enterprises on platform. Most of those are UK, Australia. I think we have a handful of really good clients in The US. We've been going in Austin for about six months now and seen some really good pickup.

07:20And they're big brands like Progressive and hotels.com and HomeAway and all of these

07:28sort of brands. So we're really impressed with both the caliber of the people we've got in Austin and the progress that they're making. We've scaled, we'll hit a little bit north of 10,000,000 US dollars in ARR this year. We're growing, grew 84% last year, we've grown 115 this year on target. At the moment we're on target, and then we should organically do that again next year.

Nathan Latka

07:55You said one one five growth target this year or one five zero?

Ian O'Rourke

07:59No. One one five.

Nathan Latka

08:00Okay. And your goal is to break 10,000,000 ARR.

08:02What do you add?

08:03What did do last month? What's your current run rate?

Ian O'Rourke

08:05We're running at a close to seven and a half, eight.

Nathan Latka

08:07Okay.

Ian O'Rourke

08:08Closing out this month, we'll probably get closer to eight. All depends on the on the pound US dollar exchange rate. Right?

Nathan Latka

08:08Yeah. Yeah. Yeah.

Ian O'Rourke

08:08So if I tell you in dollars, it might be a lot more or it might be less if the pound goes down.

Growth Drivers: New Customers vs Expansion

Nathan Latka

08:20Well, if we stick in and 7.5 ARR run rate today, that means about $625,000 per month across that base. And where are you driving, you know, as you go towards the $10,000,000 mark, where are you driving most of that growth from? Is it expansion revenue across the 200 customers or is it adding brand new customers?

Ian O'Rourke

08:36It's adding brand new customers. Traditionally, we haven't done a lot of land and expand pricing in our product and structure. That said last year, we did quite well on land and expand. So people want to add additional territory. We had some additional mobile products. We've now got what we call a secret sauce is a whole market view. So we can tell any advertiser everything that's relevant to them at any point in time so that they know

09:08their whole competitive landscape, whether or not they knew about it or not. We do a lot of gap analysis and exploit that. We've now brought to us so you can look state by state across The US if I'm only really interested or maybe I'm only licensed to do business in New York State for insurance product, for example, then we can drill down on that now. Or maybe I'm running, we've got a big retailer running swimwear campaigns.

09:35They want to look at Texas, California, Florida, and New York, then we can break down that view of the whole market in each one of those states.

Churn and Revenue Retention

Nathan Latka

09:42Ian, churn is critical in this kind of business. What's your churn today?

Ian O'Rourke

09:47So we retain a bit north of 90.

Nathan Latka

09:50And that's revenue retention annually?

Ian O'Rourke

09:54Yes.

Nathan Latka

09:54Okay.

Ian O'Rourke

09:54And that's gross, sorry that's gross not net retention. So net retention can be as much as 100% or more if we added in upsells and things like that. So when we look at those two figures, retention in the 90s, And then net dollar

10:13varies quarter to quarter depending on upsells quite sensitive to upsells.

Nathan Latka

10:17You generally above 100% though? I mean, that would be meaning your expansion more than makes up any lost?

Ian O'Rourke

10:24Yeah not well, eighteen months of doing much upsells. It's still bumpy. We don't have a fleet of people doing the upsells. We might do a really great quarter of upsells.

10:37So that quarter will be well over a 100 and then

10:39we might do a really slack quarter of upsells and that'll be under a 100.

CAC and LTV to CAC Ratio

Nathan Latka

10:45Walk me through fully of fully diluted CAC. What are you spending to acquire a new customer?

Ian O'Rourke

10:52Fully diluted CAC, last count in dollars probably I think it's roughly $30,000.

Nathan Latka

10:59Okay, good. So way, way less. So your payback period there is about eight or nine months if the ACV is $50,000.

Ian O'Rourke

11:05Yeah. Yeah. I think we're... I think last I saw the last figure I saw was around four and a half ratio of LTV to CAC.

Nathan Latka

11:14Okay. But then... But payback. So four and a half LTV to CAC. That's great. So call it 120, you're assuming about $120,000, $140,000 in LTV, something like that?

Ian O'Rourke

11:23Yeah.

Nathan Latka

11:24How do you use that number? So if you know a lifetime value is $140,000, do you use that at all in business decisions or just a number you have to have because everyone asks about it?

Ian O'Rourke

11:35It's a bit of both, right? It's a bit of both. Like to look at it and see the improving health of the business, right? We just want to make sure we track all of the traditional SaaS metrics that people recommend in there. And we want to make sure that we're within the boundaries of Sensibullware, that we're not overspending on marketing and sales or we're not under investing in it, that we've got growth rates that are going

12:06to get us at the right multiples of inflation.

12:14By the end of this year we'll have been reasonably successful adding several million dollars in The US market. So we've proven that our proposition works really well. It's marketed in the

12:26same way, it's sold in the same way, it's delivered in the same way across The US, which is obviously the largest market for us going forward, and then we can really step on the gas and accelerate that market.

Nathan Latka

12:38Yep. Now if you're growing at a 115% year over year, that's your target here in 2018, today you're doing, call it, $650,000 a month in revenue. Is it accurate to say about a year ago, you were doing call it July or August 2017 doing about $350,000 a month in revenue?

Ian O'Rourke

12:52Yeah, it sounds about right.

Nathan Latka

12:54Somewhere around there.

Ian O'Rourke

12:55Yeah. It's probably a little bit less than that.

Cash Flow, Rule of 40 and US Data Costs

Nathan Latka

12:57And are you cash flow positive? Are you still burning to drive growth? Where are you at?

Ian O'Rourke

13:02So we don't burn a lot. We'll be cash flow accretive in Q4 this year. So we're on the

13:10we continue because we get paid up from about 90% of our new businesses up payments. So we use that to accelerate the investment in the products

Nathan Latka

13:10Okay.

Ian O'Rourke

13:10So that we can develop faster releases.

Nathan Latka

13:23So so, Ian, did I hear you accurately on it from a cash flow perspective? You're cash flow positive each month?

Ian O'Rourke

13:29We will be in q four.

Nathan Latka

13:30Oh, you will be in q four. Okay.

13:32And and what are at today? I mean, you negative 20% EBITDA? How much are you burning today?

Ian O'Rourke

13:38Can't tell you off the top of my head, but it's it's not a huge amount. We probably fall within the rule of 40. Right?

Nathan Latka

13:44Yeah. Yeah. That... That's that's why I'm asking kinda taking your growth percentage, subtracting any, you know, you know, negative net EBITDA to get your rule of 50, rule of 40.

Ian O'Rourke

13:53Yeah. Even that said, I mean, there's a

13:59big six businesses 40 for a long time.

14:03And there's a... The Pacific Crest goes all the KeyBanc guys now do the big SaaS survey, and even some of the stellar businesses that you saw

14:13fell outside of that rule for a while. Yeah. And and then they start to improve different aspects of the business. So if I look at... And an interesting observation for us, at the moment, we spend 25% of our data collection costs in The US market, but we only have 6% of our revenues.

14:34So I'm kind of making that big bucket to have full coverage

14:40of the number of customers to amortize that across just yet. But if I normalize that back, it would show me a much higher margin, which would thus change my lifetime value and my LTV to CAC ratio. So there's weird little things like that that you can really improve unit economics.

Famous Five Rapid Fire

Nathan Latka

15:00Ian, we're out of time. Let's wrap up very quickly with the famous five. Number one, what's your favorite business book?

Ian O'Rourke

15:06The Hard Thing About Hard Things.

Nathan Latka

15:08Two is there

Ian O'Rourke

15:08There's is Ben

Nathan Latka

15:08Yep.

15:10Number two, is there a CEO you're following or studying right now?

Ian O'Rourke

15:14There isn't, but I watch everything Ben Horowitz has written and David Cummings needs to read his his notes each day as well.

Nathan Latka

15:24Number three, what's your favorite online tool for building your business?

Ian O'Rourke

15:28Yeah. I was thinking about that. I've got lots of them. At the moment, I'm gonna be 7Geese because as a CEO, I'm about the KRs. I'm about alignment, and I'm about tracking progress. So from what I said, you know, that's my that's my go to tool for making sure that happens.

Nathan Latka

15:45Number four, how many hours of sleep do get every night?

Ian O'Rourke

15:49I think I get at least five or six.

Nathan Latka

15:51Okay.

Ian O'Rourke

15:51Get

15:52up pretty early, I get up pretty late.

Nathan Latka

15:54So we'll call five and a half.

15:55And what's your situation? Married, single, kids?

Ian O'Rourke

15:59Married, two kids.

Nathan Latka

16:00And how old are you?

Ian O'Rourke

16:04I'm 37.

Nathan Latka

16:05You said 37?

Ian O'Rourke

16:07Seven, 47.

Nathan Latka

16:0947. Okay. Great. Last question. What do you wish your 20 year old self knew?

Ian O'Rourke

16:14Yeah. I mean, so much like that this will take you half an hour.

16:20Had to take a little bit more mature view of things and not get so hot headed perhaps.

Nathan Latka

16:28Guys, there you have it. He wouldn't... He would have... You know, they had a little more patience, not got as a hot headed as maybe he did back in the day. But, look, it seems like everything's working now. 2012 launched Adthena. Again, really competitive intelligence results driven enables people like call it clothing manufacturers to understand what's going on and maybe certain states if they want to drill down. But again, unique competitive intelligence for search specifically. The

16:51company is now over 200 customers paying $3,000, $4,000, $5,000 per month doing about $600, $700 grand per month right now in revenue of 7,500,000 run rate, hoping to break 10,000,000 in terms of ARR by the end of the year. They're growing about 115% year over year in revenue from 2017 to 2018. 90% revenue retention annually that's on a gross basis. Net revenue retention flirts with 100 when averaged out. Willing to spend up to $30,000 on CAC which is

17:17about a nine month payback period. CAC dealt to be about 4.5 so $140,000 in lifetime value or about thirty six months is what he assumes. His team of 80 people based in Austin, London and Sydney. Ian thank you for taking us to the top.

Ian O'Rourke

17:30Thanks very much.