How Alphasoftware CEO Richard Rabins grew to $5M revenue and 3K customers in 2018.

hello everyone my guest today is Richard Arabians he focuses on strategy accelerating global growth and scaling his company alpha software he also served as CEO of soft squad international from 97 to 2001 when an owned alpha and initiatives 30 years with the company Richard played a key role as co-founder and served as president and chairman of the Massachusetts software Council now the Massachusetts technology Leadership Council the largest technology trade organization in Massachusetts Richard holds a master's degree in system dynamics from the Sloan School at MIT and a bachelor's degree in electrical engineering and masters degree in control engineering alright Richard are you ready to take us to the top yes I'm ready all right tell us about Alpha what's the company do and how do you make money okay so in a nutshell we're really very focused on the mobile business market I can broaden at mobile and web development but in particular if you think about enterprises or corporations sixty percent of workers worldwide work standing up yeah not at desks and these are people in field service that could be nurses it could be restaurant workers manufacturing quality control workers who work for cities and towns etc and until recently the whole computing wave that started with mainframes all the way up to the web didn't really impact them they still kept using notepads and forms primarily to record the work that they had done and obviously the cell phones had come up roughly ten years ago and had a huge impact on consumers but hadn't really penetrated a significant way into business so much and just just to be clear because I wanted to have more into your story instead of the overall space his alpha software really focused on helping people build mobile apps faster correct okay got it and it sounds like what you were doing before this alpha was part of a much larger company did you lead a spin-out or something well we actually had built the original alpha up to a pretty sizable company in the late 90s we sold the company and then how big did you build in what do you sell it for back then we we were roughly about 25 million we had about 150 people we sold it to a public company and then I ended up actually becoming CEO of the company that we sold it to and then after a number of years as we saw the emergence of mobile we actually bought the core business back from the public company and so we could really focus on what was happening in mobile how did you manage to do that without the obvious kind of conflict of interest well it's it's actually very straightforward if you and there is a implicit conflict of interest you get a valuation from a recognized you know valuation firm so what you don't have foreign on a I forget the details but yeah something along those lines so we were able to buy the core business back and focus very much on the upcoming mobile market and and the reason why mobile is is interesting it's a difficult problem building business apps for mobile devices is a lot harder than building apps for regular devices because you don't have signal you've got a very small screen you don't have a keyboard you don't have a mouse and typically the operator of the app has lost the use of one hand because they're holding the phone in one hand so they've only got five fingers and so building apps for mobile is actually a lot harder and and so now all of a sudden you get this sort of big issue that you're it's a you're in a hot space there's no doubt about it give me give me more though the back story because there's other people right now stuck in corporate wondering I really want to spin this part of our feature set out so you you did a 409a valuation or something like that a non-biased part evaluate it what did you end up buying it for to spin it out I can't give you the exact number but you know we we got a fair price we we brought it back and essentially what we were bowing back with some core technology and the customer list and also we basically the core developers who had gone with the original sale came back yup so I think we were restarting the party service fee so someone listening wants to get started with you guys walk me through kind what the average customer is paying you per month so there's two kinds of customers if I'm an entrepreneur and I've got an idea for a vertical market software as a service app I'll give you an example there's a product called Orca Oh a RCA and the entrepreneurs behind it felt that if they could build the equivalent of an electronic health records system for animals for marine parks and for zoos there would be a market so they looked at all their options for building up something that would be both web and mobile and chose alpha because it's a very productive system so that's one example tied it back there to a price point so a customer fir they got on average what are they paying per month pins on how successful they are the the more they more successful they are they need more server capacities we let people host anyway or we've also now introduced the alpha cloud but it ends up being a relatively small percentage of the revenue probably less than 5% of their revenue so you prices the percentage of revenue you don't have that's why you haven't priced it but I'm just working backwards okay right now you pay per server and a server can actually handle a lot of a lot of customers so in this case they've got a few thousand customers and they're able to run on I think three or three or four servers and the server's run in the order of five thousand dollars per year okay so - I'm is it fair to save an average contract value in terms of what people are paying you call between 15 and 20 or something like that yeah I'd say so but now we're just about to introduce a new product is what we've determined and it's very interesting if you look at web apps web apps sorry Richard hold on one minute I want to learn about the new product but let me just close out my thought on the customers here well since since the spin-out what what have you able to scale to in terms of total customers using you we have about 3,000 customers using alpha okay and we were able to leverage on you know previous customer base and now you know we're well established in the low code space which has become a hot space yeah and because the product has a long heritage it's very rich in terms of features and capabilities and so we've been able to grow the company now Richard if you've got 3,000 customers paying an average a CV of 15 grand a year I mean that puts you out of 45 million dollar run rate is that accurate no no we're somewhat smaller than that because a price has been growing over time okay so what's your run rate today it's some way in the five to ten million dollars okay great well that's that's still healthy growth right now what was it what was it doing when you spun it out did you get any revenue with a spin out or no no very little was mainly an asset purchase because in those days software was mainly sold as perpetual licenses versus subscription yep now if you're doing a 5 million I'll run right today that's about four hundred ten grand per month and you've got three thousand customers if I divided to three thousand into your monthly that means each customers paying about 140 bucks per month right which doesn't match up with your pricing page where you've got pricing ranging from 995 per year I guess it does that these are yearly these are yearly numbers okay got it these are yearly I didn't realize that yeah that does match that does match okay good so each customers paying about called one hundred thirty eight hundred forty bucks it yeah I mean it varies and so so that I just laid out one type of custom and that's what I would call entrepreneurs we've got an idea in this case it was a mammal product we've got other folks who build safety products in agriculture cool products you know ERP systems all over the show but then the other audience is corporate customers who you know they've got a Salesforce or service force or something and they want to you know mobilize these guys and they're looking for something that's powerful that can connect to all kinds of systems of record but at the same time they can build very rapidly and also we've you know there's a big push towards embracing the so-called citizen developer in companies these are folks with domain expertise but are not developers so that's what's driven us to the next product that is in the process of being released right now and I want to talk more about that in a second talk to me first though about growth so today you're doing about call it 5 million a year in revenue what were you doing 12 months ago what was your run rate um probably up by about 70 percent that's that's pretty good so call you were doing call it 3 million about a year ago something like that yeah yep and which driven most that growth new product releases expanding current customers are bringing new customers on all together it's bringing on mainly outside new customers and then you know under a subscription model you've got a good product it tends to be sticky so how sticky are you what's your turn today I'm not gonna give you an exact number but it's very sticky Richard you can't say very sticky without backing it up but people say oh we're the best where the bubble I mean give me a number you're above what in terms of dollar attention annually probably in the order of 85 90 percent so you're right that is high it's great and that's that's gross or or or or net dollar retention help yeah yeah so if you lose twenty percent of your revenue but you expand your current customer base by 40 percent you're yeah what what I'm referring to is existing customers renewing not you know this is not taking into account you know new customers well is it taking into account expansion revenue yeah there's no so this is pure got it so this is gross you have 95% or call it 90 percent gross dollar retention annually yeah yeah okay that's great tell me about the new product so the new product is we found something very interesting in Web Apps if somebody comes to you and says I need a business app running you know on the web you really have no idea what they talking about until they clarify so it could be an ERP could be an HR system it could be an accounting system could be a bi system it could be anything and so it's a little trickier to write tutorials and make it super easy because there's different parts what we found is that when it comes to mobile the kind of app that people want to build is almost always some form of data capture and dispatch and it makes sense because the mobile worker are these people who've been historically using primarily forms to capture information now they want to get rid of forms you know moved to us typically a smartphone just because they're way more ubiquitous but that's of a technical challenge because you're but less space but the benefits clearly are you don't have the double-entry you now are capturing data in machine readable form but you're also capturing much richer data you know for example if I'm a nurse doing a evaluation of a patient I can capture the stethoscope read you know there's no yeah I am because I don't go to too deep down here but I think I think I think we I think we get what you're launching is once we know what it is that people want this new product called alpha transform we can build these apps typically in about 30 minutes and the skill level required is a line of business person a person with domain expertise that's great that can build the apps so don't have to go D because coding a complex offline form you know typically with even with local products you're looking at many many weeks and okay last few questions here Richard before I wrap up with the famous five what years this spin out excuse me sorry what year was the spin out maybe 2004 I forget the exact year okay and have you boots after the spin out heavy boots drop drive your race capital we've raised capital from the first few years was bootstrap and then we raised capital not from venture but from successful software entrepreneurs in in our space who've built up enterprise software companies so they've been very helpful so how much tunnel have you raised well I think it's public my research team has it here you raise about three million dollars okay interesting this is listed we'll get the data source on that why don't you share that number I think we can look it up an SEC files right No why not it's just not because I don't know maybe it is there I can't you have to I mean you have to file which is why it's typically public which is why I typically ask it um but you've made the decision I guess I mean we've raised you know around about ten million dollars okay and most of that money has gone into product product developments so we're at this point we think we're poised for some really good growth because we've invested very heavily we've got a very strong technology base what's the team size today Richard there's about 50 people in the company 5-0 yeah ok that's great yeah and where's everyone based the company everyone's based us it's all us-based developers everybody works for us full time most of them are based out of headquarters in Burlington Mass but then we've got a number of developers in New York Pennsylvania Arizona Oregon etc that's great all right Richard let's wrap up here with the famous five number one what's your favorite business book I would say it's a book called the art of pricing the art of pricing very good number two is there a CEO you're following or studying right now no but I think one of the most impressive CEOs is the I think his name's Alan Mulally he was Boeing and Ford if you take a look at some of his lectures and videos very impressive yeah number three is there a favorite online tool you have for building your business well we use a hub spot but you know I don't think this is this other approach that are similar No number four how many hours of sleep to get every night well depends if my dog wakes me but I'd say probably about 6 ok I know it's a situation married single dfq I have a wife and two daughters and a male dog and a dog okay and how old are you I'm I'm in my late 50s late fee we'll say 55 all right Richard last question what he was your 20 year old self new said the guy what do you wish what do you I asked your age as I was curious what you wish your 20 year old self knew it's a great question I just I just think the people skills the importance of people skills knowing that as early as possible in the game you know I happened to go to probably one of the more technical business schools and that stuff was always regarded as unimportant and turns our ability to pick the right team and motivate people and treat people in a fairly and everybody pointing in the same direction if you think of it as stallions moving a stagecoach forward they've all got to be in the front all aiming for the same goal guys they're how people skills are important many many years ago decades ago he got was part of alpha software grew to about 25 million then sold it to a larger company which he ran and ran as president before leading his spin out in 2004 of the product kind of the tech team really starting over there from scratch alpha software helping folks really non-developers build mobile apps faster and more efficiently they've got a team of 50 people between Burlington Massachusetts and other remote locations currently serving 3,000 customers that pay on average called a hundred forty bucks a month so doing about 400 500 grand a month right now on revenue or about a five million dollar run right that's up from three million just 12 months ago so about 70% year-over-year growth they raise ten million bucks and again growing rapidly with our team of 50 Richard thank you for taking us to the top thank you nice and enjoyed meeting you