How Booker CEO Josh Mccarter grew to $18M revenue and 10K customers in 2017.

this is the top where I interview entrepreneurs who are number one or number two in their industry in terms of Revenue or customer base you'll learn how much revenue they're making what their marketing funnel looks like and how many customers they have I'm now at $20,000 per talk 5 and6 million he is H bent on global domination we just broke our 100,000 unit sold Mark and I'm your host Nathan Latka I just finished traveling Southeast East Asia for 41 days and I usually always get sick when I travel and quite frankly eating is difficult for me it's hard to find a restaurant and I'm spoiled in Austin with my personal chef well I took these little packets with me this time 30 of them in my carry-on suitcase they kept me totally healthy with 11 different secret ingredients you can see them at Nathan la.com juu I'll tell you more later on in the show that's Nathan la.com slj Nathan L here this is episode 625 and coming up tomorrow morning we hear from 30-year-old CEO of the not a CEO actually but man a senior editor at the Atlantic which Derek Thompson he's releasing his book which helps you predict popularity in this new age we live in the distraction age so why is he writing a book how much money do he make on a royalty and what's it mean for you tune in to find out good morning everybody Our Guest this morning is Josh mcarter he's the co-founder and CEO of Booker software a leading businessman man agement and Marketing Solutions serving over 10,000 Health and Beauty businesses small large medium you name it Josh has served in a variety of senior executive Bo and and board roles at various technology companies including arbitech spa finder and auto byel additionally they've got some exciting things happening at Booker we'll jump into it today Josh are you ready to take us to the top absolutely let's go all right so tell us first for those that are not you know working at a spa or a salon what does Booker do so Booker is a business management and marketing solution for health and wellness businesses and in a simple way you can think of it almost like a uh open table for health and wellness businesses where we not only manage uh the online bookings and and scheduling in general uh but really everything that the business needs to do to run its operations so that's everything from staff management uh time clock to CRM uh point of sale and then uh retention marketing and and talking about your business model how do you grow your business how do you make money so the the model is actually pretty straightforward it's uh it's largely uh consists of of subscription revenue from people that sign on to our platform uh we charge anywhere from call it 100 to 250 bucks a month for the subscription Revenue uh then we also make money on merchant processing we have several integrated merchant processing partners and then the third piece is we sell a add-on product called Frederick which we acquired last year uh that's in the marketing automation space so I want to get more into Frederick in a second and talk about kind of why you made the decision to acquire and what Frederick does uh first question though you know I first came across you when I was having conversations with Revolution uh you know the firm run by Steve case up there in DC and and Tig and many of the team members were very very excited about what you were building and I no I mean one of the big decisions that you made I talk to companies all the time that say oh we help small businesses manage their business right it's like they're not as specific as what you've done how big of advant Advantage is it for you to say specifically we're focused on the spa and salon management space yes so you know small and medium businesses are you know very fragmented so if you depending upon which study you look at they'll give you numbers anywhere between you know 20 and 25 million businesses and they each have very unique requirements and so we we started focusing on uh the spa industry because this technology actually started in another company uh called spafinder and then I led the spin out of the technology and started Booker back in 2011 and you know what you find is is that in health and wellness businesses that the use cases that they have for scheduling and staff management and customer management and point of sale um are really similar uh but if you compared that as an example to uh a retail business or a restaurant um they have some very very unique needs as well and so really I I think it's it's important to understand what type of customer uh you serve best uh because those are the type of folks that are going to be the most successful uh with your product and stay with you the longest and you know frankly we've had some ups and downs as we've learned that and have explored other markets uh and kind of come back just recently to really focus on the areas that uh that we do the best in and you mentioned the the year kind of average customer right now is paying you you said did you say 150 bucks per month yeah around there and then we have merchant processing and then if they they buy the uh the marketing product it's a similar at a similar price point okay do you see I mean let's say is more than 80% your Revenue subscription though yeah uh probably 70% of our R yeah sub and then Mark and then uh obviously imagine a chunk of the 30 a big chunk is the merchant and now you're just just getting scaling up Frederick right exactly exactly interesting okay so take us back for a second because you did something interesting this wasn't created from scratch rather this was inside of a larger Corporation and you managed to spin out in 2011 that's an interesting model to follow people are interested in how you do that how did you structure that from a cap table perspective from a money perspective how'd it work yeah so it wasn't simple um because the other company had uh you know a lot of Legacy shareholders it was a business that was around since uh well I think it was all the way back to ' 89 when it was orig founded that was my birthday Josh I don't want to make feel old but so yeah so you know obviously having been around that long there was you know a lot of different investors in and out of the business and so first of all just making sure that you've got you know the right right type of of structure when you spin it out so that um you're you know you're not harming the prior shareholders but at the same time that you're giving you know preference to the new shareholders and investors that are coming in that are building something you know that's fundamentally different than than what the business started as and so that you know that took probably you know six to nine months almost to get all the structure and the you know proper licensing agreements and IP assignments and all of that done and uh and then we went from there to your point you know Revolution LED our series a uh we got that done in November of of 2011 how much was that for uh it was a $15 million raise okay got it and was that really your initial working capital or did spafinder also put in initial Capital well spafinder had put in the initial Capital that built the you know base platform uh that we started with but at the time as an example you know it was a 25 30 person company um most of it on the technology side a lot of shared services back with spafinder uh that we really had to break out over time and set up you know the company a lot of 2011 going into 2012 was you know building it's our own infrastructure so that we weren't relying on spafinder and that's where some of the investment went and what what's you mentioned it was around 35 then what was your what's your team size today q1 2017 around 200 now 200 and you did 15 million uh in your in your a round just for for Booker how much in terms of total funding have you raised uh just shy of 80 million at this point we've done three three rounds of Finance got it okay and then so so I want to go back real quick to the spin out before we talk about the rest of the business so what it does spafinder have do you just give spafinder the company a chunk of Booker or and then revolution has some and then you have some as founder I mean is that kind of how the cap table works yeah more or less I mean there there was a you know you have to do all of the proper valuations when you do a spin out for you know obvious reasons and and so we did that and 409a or something yeah it's not it's it's like a 409a but it's not it's not exactly a 409a and uh you you wind up having a you know a value of the business and and a certain amount of that is ascribed to the original shareholders got it and and then you know obviously is with any you know kind of venture backed company when you're investors come in uh they get preferred stock in the company and uh so that's kind of how we've built up the cap table and do you remember back in that first year I guess that was what six seven years ago now back back in 2011 how much revenue did you do in that first year uh you know we were in the low low single Millions low single okay so that's still pretty I mean you were able the reason I asked is you were able to get then a fairly non-dilutive I guess round from Revolution if you already doing in the L Millions yeah yeah it was it was you know it was a well priced round and and uh you know I think that everybody's kind of happy with how it's all worked out so take us forward to today how many kind of spa and salons and and small and medium businesses are you working with paying customers so we have about 10,000 locations that are live on the uh on on Booker and about 2,000 that are on frck interesting okay and when you say 10 you use very specific verbage there when you say 10,000 locations does each location pay the 150 or is it seats per location or no it's it's it's actually a fee per location so when I say locations we might have you know what we call a brand that has five locations or 10 locations but typically they pay on a per location basis and usually a company that has you know five or 10 locations is paying more um because they're using more aspects of the system API integration custom you know development and so forth um so the 150 is more related to kind of like your typical single location got it I want to talk more about the levers you're using to drive expansion uh AR arpo you mentioned two of them apis and some other feature sets but um so can I I mean is the math like this I take 10,000 locations times an average R Pro about 150 to assume you're doing well well North because this is only one Revenue stream but well north of $1.5 million per month oh yeah yeah awesome so uh let's go back to that uh people are always trying to drive expansion Revenue to get to that magical net negative Revenue turn number besides the API access besides kind of additional feat tell us some of the other ways you're driving expansion Revenue with your inside I imagine you have an inside sales team correct correct yeah so most of it is is really about um upsell and uh and obviously reten right because if you're if you're losing more people than you're able to upsell then you're you're not going to uh you know have a a positive expansion rate so a lot of it is is first of all focused on you know keeping your existing customers keeping them happy um and at minimum you know paying what they originally did when they when they came in um but that's not how you drive growth you have to focus on upsell opportunities the first one for us is is kind of a logical one that in a way we kind of backed into uh and that's payment and so we you know now have extremely high penetration of payments in our customer base and so that's Booker acting as uh you know we're not officially in ISO but if you think about kind of the payments industry uh we're considered an isv an integrated uh software vendor uh where we lead with a software sale but we integrate merchant processing on the back end and then we get a commission from our merchant processing Partners um for that and uh in in the space for uh spas and salons they obviously have a lot of inore transactions that are happening but more and more there's a lot of online bookings that are happening whether that's you know through a web browser or through mobile and so we you know take deposits we take prepayments uh we sell memberships online um all of those type of components that require a credit card processing on the back end that ultimately we make some type of a commission on that's that VI is that through the deal with First Data uh First Data is uh is our new investor and uh our largest new partner yeah they came in our series C that was in uh in 2015 um but we have been doing a lot of work to integrate with them uh and they get positioned so that we can start go to market through their uh various sales channels uh they're the largest Merchant processor in the world in the US 50% of uh credit card transactions run through their rails and so they have a lot of direct deals um themselves they also sell through isos they sell through Banks where they're kind of Partners uh City Bank and Sant andere and Sun Trust and then they have joint ventures with Wells Fargo PNC and Bank of America and so you know why we chose uh First Data as our partner was because we will have access to those distribution channels and we're just getting at the point right now is that we're rolling those out yeah now give us a sense of total transactions while I'm going through your your kind of system I mean is it more or less than 50 million per month oh yeah and we did last year we did almost three and a half billion dollars of transactions across the 10,000 locations yeah that's amazing so 3.5 billion wow yeah that's super impressive so um you've got the First Data they came in in 2015 in your last round of funding so that was over a year and a half ago so right now you're either an acquisition talks or you're raising a new round which one is it Josh no it's neither actually raised come on we've got some good Runway which is uh which is nice um I think like you know a lot of uh Venture back SAS businesses last year was you know a year of focusing the business um you know kind of rightsizing some of our expenses and uh we bought a lot of time uh when we did that and so now we're you know it's really about I got you know 24 months of execution in front of me and uh does that mean 24 months of Runway yeah 24 months of runway on cash Burn Right like like net Burn yeah that's great it's really great yeah it's good good position to be in um last few kind of numbers questions before we talk quickly about Frederick and then wrap up uh gross customer ch ignore UPS sales and expansion but gross customer turn in this space tends to be high because these are small businesses what do you guys at yeah you know we we don't divulge our our customer churn numbers what I can tell you is that typically um SMB businesses are or SMB SAS businesses churn at a at a very high rate you know north of 2% some up to 5% I will tell you yeah monthly um I can tell you we are below the the low end of that right and I can also tell you that 50% of our churn is actually people going out of business Y and so that's a you know that's really one of the difficult parts of the SMB Market is that uh their failure rates are are high I've read reports that say you know uh one report that says in three years 50% of smbs are out of business another report that says in five years 50% so somewhere between those two is where the truth lies and then what are you in terms of growing uh the customer base what what are you spending to acquire a new customer you know it's I would say that's also not a number that we that we share but you know most SMB uh assassin and marketing businesses are spending anywhere between about $1,500 and $3,500 to acquire a new customer and so um obviously when you look at the LTV to CAC ratios and months to payback you want to be at the at the lower end of that yeah and so that's certainly what we're you know driving towards and having Channel Partnerships is one of the ways that you can do that like our deal with First Data you know where you don't incur all of the all of the ca up front you do you pay it out over time through a rep share let's quickly for a minute talk about Frederick how did you find the deal and why did you end up pulling the trigger and making the acquisition yeah so they they came to us looking for a partnership and it was a uh you know small team based in the Bay Area super smart guys uh two co-founders one out of Dell and one out of Constant Contact and they had been working on the same problem that we had been uh working on uh at Booker related to marketing uh products and services for service-based smvs this is higher frederick.com right Josh that's what it is that's that's what it is exactly and uh and so anyway what they had done was really look at how the uh service-based smvs are retaining their customers and there were companies in the market like demand force uh and demand Force you know had a older system that basically focused on uh how do you retain customers based on their last is it um which is nice but there's a lot more data that you can use to intelligently Market to uh to the customers and so what we ended up doing was or what they ended up doing with Frederick was almost a play out of the travel industry where they brought the concept of yield management to local services and by that I mean they would look into an individual Merchant's calendar in the future and say okay on Tuesday uh you have you're at 30% occupancy uh you have these Services these these people or these uh rooms available let's identify people in the past that have purchased from you on those days those Services um from those people and do a targeted offer kind of a onetoone offer rather than having to do a Groupon or having to do a massive discount that's blasted out to everybody and so what we saw was you know early on by leveraging this data they were really able to get super high conversion and retention metrics with existing super high super high being like you know call it uh 14 times Roi just based on the on the bookings that are generated through Frederick on a on a monthly basis got it well that's impressive yeah guys this is a hot space too and if you want more context you should I mean I always like getting additional points of view Chris gock came on on episode 605 uh and articulated they'll break 100 million bucks in ARR in in 2017 now Josh they have a much much smaller customer base than you guys yeah they're probably getting a lot more per uh you know per individual user yeah they're at about 400 customers obviously you're you're about what five 10 yeah six three times that five times that something like that anyways uh um great okay good that's helpful to understand so hire frederick.com I'm on it right now and this looks like still an independent product I mean there is it I miss is it integrated heavy on the back end it's integrated heavy with Booker but really the the thing that we loved about Frederick was it doesn't just work with Booker but it works with a lot of our competitors and the health and wealthness space and it ALS and it also works in the automotive space um we see huge value we've got some customers that driven over $100,000 of of service business uh on Frederick alone it's amazing uh you have a team of 200 are you guys all based up in New York now we're we're a little bit uh uh split out from New York at this point as we were scaling uh we wanted to find a couple other markets to grow in and so we uh we have a tech development office in Philadelphia uh we acquired Frederick which is in the Bay Area and then our our current expansion location is in uh is in Scottsdale Scottdale man Scottsdale's hot scottsvale Arizona uh not temperature wise I mean startup wise it's hot right so guys I'm so glad to be back in Austin I just got back from a major tour of Southeast Asia went to Sydney Bangkok Bali and Japan and you know I always get sick when I travel and this particular trip my gosh 15 different airports 20 different hotels I mean imagine flushing in airport bathroom I was worried about germs and getting all the nutrition I need I mean finding a restaurant in Japan called because nothing's in English so it's hard enough to figure out the train system but my point is I had a guy named Drew canoli on the show who said Nathan if you're concerned about that take these little green packets with you you just mix them once per day with water they'll keep you super healthy you get all your nutrients and they'll keep you from getting sick so I took them and guys they worked unbelievably well I got no sickness just mix them with water once per day they didn't make my water bottles all sticky that's like nice a lot of these mixtur that make them sticky it was very clean and smooth took them once per day day never got sick so they've got 11 superfoods and they're perfect if you're not traveling but you're just on the go from your office to work so you can check them out at Nathan la.com slj that's Nathan la.com [Music] slj awesome well Josh let's wrap up here with the famous five number one what's your favorite Business book my favorite Business book well I'll tell you what my my favorite new business book is uh one of my buddies just wrote it it's called make big happen by Mark Moses and I'll let you look it up and see what it's about make big happen by Mark Moses we'll check it out number two Josh is there a CEO that you that you really respect or that you're learning from in studying that I'm learning from in studying you know I the one who I'm studying the most right now actually is Steve case he came out with a book called the third wave uh and a lot of his insights that he's brought from what he's seen over the years uh and how that projects into the future I think is well worth reading number three besides your own do you have have a favorite online tool like HostGator favorite online tool um man I'd say the one that I use I don't even know HostGator the one I use the most is open table I'm always booking yeah always booking always booking restaurants number four yes you no do you get eight hours of sleep every night uh not according to my Fitbit and what do you get on average uh probably six and a half all right and what's your situation married single you have kids married with h two daughters all right very good and and Josh how old are you 44 last question take us back 24 years what do you wish your 20-year-old self knew what do I wish my 24 you know what that it's uh startups are a blast but they are not easy they are not easy top job there you have it from the founder of Booker Josh mcarter startups are a blast but they are not easy back in 2011 he spun out Booker from uh spafinder did a $15 million round with Revolution this was back in 2011 did over a million bucks in first year Revenue now scaled well over to 200 people between New York City San Francisco Philadelphia and Scottdale helping spas and salons just manage their business processed Merchant fees or or just transactions they did over 3.5 billion in 2016 staring about 10,000 of these locations at an average RP of about 150 bucks a pop so they're well north of 1.5 million bucks in Mr Sub 2% in Gross customer turn uh monthly again cact LTV ratios targets uh 1 to three just like industry standard just made a big acquisition announced their partnership with First Data dat First Data came in on their 2015 round as a new investor now Josh is using that obviously as a great expansion channel for new customers Josh thank you for taking us to the top all right Nathan thanks for your time if you enjoyed Josh today go back and listen to Dave Curry yesterday he runs winmo and they've just passed $1.1 million in month their occurring Revenue helping 2,000 customers close more sales it would mean the world to me if you guys got any value from this episode if you would go leave a review on iTunes right now and then subscribe you know I hustle like heck to get these episodes out every freaking day for you guys and trust me I love it I would do it with no listeners but boy oh boy it makes my day and it makes my team's day when we see great reviews and get your feedback so thanks so much top dbe I love giving away free money I feel like o we're giving away cars and I have something special for you today how many of you have heard our super sharp guests talk about success they've had with Facebook and Google ads well all of you listening right now yes if you're listening you get $100 in free AdWords here's how you get it okay again thanks for listening get the free $100 from Google right when you sign up with my website post provider HostGator go sign up now to get your free money hostgator.com Nathan again that's hostgator.com Nathan