How AppDirect Raised $245M and Grew to About 650 People With Millions of Paid Business Users (Interview with Co-Founder Daniel Saks)

Introduction and Company Overview

Nathan Latka

00:00Hello, everyone. My guest today is Dan Saks. He's president and co CEO of AppDirect, the only end to end cloud commerce platform for succeeding in the digital economy, he cofounded in 2009 with his partner. He and his cofounder dreamed to someday build a business worthy of the Inc. 500 list. And starting his entrepreneurial journey, Dan and his co founder officially launched the company in 2011, raised over $245,000,000 in venture financing, and reached a company valuation of

00:22more than $1,000,000,000 The AppDirect ecosystem now powers millions of cloud subscriptions worldwide and connects channels, developers, and customers to simplify the digital supply chain. All right, Dan, are you ready to take us to the top?

Daniel Saks

00:33Yeah, let's do it, Nathan.

How AppDirect Makes Money

Nathan Latka

00:34All right, very good. So let's just jump in kind of to day one. Tell us first off, before we get to that story, kind of what AppDirect does and how you make money. Is it pure play SaaS?

Daniel Saks

00:43Yeah. So AppDirect helps businesses find, buy, and use cloud services. And we generate revenue both from share of the transaction fee or the rev share, as well as a platform fee for those that use our services to make money in the cloud.

Revenue Mix: Platform Fees vs Transaction Fees

Nathan Latka

00:56Yeah, today when you break down revenues, those more of it coming from essentially the referral fees or more coming from just the flat SaaS fee to use the platform?

Daniel Saks

01:04A combo of both, but definitely the platform fee was the lion's share of the initial product. And then we see really, really high growth of the transaction fees as well. So it's similar to a billing platform in that we run kind of SaaS subscription as a white labeled marketplace and developer ecosystem that helps businesses of all types, large businesses and small businesses. Work with a lot of major telcos, Comcast, and others around the world, helps them

01:30get to market faster. And then we also share an upside in in the software.

How Comcast Uses AppDirect

Nathan Latka

01:34And so tell us the story about Comcast, specifically, how do they use you?

Daniel Saks

01:38Yeah, definitely.

01:38So one

01:40of the opportunities that's emerged over the last several years with the growth in cloud is that businesses want to be able to access cloud services from people they trust. And going back to the early founding of AppDirect, we always had this fundamental perspective that most businesses don't necessarily want to just go online and subscribe to services. They want to buy everything they need from a trusted provider. So Comcast is an example of a brand with Comcast

02:05Business that offers telecom services, internet, and is a great trusted provider to also offer things like collaboration services, email, backup, and others. So that's how we help them. We enable them to get access to a portfolio of services that they can sell to their customers.

Competitive Positioning: One Suite vs Pure-Play Rivals

Nathan Latka

02:22And then you've got kind of four different, I think, sectors with your market reseller devices and then your billing platforms. Each of those, there are mega, mega, mega players in terms of competition. So talk to me about kind of like the network modules built into AppDirect since you are a platform and how that allows you to defend each of those four beachheads.

Daniel Saks

02:40Yeah, definitely. I think what's unique about AppDirect is that based on the way that we are positioned in the market, we're really the only player that can enable someone to resell our portfolio of cloud services. And we focus on helping people monetize in the cloud as well as manage relationships. And our products fall across that different bucket. So while within each area there may be pure play competitor, in terms of us, we're operating as the only

03:05suite. So you can think of it as what HubSpot is for marketing and sales or for what NetSuite is for back office. We are for commerce. So really helping a business end to end manage anything that they need in terms of making money in the cloud and managing their customer relationships in the cloud.

Pricing and ARPU Range

Nathan Latka

03:22Yep. And then give me a sense on average. I mean, are people... I mean, I'm sure there's a huge span. I don't wanna go down every cohort, but on average, what do one of these customers pay you per month?

Daniel Saks

03:30Definitely. So our license fees range dramatically, but we have entry level perspectives that would start around a few K per month depending on the complexity and going all the way up to the hundreds of thousands for more complex deployments.

Vertical Expansion: Telco, VAR, Manufacturing

Nathan Latka

03:45Yeah, today, I mean, I'm sure you have an inside sales team, these kinds of things. Is there a specific cohort you're focused on today? Are you generally moving upstream or downstream?

Daniel Saks

03:52Yeah, so we started the highest of upstream and then we created beachheads in different verticals. So we've rolled out from telco to VAR and MSP. And now actually what's a fascinating vertical for us is manufacturing. So even traditionally, you wouldn't have thought of a manufacturing firm as one that is at a core a software company, but many firms are looking to digitally transform themselves through IoT. And therefore, if you used to produce hardware, the value is

04:19not necessarily in the hardware itself, it's around the connectivity and the software and the ecosystem you can provide. So we're seeing a lot of growth in our manufacturing vertical.

Nathan Latka

04:27And just to be clear, the number you said earlier, you kind of let people in, in the many, many thousands range, you're talking ACV there or monthly ARPU?

Daniel Saks

04:33Monthly.

Founding Story and Family Background

Nathan Latka

04:34Monthly ARPU. Okay, let's get more into the founding story. So 2011, where was your head? I mean, did you just quit a corporate job and your back is against the wall and you got to make something work? Where were you?

Daniel Saks

04:44Yes, I was actually graduating out of school. And it was just really the height of the recession. So businesses around the world were struggling. My family actually had a furniture store in Niagara Falls, Canada on Main Street. And grew up in the store. My great grandparents started it. It was really the pride for us in the community. And when the recession hit, we had to shut it down. And that really kind of marked me in saying

05:07the opportunity for entrepreneurship in the early two thousand and nine, twenty ten timeframe was really bleak. On the other hand, I came to visit my co founder, who at the time was a gaming company in San Francisco, and we kind of saw the opportunity that cloud services could bring to really help empower business owners around the world. And the biggest gap that we saw in the market is that from my family experience, remember that buying software

05:36was a major decision and that we knew the people who sold us the software. I still remember the person's name who sold my family their ERP solution. His name was Brickster. And he knew the furniture vertical really well. So we really sought to build this global network that connects the developers of applications with the end businesses. And thus, we've become this ecosystem for distributing services around the world.

Nathan Latka

05:36And what

Scale: 35 Million Reach and Millions of Paid Users

Nathan Latka

05:59have you scaled to today in terms of total customers using the platform?

Daniel Saks

06:02Yeah, so we reach now over 35,000,000 customers around the world. So super excited to have such a wide business footprint from starting an apartment executive like that day.

Nathan Latka

06:12When you say 35,000,000, are we talking like seats per logos or tell me exactly what that means?

Daniel Saks

06:17That's our reach. So that would be the customers of our customers that we have reached to, but we do have millions of paid business users.

Nathan Latka

06:26Got it. Got it. So I'll just put a minimum on that and say you have definitely more than a million. And those obviously then touch on average 35 each, right, if there's 35,000,000 with a minimum of a million.

Daniel Saks

06:36Sure, yeah.

Nathan Latka

06:37Something like that. You have network effects. That's the easy way to say it, right?

Daniel Saks

06:40That's a network effect, yeah.

First Customer: Bell Canada

Nathan Latka

06:41Yeah. Walk me through for that first year. So who was your first customer and how'd you land them?

Daniel Saks

06:47Yeah, so our first customer was actually Bell Canada in Canada.

Nathan Latka

06:51It wasn't the furniture company,

Daniel Saks

06:53I know, there we go.

Nathan Latka

06:55But that was the idea, close to home.

Daniel Saks

06:55But

07:01we were two people in an apartment at the time. And the idea of enabling this massive company was definitely a daunting task. But we really believed that if we could empower a company that has big reach over a country or an area, then that would have the biggest impact. So instead of going door to door and selling directly to small businesses, we sought to partner with people who had millions of business customers. So Bell had over

07:30half a million business customers at the time in Canada. And we really wanted to enable them to have early access to SaaS solutions. So we went and we aggregated relevant services for the Canadian market, and that was our first footprint. And then because of Bell, we got Deutsche Telekom. And because of that, we got Google.

Nathan Latka

07:49What was that first sale though? I mean, what was the size? I'm curious. Can you share since it was so long ago?

Daniel Saks

07:49Yeah.

07:56So the funny thing is that we went in with this idea that, okay, we're going to propose this, we're going get budget and it's going to be millions of dollars. And early days, we kind of thought because the project value was so big, we'd get a lot of that. But one of the things that we realized is that while we approved NearMark, the project had a lot of money, they didn't have a lot of budget for

08:17us ourselves. So we had to think creatively about how we help them to support the business case and get to market.

Nathan Latka

08:23So this is usually an embarrassing number, but I'm curious. Do you remember what first year revenue was '20 11?

Daniel Saks

08:30Yeah, it was in the hundreds of thousands.

Fundraising: $245M Raised

Nathan Latka

08:33Couple hundreds of thousands. Okay, good. And did you bootstrap or did you raise before you even had a product?

Daniel Saks

08:38So we bootstrapped as long as we could, and then it started to ramp up and we saw growth. But we had very early partners. So the idea for that first launch was that it was a nine month sales cycle. And once we had the letter of intent from the company, then the investor said, okay, we'll give you the first seed money to make this happen.

Nathan Latka

08:38And what

08:56have you raised to date?

08:57And what

08:59have you raised to date, Daniel?

Daniel Saks

09:01$245 million.

Nathan Latka

09:02$245 million. And so this is obviously fairly aggressive. Right? A lot of people are arguing that you can actually stay private now with so much kind of VC money out there. Is that generally the plan for you guys? You're kind of out of the... I mean, you have to do some very drastic things, I imagine, prepare yourself to go public and get out from under liquidation preferences and things.

Daniel Saks

09:18Yeah, so we've always had a long term approach to the business and had clean terms for investors. So I think for us, it's really about when the market opportunity makes the most sense. And for now, we're seeing a lot of growth in trajectory in the private markets. But at the same time, we do see it being more attractive and there's a bigger opening than ever for enterprise companies of our profile to go public. So I think

09:41that we're investing ahead of the curve and hopeful that we continue to focus for the long term, whether that means private or public down the road.

Revenue and Growth Trajectory

Nathan Latka

09:50Yep, and what do you have today in terms of revenue?

Daniel Saks

09:52Can't disclose.

Nathan Latka

09:53Okay, have you put out anything that's given a general range in that, what was the last update you gave publicly?

Daniel Saks

09:58It was probably years ago, but we've been recognized as being one of the fastest companies in the world and continuing to already in the Bay Area and technology. And then you're definitely continuing the the the growth trajectory and excited to to have, you know, announcements in the future.

Nathan Latka

10:13Yeah. I mean, there's a pretty reliable source that said in '13, you passed 9,000,000. And then in '14, you'd more than doubled up to 18. Have you guys passed the $100,000,000 mark yet?

Daniel Saks

10:21Like I said, I can't say, but definitely, you know, growing tremendously since then. So it's been a fun steep curve.

Nathan Latka

10:26At your scale, what does tremendous growth actually mean? It changes. It's easier to go from $1 to $2 It's much harder to go from 100,000,000 to 200,000,000.

Daniel Saks

10:34Yeah, no. So what I would say is that we used to call this thing called the Formula One track, which is if you can go triple, triple, double, double, double. So for a while, that was the trajectory that we're on. And now we're falling nicely into what you'd see in public comps in terms of growth rates for benchmarks.

Nathan Latka

10:51Got it. Mean, south of... Just basically just south of doubling?

Daniel Saks

10:54I can't say, but you're definitely excited.

Nathan Latka

10:57Well, just saved me the work from finding the public benchmarks. I mean, when you say you're looking at public benchmarks, what specifically are you to? Other SaaS companies that are public in their growth rates at your size or?

Net Dollar Retention Above 100%

Daniel Saks

11:05Yeah, exactly.

Nathan Latka

11:05Yeah, got it. Very good. Tell me about churn.

Daniel Saks

11:09So one of the things that's unique about us is we have a net dollar retention across our customer cohorts. So because we have the potential upside within enterprises that we sign on-

Nathan Latka

11:19You mean above 100%, everyone has net dollar retention, but you mean you have more than 100%?

Daniel Saks

11:24Yeah, exactly, of that So it's pretty cool because our customers stick with us and buy more, which is super exciting.

Nathan Latka

11:32You have, I mean, you have enough, I imagine enough years of history to understand pretty predictably what a year one ACV turns into in year two and year three and year four. I mean, generally speaking, are you driving like 110% dollar retention, 140%? What's that look like?

Daniel Saks

11:45It ranges by customer, but what we definitely see is that once our customers get going, there's a trajectory that's north of double digits in terms of predictable growth. It definitely depends on the size and the scale of the company.

Nathan Latka

11:59And everyone obviously changes pricing, product mix, etcetera, to understand which kind of levers are most effective for driving expansion revenue. You probably get a lot of feedback from your sales team on this, but what have you found to be the most successful pricing axes to drive the expansion? Is it a utility metric, like a number of whatever build contacts or is it a product add on? Where do you see that falling?

Daniel Saks

12:18Yeah, definitely. I mean, I think that when you think about pricing, the way I look at it is always how do you create the most value for the customer stakeholders that you're working with? So we've really kept the same pricing framework, but really always anchored it based on value. So as we roll out new products, we look at what value would I create for our customers and how do we make it work with their business cases.

12:40So oftentimes for customers of ours, they want to move to a predictable recurring model, but at the same time, they may have some CapEx or want to do certain integrations. So what we've focused on is, A, really automating a lot of the components of our platform to reduce the cost to deploy and launch. And that makes for a much more predictable revenue stream. And we can do that through a lot of product automation. So if you

13:05go back to some of our first customer launches, it would have taken thousands of custom engineering hours to get that going. We've gotten that down to point and click, which adds huge value in the ecosystem. So for our customers, reduces time to market, drives more predictability, and thereby adds a lot more value for them.

Nathan Latka

13:22Is there a single utility metric you've kind of identified as the core value metric? HubSpot would say number of contacts. Salesforce might use something else. Twilio would say number of API calls via text. Do you guys have a metric like that that really drives a lot of your business?

Daniel Saks

13:34Yeah, we really think about gross market value. So it's the aggregate sell through across any one client and making sure that that meets their objectives and goals.

CAC and Enterprise Sales Team Efficiency

Nathan Latka

13:43Got it. So net dollar retention, obviously in a great spot. What are you paying to acquire new customers typically?

Daniel Saks

13:49So what's unique about us is that we have a really kind of small elephant hunting type team. So for the revenue scale that we have, we've traditionally had a relatively smaller enterprise sales team, which really gives us an effective cost of acquisition. Because to get some of these large deals, we have one rep. And what's really exciting is that for the sales team here, the more they stay, typically the more skill sets they gain and they

14:20can really make a lot of money in terms of working with the right deals and adding a lot of value to our customers.

Nathan Latka

14:26So what's your team size today?

Daniel Saks

14:29So overall, we're about six fifty people.

Nathan Latka

14:31Okay, based mainly in San Fran or spread out?

Daniel Saks

14:34Spread out. So one of the things we started in San Francisco and scaled to about 200 here, and then through both acquisition and organic have grown elsewhere. So we have a big footprint in Canada, both in Montreal, Calgary and Ottawa, and continue to grow across all of our different vectors.

Nathan Latka

14:52Let me ask on the economics question around CAC a little bit differently. You're probably at a scale where you focus more on new dollars of ARR driven per dollar invested or kind of magic number kind of stuff. Do you have a typical payback period you'd like to try and hit or stay below?

Daniel Saks

15:06Definitely, we have internal targets in terms of where we want to be. I think that it depends on really the cohorts that we're selling into. So as I mentioned, we have our enterprise sales force. We look to benchmark them against certain payback period. And then we look at that in commercial as well.

Nathan Latka

15:21Talk to me about just the enterprise side there. What do you see? Don't talk about your specific numbers, but when you do try and benchmark, who are you looking at and what are those paybacks you're typically benchmarking against?

Daniel Saks

15:30Yeah, I mean, I think the way that we'd like to see it is because we have low churn or net dollar retention, and because we can generally get long sales cycles, what we see is that if we pay more upfront from a compensation perspective or cost of sales perspective, over time, we make that back pretty significantly. And we've played around with different levers in terms of what you want to look at. But my advice to anyone

15:57who would be looking at setting comp and expectations is to really think about what are the behaviors or drivers that will happen no matter what. So if you know that your customers are signing up, there's a lot of value, you're going to stay for a long time, then you can afford to be more flexible on the upside, provided the market opportunity is really big.

Nathan Latka

16:19But I'm generally, mean, you've raised so much capital. I could see a very rational argument where you're being more aggressive in terms of payback because you have the cash cushion. I mean, are you up north of like eighteen months right now in terms of payback? Are you closer to twelve or six?

Daniel Saks

16:31We're definitely in that range depending on the cohort. I think you could definitely, again, because of the customer lifetime values, can definitely be in a larger range than six.

Nathan Latka

16:42How do you... Last question before we wrap up. How do you model lifetime values with confidence? You know, lot of people say we have six years of lifetime value and they could argue for like indefinite value. It's infinite because churn is so low, but that can be dangerous. How do you keep yourself honest on that metric?

Daniel Saks

16:57Yeah, so I think whenever you approach long term value, I think you can lean from the data in the past to prove. But ultimately there has to be a call and comfort level made, and that's where the levers can draw. So as you mentioned, if you have more of a cash cushion and you want to be more aggressive to capture a lot of market, then you can take a bolder stance on the way you think about

17:18that lifetime value. If not, can be much more conservative.

Nathan Latka

17:21Yep. Actually, I lied. One last question before we wrap up. So are you guys filing to go public in the next twelve months or no?

Daniel Saks

17:27I obviously can't answer that, but I think we're really excited about the position we're in. And we'll definitely reach out to you when we have more news to come.

Famous Five Rapid Fire

Nathan Latka

17:34Very good. Let's wrap up here with the famous five. Number one, what's your favorite business book?

Daniel Saks

17:39How to Win Friends and Influence People, Dale Carnegie.

Nathan Latka

17:41Number two, is there a CEO you're following or studying right now?

Daniel Saks

17:44Issy Sharp from the Four Seasons.

Nathan Latka

17:46Who was that?

Daniel Saks

17:47Issy Sharp from the Four Seasons. I've always admired him. Got a chance to meet him earlier this year.

Nathan Latka

17:52Number, three. What's your favorite online tool for building your business besides your own?

Daniel Saks

17:56Oh, I mean, a ton of amazing online tools, but I'll say FreshBooks is great for invoicing.

Nathan Latka

18:02Number another another good Canadian breakout story. Number

Daniel Saks

18:02Exactly.

Nathan Latka

18:02Number four. How many hours of sleep to get every night?

Daniel Saks

18:08Six. It's pretty good.

Nathan Latka

18:10And what's your situation? Married, single, you have kids?

Daniel Saks

18:12Getting married this summer.

Nathan Latka

18:13Oh, good. So no no kids yet then,

Daniel Saks

18:13No. Not yet.

Nathan Latka

18:13Alright. Very good. And how old are you?

Daniel Saks

18:18I'm 33.

Nathan Latka

18:1933.

18:20Last question. What do wish your 20 year old self knew?

Daniel Saks

18:23Just have conviction in your vision and keep going.

Nathan Latka

18:25Guys, there you have it. Have conviction in your vision. Keep going. He learned a lot from his furniture company in terms of buying software and the difficulties with it back in 2011 after he graduated, teamed up with his buddies, had his sights out for a big multimillion dollar first deal, hit the ground running and learned the hard way. It wasn't going to be so easy, but they've had success. They've scaled the company now over six fifty

18:42people at AppDirect, basically doing what a HubSpot might do for marketing and sales. They're doing for e commerce, four core products, many more, or sorry, beachheads, many products under each of those beachheads. Again, measuring kind of gross market volume or gross transaction volume across their customers using those products. Super healthy economics, $245,000,000 raised millions of paying customers. Daniel, thank you for taking us to the top.

Daniel Saks

19:04Thanks a lot. Take care.