How Animoto CEO Brad Jefferson grew Animoto to $31.2M revenue and 130K customers in 2019.

just got done editing this interview you guys are gonna love it before i do that though i want you to know that i'm going to be in the comments for the next 30 minutes or so answering your questions if there's additional questions you want me to ask the ceo next time i interview them leave them below or if you're just loving the data points i get ceos to share click the thumbs up button below that's your way of telling me you're loving this stuff and i'll get you more of it additionally again i'll be in the comments answering any questions you have all right for 30 minutes enjoy the interview hello everyone my guest today is jason xiao he's the co-founder and chief video officer of animoto an award-winning online video maker that makes it easy for anyone to create professional marketing videos jason you ready to take us to the top let's do it so you guys have been around a while huh when was launch date we actually first launched in 2007 which sounds like you're like ancient years ago it was actually like before i think it was like before the iphone or no the iphone just came out but like myspace was more popular that like facebook was still kind of up and coming like it was kind of crazy you're jason you're aging yourself yeah i know i know all right tell us for people that are not familiar with you guys tell us what the company does so we are online video maker we basically try to make it drag and drop easy for anyone even if you have no video experience to make professional quality videos to you know to market your business so we're kind of like for those of you know people familiar with like canva or you know squarespace we're kind of like squarespace for video or canva for video and is this a tool i mean i use this back in the day i don't think we paid for it that's why we used it so much is it a free tool or what's the revenue model how do you make money yeah so we have a premium model but we have you know uh subscription plans kind of ranging from 100 a year to 500 a year but we have you know three different plans um but it's free to try what would you say your sweet spot is what would you say so if you take your total customers and total revenue would you say the average pays what 100 bucks a year or it's higher like 200 yeah more like the two 250 kind of range so we kind of have our professional plan the middle plan yeah it's kind of like can someone's popular can someone pay monthly or they have to pay kind of upfront and they and they can pay monthly and what's interesting about video as opposed to i think a lot of other sas businesses is video is still kind of one of those things even though video is everywhere not everyone is actually convinced that they you know yeah that they need to be using video all the time and so it's it's very much like some people have very specific needs they need to do one or two things some people you know come back after six months or 12 months or five years or whatever um so it's a little bit all over the place but i think more and more now we're kind of getting into the wave where people are like okay video is actually kind of like a form of communication now i need to start figuring how to use this more regularly and so the onus is on us to figure out how to make it easier and easier and kind of show people what they should be doing so 2007 was launch date uh walk me through how you got your first 10 customers do you remember yeah well let's see man so we uh so we had we were basically a few of us actually were still working we were working in the tv industry here in new york and we actually kind of started this on the side and we worked we gave ourselves a year to see if we could actually prove out this technology and we thought it was going to take a few months it took us a year to even see if we could if we could do this and it was basically the idea of like rendering video original video frame for frame in in the cloud it's totally nerdy but we're like no one's done this before so we're gonna try to do this and who's we how many of you are there three four there are four co-founders right but there are basically three of us that were kind of more on the product side and i'm like the least smart of the other two were kind of like the the geniuses um and then we got the point we're like okay well should we do this and then like like let's give ourselves and see a year and see if we could pull this off so we raised um basically kind of like i guess what we call a family and friends round but all our kind of friends and family in the seattle area we hit them up for checks of like twenty five thousand and fifty thousand dollars and we're like you probably will not see this money back but if you love us give us this money and you know help us uh chase our dreams so we gave ourselves a year and that we basically raised enough to kind of like how much did you raise we raised uh it was a few hundred thousand dollars it's basically just enough for us to pay rent and feed ourselves kind of like minimal food and get by for a year jason this isn't like there this wasn't a year when money was flying around though i mean you're about to go to one of the biggest recessions in a long long time did you get this money right before right after 2008 this was before this was before um did you have people calling up going wait give me my money back well no we had actually gotten that early around we had actually luckily we had already kind of gotten going with the family and friends round um and then yeah we were actually about to raise kind of our first serious round like literally the day the week of that where everything kind of like everything crashed and sequoia posted their rest in peace you know memo or whatever it was and we were like sitting in waiting rooms at sequoia and other places and then everything fell apart so we kind of had to kind of uh step back and and kind of figure out so let me jason let me sit back down this first year so the first line of code was written in 2007 or 2006 2006 and then we launched our website in 2007. so how much total how much cash did you guys sink into the mvp so between your first line of code and your first dollar of revenue do you remember uh well if you're if you count kind of like the salaries and everything that we kind of give it was probably like we probably put in a few hundred thousand dollars two three and three hundred thousand dollars in total uh kind of our collective efforts and opportunity costs something like that and tell me the story of tell me the story that first customer that first money coming in it must felt great well we got we got kind of lucky somehow uh when we launched honestly we're just we're total product and technology nerds we actually didn't really know who was going to use animoto the one thing we did right well we did a couple things right but one thing we did right because we actually remembered from the first.com bubble uh burst and bubble and burst in the in the late 90s now i'm really aging myself that you know the big lesson learned there was you don't just create eyeballs and then tack on your business model you have to like figure out how to actually make money so we're like okay well we're actually gonna against the advice of so many people because they're like guys no one pays for anything on the internet look at google look at yahoo look at about netscape and like you gotta have to figure out how to do this for free and we're like no we think that if it we can do something well enough people will pay for it and so we kind of stuck to our guns and it was like in the early days it was like three bucks a video and or 30 bucks for you know 30 bucks a year for all you can make and we just kind of made that up because no one else was really um charging for stuff and then uh we launched we didn't really know who was going to use it um and then we got lucky like i think in that first day or two michael arrington she used to be the head of um techcrunch uh techcrunch um you know with the big following he caught wind of us and wrote this really nice thing like here's these guys who are doing one specific thing really really well and he just kind of became a fan and and you know followed us for a few years and so that exposure in the early days really kind of like set us in motion and gave us a lot of good 2007 to 2008 that first 12 months you're in business about how many customers did you sign up do you remember uh well because we were also focused not just on businesses but basically kind of like anyone who wanted to create video i mean we had thousands right away especially if you you know since we were charging per video you know three dollars a video i mean we had like you know tens of thousands of customers in those early days um so it felt it it felt like we were successful in those we're like wow everyone everyone's using animoto and then you know fast forward several years we're like that this is actually not real success because we have no idea where we're where we're at what we're actually doing and who we're focused on yep and by the way that michael arrington article posted at 8 10 a.m on august 26 2008 the subject title was happy birthday animoto you guys make me happy i mean it doesn't get them you don't get a much stronger endorsement than that yeah for someone who's you know kind of uh he's a tourist for being pretty cynical yeah but i think he liked that we were you know doing some one thing very specific and trying to do it really well and he liked that focus that's good so your first thousand customers come from this kind of early traction fast forward today how many customers are you serving today well over yeah like i said over there over the years we've probably had you know over over a million we have but how many active paying today yeah we've got like 130 active paying subscribers and a lot of them and kind of coming back um so but active i'd say right now like you know over a hundred thousand okay about 100 call 130 000. and um so you mentioned you've had like way more than that over your lifespan so you're talking really to churn here right which is when people use you once how do you make them really really sticky um at this price point right churn is obviously an issue uh or maybe not how have you dressed churn well what we've realized because of our type of business we have to kind of approach it in a very kind of multi-layered type way right so um you know we know that i don't know about like about 20 of folks who come in will actually just stick around you know with us forever um and the rest like i said it's just very it just depends on where they are in their business we have a lot of small businesses some of them are just getting started so the idea of like jumping right into social media and posting all the time it's just they're not ready for that they're like and you know i need a video from my home page or from you know a cover a cover video for my facebook page or something i'm just trying to get like the basics in place but if we feel like that we can serve that need really well that in six or twelve months time when they are ready to do some more like start doing ads on facebook or you know start promoting some of their regular product line or something like that that that we can kind of be there when they're ready at that next stage of the company so we have so we've kind of learned that we just need to kind of you know kind of almost like sub segment our our our businesses and really kind of understand where they are in in their in their business maturity and their social maturity and their video maturity and kind of catered each one of those so i know that's kind of like a non-answer but yeah i mean there's a lot of specifics and the insights good but uh for the sake of time i mean if you look at the past call it 12 months the past year what would you say gross revenue churn is as like 20 30 or higher would you say yeah probably about 25 okay i mean and you guys are happy with that i mean that's not horrible for this price point yeah i mean it's always hard you know you look at other companies and i think it's we just have to understand the type of product we are which is video and it's just different from like email or some other things and so in some ways we're kind of figuring things out as as we go do you have meaningful expansion revenue or like an upsell team or no yeah oh yeah we have kind of teams dedicated to you know like how do we uh you know upsell or or win backs and all that so do you cover that gap so for example the customers who signed up exactly one year ago let's say 25 percent of their revenue will churn but the other customers that say will you upsell them by more than 25 so your net revenue retention is above 100 um i'd say it's close but i think where we do where we do better is we're we're kind of strong in our top of the funnel so our growth kind of comes more from top of 20 finding new new customers i think we could actually honestly do better and kind of like the win back a retention side of things so interesting okay so probably no no meaningful expansion revenue from from upselling you don't think um i think part of it will just come from the macro trend of people actually realizing that they need to do video more and that's becoming kind of more cost effective than some other traditional marketing channels so okay fair enough so let's talk about top of funnel right so so today you name a growth channel working really well for you that most people might not expect well i know this this probably it actually is word of mouth and we've tried you know jason that is the most boring answer you could possibly give give me give me get okay if you're gonna give that answer give something to my audience where they can really understand how they could replicate how you've done word of mouth try and make it specific for us well i'll actually i'll actually say our sec our second biggest because i think uh so word of mouth and it's because you know we're a video company so we happen to be the type of product that people share and talk about and it's visual and it's exciting and so people talk but the one that we can actually control better it is you know basically direct paid uh marketing primarily on you know on on facebook on instagram on social um and using video so the nice thing is we're actually you know eating our own yeah we're eating our own dog food we're growing i don't want to call it jason you want to call it you know something much better dog food right all right his dog goes dog food how what scale are you i mean are we talking like a million dollars an ad spend a month across these channels or what general scale you're at would you say oh yeah yeah probably um yeah it's probably around it's probably up there around there and we're trying all sorts of different channels but i think the big picture so i guess for just folks listening i think the biggest mental shift that i think that we've had and that we've been trying to tell people is that uh that i think that the the impact that social media has had i don't think feel like people have maybe especially small businesses have really grappled have really kind of embraced it it's really changed everything in the sense that like i think traditional marketing which is how most people do marketing still today it's like the holy grail is getting people to your website right so whatever you can do to lure people you know to your to your website um and that's kind of how marketing is done but i think what's happening now is you don't actually have to sit around and wait people for for people to get to your website you can actually take your message or your content or your information to where the conversation's already happening and that's on social media so what are the economics though on that look like for you so let's let's use your average price point let's call it 250 bucks a year what will you pay like what's your full weighted cac would you say to get a 250 a year account new account well we have a lot of different segments of users so it kind of depends but we'll just use 250 yeah like a 250 so so on average we'll say you know we should be willing to pay up to 250 to acquire you know a new customer is that about where you're at though or are you better or worse um no we we run things pretty tight around that so payback period no matter the cohort yeah we kind of use a 24 month payback period so we kind of extend it you know slightly but we're i'd say we're relatively conservative because we kind of found that it works and so well jason so how sorry i don't i don't mean putting you off but i want to get a bunch of stuff in before we end how do you how do you afford a 24 month payback period that means the more customers you had today the bigger your cash gap is but you know they'll pay off in the future but 24 months is a long time to wait to get paid back how can you afford the cash gap yeah well it took growing into right so we started with 12 months and then as we felt comfortable that we were reliably you know getting that cash back we could extend to you know a year and a half or two so now we feel like that we're confident enough in this channel and we have enough cash in the bank that you know for anybody that we can extend you know to 24 months um and it and it's a it's a dominant channel but it's not like uh it's it's not our only channel right if it was our only channel you know we might be a little bit more kind of risk adverse but if we go macro i know that's just one channel but if we go macro in the entire company what would you say like top of funnel total hits to the website is on a monthly basis uh total hits for probably and then gosh i should know those right um in in the millions how many new customers will you will you convert or trials will you get from that users uh well we'll get about business customers we get probably average about 150 000 a month okay new trials so they're trying for free and then how many of those convert actually to paid would you say on average uh we have about like a seven percent conversion rate oh okay that's not bad so that would be about uh 11 so called 11 000 convert to paid yep and those are specific business customers and we have a bunch of non-business customers that we you know try to figure out what to do with also but but where we're kind of betting is on the business customer saying yeah i mean that's healthy right if you get 11 000 new customers at an average price point of 250 a year you're basically adding almost three million bucks a new ar every month that's that's a good growth rate they get that right yep we like it yeah that's good you know we are but we have challenges on the churn side retention side and you know we got to get people using video more regularly so that's i think what's your total what's your team size today jason how many folks we're about a hundred folks mostly in new york we have a handful of folks in san francisco and then some other folks all over the world how many engineers we're pretty heavy on the engineering side we're over probably over half probably two thirds of our company is kind of on the product development side which is mostly engineer so we're definitely heavy on the development side and do you have any quota carrying sales reps at this price point or is it too cheap for that too cheap for that we've exp we've kind of uh entertained the idea but i think it's uh we need to rely more on kind of cheaper channels yeah now you mentioned covering a 48 month or 24 month kind of cash gap have you raised like gobs and gobs of money how much have you raised to date we've done officially we've done three rounds so that initial family and friends round then we did a kind of a series b with a vc madrona and a few other folks tacked on including amazon and then we did a series c with a private equity group spectrum um so we've raised uh you know just over like 20 million or something like that okay well the spectrum one was 25 and the madrona one was 4.4 right so about 30 million total yep about 30 minutes you've done your research oh yeah yeah of course but i want to let you say it i want to steal i don't want to steal your thunder so so you know maybe the reason you said it was 20 million not 30 is because 10 10 of that was maybe secondary spectrum does that a lot did did some of this go to secondary yeah some other sponsors there we go there's something wrong with that by the way a lot of founders think the only way to get liquidity in early employees is to sell the company but no you can negotiate a nice kind of secondary as well yep yep that's kind of a newer thing i i found out but um yeah but it's nice because we want to swing for the fences but at the same time we know we want to take care of things at home so yeah so just to be clear the 25 million from spectrum some portion of that maybe caught 5 10 million did go to early shareholders early employees and founders yes yes so that's why i kind of say what we technically raise yeah is probably in the in the 20s yeah total that's fair now that last round of spectrum was back in 2011. a lot of people would say wow you haven't raised in seven years and once you're on the venture track if you're not raising every other year something's wrong how did you respond uh well we've been pretty lucky like pretty much from day one we've run basically a cash flow you know call it neutral business so we were always we've always been making money and so really our our periods of raising money is just to kind of try to take advantage of some spurts of growth right but we've always run a cash flow positive so actually we're in a great you know spot jason can i ask how significant that is are we talking like 30 ebitda margin every every year or 50 or 10 or well we well we run i guess basically we run like a cash flow neutral business right so everything we everything we make we basically put right back in animoto so technically it's like we we could probably hit yeah 30 40 if we want it but we're reinvesting everything right now yeah now can i do this math tell me if this is accurate you said earlier about 130 000 paying customers 250 bucks a year if i just i can just multiply those together to get about 2.6 a month or about you guys have crossed a 30 million run rate at this point is it accurate yeah we're in the ballpark okay yeah and if you're in that ballpark now call it 2.6 million a month today but where were we out exactly a year ago do you remember just even about flat even about flat year every year uh yeah i think well no no we've been we've we've been we've been growing i don't know exactly where we were last year but we've been do you know what you grew out year over year was like 40 100 10 no we're we're kind of in the double digits right now we're kind of like in the double digits right now okay somewhere between 10 that's a big range between 10 and 100 that's double digits right 10 and 99. 10.99 no no we're we're probably like in the 20 growth rate right okay you say that almost in a shy fashion but you should be proud of that right considering you what you raised relative to your ar why are you shy about that well i don't know i think maybe that's good for the stage that we're at i feel like we're always being compared to or i always convert myself to everyone else and i'm like oh we i always feel like we should be going much faster but maybe no but you have incredible leverage right when you compare the amount you've raised relative to your ar right so you really only put 20 million on the balance sheet 10 of the 30 was secondary right your arr is more than what you've raised that's a beautiful place to be in and you're cash flow positive that's a great story you should celebrate yeah i know i know and so but sometimes we're like are we being too conservative should we be you know like swinging even harder so i think it's we're always kind of like wanting wanting more so yeah i guess we do have a lot to be proud of but uh i think i i think we can do more it's one of the reasons that's one of the reasons i wanted you guys on is because you've had history you have scale you haven't raised a ton so no i'm this is exciting now when do you i mean what is the next big metric do you guys think you'll break 30 million an ar by the end of this year or what's the next big target uh yeah i think it is um i mean yeah we would like to kind of keep i think a big push for us is is just focusing a lot more on mobile and international and i think those will unlock a lot more opportunity but um yeah certainly all those milestones 40 50 100. is there any is there any i mean well actually i mean is 50 a stretch goal for next year or do you think you need like 20 21 to get past that how realistic is that um probably a couple years maybe a year and a half yeah 17 months 18 months yeah now are you in are you in talks right now you've driven a nice scale since 2011 are you in talks right now to do any like you know called 100 million dollar second there are any big secondary raise no we're always thinking about it because we're always like what would we actually do with that money and and in some ways right it's uh raising money comes to the cost right it's it's it's giving up some portion of the company and changing up the border now and we actually really love our board dynamic right now we have fantastic partners from madrona and and spectrum so right is it a five-person five-person board it's a yeah it's a six-person board we can have two independents two from the financials jason six person board you're never supposed to have even board members you're gonna end in a three three three three tie that never happens uh so far i'm not done with it it hasn't because we seem to be pretty aligned on things so it's good we're always entertaining those conversations and so uh kind of have our our fingers in many different kind of uh chats well jason to another hypothetical canvas obviously has a lot of cash to work with considering the valuation what they've raised if they're looking to drive nice growth they could come after a firm like you let's say they offer 10x your mr 10x your ar let's say 300 million bucks do you guys take a 300 million dollar deal sure we'd always we're always uh we're always open to conversations um but i think for us it's whatever we can do kind of fuel our vision like we genuinely we genuinely love video and and see how exciting it is to you know empower businesses so whatever whatever partnerships or opportunities we can take to kind of help fuel what we're doing we're discussing but are you in any acquisition talks right now or no um i'll just say we we've always been in various chats with things folks that's it that is a yes the body language is saying yes yes yes but i you know i i personally i know that things change you know on the flip side of those type of things and i i kind of love what we're doing right now and so in many ways i just want to keep doing what we're doing on that note jason let's wrap up with the famous five number one favorite business book uh i love uh radical candor that's probably my my newest favorite number two is there a ceo you're following or studying um i love brian halligan from hubspot he's just a super inspiring guy number three how many hours of sleep to get every night i would like to get eight i'd probably get six okay no you don't what's your situation married single kids married and i have two twin girls who are seven which is why i don't get sleep oh wow okay so mary two kiddos and i meant to ask you what's your favorite online tool for building your company besides your own oh man i um i was probably the last person to use it in our company but i actually have grown to really love slack okay good and how old are you i am 43 i think plus or minus that's good you can't remember that's a good thing right all right last question take us home what do you wish your 20 year old self knew uh i wish um i think uh uh the the biggest kind of kind of strategy advice we've been given and what a lot of people tell it is just try a lot of things and see what sticks and i just realized man especially for any kind of early stage startup time and resources is limited and you don't have time to just try in time to try a lot of things that's what strategy is so be smarter about making choices and having strong rationale for those choices guys animoto they help businesses make videos more effectively and quicker about 130 000 customers paying call at 250 dollars per year so call it flirting with a 30 million run rate right now up from just 2.1 million a year ago so about 20 year-over-year growth as they look continue to scale they've done this in a very capital efficient way 30 million raised to date about a 10 million of that went to secondary so 20 million of the balance sheet they're profitable which i love 100 people 66 engineers no quota carrying sales reps obviously this price point 25 revenue churn annually no meaningful expansion yet as they look to figure out that churn issue about 500 bucks to get a new customer for a two-year payback period jason thank you for taking us to the top thank you nathan and congrats on the success of everything these ceos rarely give these kinds of interviews i hit them hard i get the data and i want to do it more so if you want to get more of this stuff make sure you subscribe up here and then additionally go check out one of my other ceo interviews right now