How Brandwatch Reached $50M Revenue and Nearly 1,500 Customers by 2018 (Interview with CEO Giles Palmer)

Introduction and Company Overview

Nathan Latka

00:00Hello, everybody. My guest today is Giles Palmer. He's the founder and CEO of a company called Brandwatch, a leading social intelligence company. Formerly of BSkyB, Giles started Brandwatch and since its launch in August 2007, has grown to become one of the world's leading social media analytics and listening companies. Giles, are you ready to take us to the top?

Giles Palmer

00:17>> Ready to go. Ready to go, Nathan.

Nathan Latka

00:19Alright. Good. And and and correct me by the way, I'm wrong, your name, is it a Hargie on the front or is Giles right?

Giles Palmer

00:25>> It's a Hargie, Giles. Giles. Unusual name. Sorry I about didn't choose it.

Nathan Latka

00:29Don't apologize for your name. I just wanna make sure I get it right. Giles. Okay. Good. Giles Palmer. So tell us about Brandwatch. What's the company doing, and how do you make money? What's the revenue model?

Business Model and Revenue Model

Giles Palmer

00:37>> It's a subscription business. It's a SaaS business, and it's basically a data business. So we crawl about 80,000,000 websites and have feeds from the social networks. We aggregate all of that, and we allow brands to kind of check out what the world is saying about them, their competition, and so on. And it goes back, you know, five years. So it's a research tool and a real time insights kind of engine for brand managers primarily.

Tracking Brand Conversations and Signals

Nathan Latka

01:07So if you went in there and I plot, you know, McDonald's against Wendy's, Can you actually see in your trends when Wendy's hired that super witty social media marketer that just grills people on Twitter? Can you actually see the lift or the drop?

Giles Palmer

01:22>> Possibly. We... You can certainly see any changes in the conversation of anybody mentioning Wendy's online, and what they're talking about. So you can even, the system will even tell you when unusual activity starts. And an unusual activity could be when a certain phrase gets mentioned close to a brand for the first time ever. So there's this kind of this big, big kind of algorithmic engine behind the scenes, watching for unusual activity, and then it kind of

01:53>> tells you, Look, this is a new thing that's happened today. We haven't seen this before.

Nathan Latka

01:57Interesting. Our

Giles Palmer

01:58>> AI- We call them signals. I got a signal today about one of the companies in our space, having made an acquisition within

02:09>> six or seven minutes of it hit going online because the system was just kind of kind of watching for for that kind of activity.

Nathan Latka

02:16Who was that?

Giles Palmer

02:17>> Falcon Social, guys in Copenhagen. Who they acquired? They acquired another local local company. I can't actually remember the name of it because I hadn't heard of it.

Nathan Latka

02:26I was gonna say, do you know enough about the deal to know if it was a good buy or bad buy for them?

Giles Palmer

02:30>> It looks like a sensible buy. Yeah. It's a small buy, but it it looks sensible to me. Yeah.

Nathan Latka

02:36Interesting. So give me a general sense of customer size. Mean, are these folks paying a $100 per month or a grand or $10 per month? What's general ACV?

Customer Size and Average Contract Value

Giles Palmer

02:44>> Annual contract value is about $30,000 Okay, so 2,500

Nathan Latka

02:49a month Yeah, on

Giles Palmer

02:50>> so it's enterprise grade. It's not cross enterprise. You know, those systems tend to be more and more expensive, but it's it's a high end professional tool. Like, it's not an... It's it's it's It's not Hootsuite. No. It's it's it's like it's like a BMW, not not a not a whatever mini Metro or mini Monster or whatever.

Nathan Latka

03:12When did you launch the company? What was year one?

Giles Palmer

03:14>> August 2007.

Why Brandwatch Did Not Sell in 2012

Nathan Latka

03:17So so may I ask you a question? There was a... I would say the last big pop of M and A activity in this space was 2012 when you had Buddy Media going out, Vitrue, Wildfire, all these guys. You... I'm sure '86. Yes. I'm sure you had offers. You chose not to sell. Why?

Giles Palmer

03:31>> We had a lot we had a lot of approaches. We had one kind of pseudo offer. We didn't

Nathan Latka

03:41Like an LOI or no?

Giles Palmer

03:42>> Yeah. Exactly. Exactly. We we we decided,

03:47>> I guess, we thought we were in a kind of up into the right phase, and we didn't think that the deal that was being offered to us was representing that strongly enough. And also, were kind of like, you know, we didn't do this to sell, we start it to just sell it. We started to build a company, and we didn't feel like our job had even been half done at that point. I mean... And and and,

04:13>> actually, if you look at those acquisitions, none of them really have gone on to meet... To be meaningful business.

Nathan Latka

04:20There. I mean, Wildfire's shut down. Who who even knows where Buddy Media is and that, you know... I mean, in Salesforce, right, who knows? Vitrue, who knows where they are? Involver, where where are they? Mean, they... Mostly they got shut down.

Giles Palmer

04:31>> Yeah. So it it... And that would indicate to me that they were bought prematurely. You know, they weren't mature businesses. They hadn't figured out what... Why they existed and what they were trying to solve for. And I don't think we totally had at that point either. So if we'd sold it, it would have been a kind of, oh, look, somebody's come along with a big amount of money. And actually, one of the reasons why we're still

04:52>> around and we're doing pretty well is because there's a bit, you know, there's an honesty what we're trying to do. We're not trying to build and sell, we're trying to build a great company. And I don't think that we were ready to sell it at that point.

Nathan Latka

05:06So what have you scaled to today in terms of total customers using you?

Current Scale: Customers, Revenue and Team

Giles Palmer

05:10>> Just under 1,500, 1,500. Okay. You know, this year we'll do more than $60,000,000 in revenue and there's 420 staff in the business. And it's profitable. Thank you. So we've got it to a good spot.

Nathan Latka

05:22Are you... So where's growth at? So you said you're gonna... You're... You will... Over the past twelve months, you did 60,000,000 ARR or that's what you will do?

Giles Palmer

05:30>> Last year's record... Record revenue is around around 50. So this year, we... It'll be above, you know, well above 60.

Nathan Latka

05:37Okay. And take take me... Just so we can get a growth rate, take me back thirteen months ago, December 2016. What was your run rate then?

Giles Palmer

05:44>> I can't remember. But last last year, we we we, you know, we grew it healthily. It wasn't 50%, but it wasn't ten fifteen.

Nathan Latka

05:52Was like 30% ish, right?

Giles Palmer

05:53>> It's around there.

Nathan Latka

05:54Yeah. Yeah. Yeah. So if you, if, if you did fit, you know, if you ended the year at a fifty million or you're going to do, or you're on a 60,000,000 run rate today, right? You, you, you were somewhere call it in the, in a 48, 49,000,000 run rate December 16.

Giles Palmer

06:07>> Something like that. I haven't got the data in front of me. But but, you know, it gives you a sense of the scale.

Funding History and Infrastructure Costs

Nathan Latka

06:12I'm gonna really love you if you tell me you're bootstrapped, but I have a feeling you're gonna break my heart.

Giles Palmer

06:16>> Yeah. I know. Sorry about that.

Nathan Latka

06:18How much have you raised?

Giles Palmer

06:19>> We've raised $50,000,000.

Nathan Latka

06:21Fifty. Yeah.

Giles Palmer

06:22>> Yeah. Not all of that's gone into the company, but the majority of it has.

Nathan Latka

06:26How much of it went to secondary versus operating?

Giles Palmer

06:29>> I mean, four fifths of it went to to operating. Something Oh,

Nathan Latka

06:34Oh, okay. That's healthy.

Giles Palmer

06:35>> Yeah. That's healthy. I mean, the reason why we're not totally bootstrapped is isn't because we've scaled sales and, and all that kind of stuff and been super aggressive. It's because we had to build the back end a way ahead of actually being able to monetize it. And that's an expensive exercise. That's hardware, software and data. So you know, it's a big that we've got something like 1,000 servers that sit behind the live application. I mean, we

07:06>> could put it on the cloud. It doesn't... You know, either way, it's gonna... It's an expensive machine to run because it's a massive data processing storage game that that that we're in. So Well, it's

Nathan Latka

07:17a nice moat for you now. Now that you're at scale, it's hard to compete.

Giles Palmer

07:20>> Exactly. It is. That's true enough.

Nathan Latka

07:22Yeah. Interesting. Okay. Tell me about churn. That's obviously critical in this kind of business.

Churn, Retention and Net Revenue Retention

Giles Palmer

07:28>> Churn is yeah, it's and it's it's the as the business gets bigger, it's it's an absolutely killer thing that you just have to get under control. I mean, we're not one of those businesses, sadly, that get that signs on for like a dollar's worth of revenue. And in five years, that that's $2 sort of thing on average, taking account of churn and so on. I, you know, I'm envious of companies like NetSuite and, and I guess

07:57>> Salesforce, that just end up having this kind of viral effect across once they get it once they get a customer. We have to work very hard for retention. We have to make our products incredibly sticky. We have to onboard our customers in a really smart way such that they're successful. We have to keep innovating like crazy to make sure that our product is something that they're going to continue to choose. In some ways, it makes us

08:22>> fitter as an organisation. But it's also, you know, a huge challenge to scale a business because, you know, if you've got 1% per month churn

Nathan Latka

08:32Is that what you're at right now?

Giles Palmer

08:34>> Yeah, not quite, but there or thereabouts.

Nathan Latka

08:36In terms of revenue or logos?

Giles Palmer

08:39>> Either way, it's very similar.

08:43>> You know, that's a lot of revenue to replace. Now, obviously, we've got upsell, so that's gross churn. So upsell and increasing your footprint within existing accounts, that's gonna reduce that on a net basis.

Nathan Latka

08:53What is your net?

Giles Palmer

08:56>> It varies, but we don't we don't disclose that.

Nathan Latka

08:58Are you over are you over a 100 in terms of net revenue retention annually?

Giles Palmer

09:01>> There or thereabouts. It varies depending on the cycle. But but but my job is to is to think about, you know, how do we bring out new products that our existing customer base would to use? Or like last year, we acquired a company called BuzzSumo. And although it's not really aimed at the same sort of market space as our core product, that is something that our customers are actually, you know, taking as well. There's more

Nathan Latka

09:29of By the way, that move by you really confused me. Would confuse me even more now when you tell me what your ARPU is because I see BuzzSumo as like a growth hacker college student in their basement trying to hack their way into some extra SEO value, not a major brand that's, you know, paying your kind of money. I mean, so I don't like... What was the reasoning you had behind that acquisition?

BuzzSumo Acquisition: Rationale and Details

Giles Palmer

09:50>> So BuzzSumo have 3,500 customers. They have a lot of

09:57>> blue chips using their their software, but like on a credit card.

Nathan Latka

10:01Right? Like a $100 a month kind of thing?

Giles Palmer

10:03>> Yeah, up to... You know, their average is about $130 a month. So

10:09>> they have a lot... It's the best product on the market for content analysis. So, you know, there isn't a better one even if you pay 10 times more. So they get a lot of people using it. But the reason why we bought BuzzSumo, there's three or four reasons. Number one, it's just a brilliant product, and it's very rare that brilliant products that have enormously loyal user bases come to market without being incredibly expensive. And so brilliant

10:36>> product, amazing team.

10:39>> And then two other core reasons. Number one is that they've got a data set with, you know, the amount of the shared data, content shared data, that is almost unique. It's just an extremely valuable aggregated dataset. And we can use that within our existing cloud.

Nathan Latka

10:52Why has no one replicated it? Is there really hardcore Yeah,

Giles Palmer

10:55>> and it's super hard to do, you know, at scale, getting billions of bits of content and getting the accurate shared data on those bits of content up to date on an ongoing basis. You try doing that. There's no feed, there's no Twitter feed of shares. There's no Facebook feed of shares that you can just like, tap into, you've got to figure out how to do it. It's really interesting tech. Interesting. And

11:21>> then I've always wanted to have a self serve product or suite of products that are self serve. And because we're, you know, high priced, we have salespeople talking to prospects and so on and so forth. And all of the engineering effort and the product development within Brandwatch goes to serving that, you know, those kinds of people because those are our customers, and that's what we're focusing on. So there never came a point where I was like,

11:47>> Okay, let's launch a self-service version of Brandwatch. That just never happened, and it wasn't ever likely to happen. So

11:54>> I bought a company. We bought a company to go in at that low level, we're gonna keep that brand, and we're gonna launch some other products that are basically self serve, which can maybe borrow off our infrastructure and leverage some of the stuff that we've built internally. So it's a way of addressing a low... A different market segment with a a very efficient go to market model, great team, great product, great product.

Nathan Latka

12:19Amazing mousetrap.

Giles Palmer

12:20>> Exactly.

Nathan Latka

12:21Yeah. Much better mousetrap than anything else out there. So 3,000 folks when you bought it at a $150 a month, I mean, what, they're doing $450K a month, something like that?

Giles Palmer

12:28>> Yeah. I think... Yeah. About that.

Nathan Latka

12:31That's way bigger by the way than I would've ever thought.

Giles Palmer

12:33>> Yeah. And they've got 400,000 freemium users. So they've got this huge database of freemium users as well.

Nathan Latka

12:38They have a free list for you.

Giles Palmer

12:40>> Amazing.

Nathan Latka

12:40That's great. So what it... I don't know if it's enough for MoveNow where you can share more of the details here, but it's valuable. How do you value a company like that? There's obviously strategic reasons, but I mean, do you pay a four x multiple, five x, one x? How do you value it?

Giles Palmer

12:54>> Well, depends. Valuing companies is an art form in of itself.

Nathan Latka

12:57Give me in your head though.

Giles Palmer

13:00>> Anything, like if you're paying five x, five x revenues for a company, it's gotta be a really, really good company.

13:08>> I would... I think BuzzSumo is a really, really good company. Yeah. Did we pay five x? No. Not quite. But, you know, it's it's

Nathan Latka

13:16You were north of three x.

Giles Palmer

13:18>> I'm not saying, but it a good... The founders of BuzzSumo did great. It was a cash, almost exclusively cash deal.

13:28>> They're in it for the long term as well. For them, it was like, well, why would they sell such a successful company? And the answer to that is what in order for them to get to the next level, then they would need to build sales forces and build a structure and professionalize the whole organization. BuzzSumo was was didn't even have an office.

Nathan Latka

13:44Let me ask this question differently. Did you lock up an LOI with Steve before you went out and said we want to raise 25,000,000?

Giles Palmer

13:52>> Oh, yeah. I mean, we didn't raise we paid off balance sheet.

Nathan Latka

13:56Well, what I'm trying to get at is was the majority of that fundraise specifically for the BuzzSumo acquisition?

Giles Palmer

14:02>> Oh, no. No. No. No. Wasn't.

Nathan Latka

14:03It wasn't. Okay. So the LOI to Steve came after. It wasn't it wasn't like you lined up the LOI and said we gotta go raise the capital to do the acquisition.

Giles Palmer

14:10>> To be honest, that that... That's probably a smarter way around of doing it, but no. We we didn't do it that way around.

Nathan Latka

14:16Yeah. Well, I know.

Giles Palmer

14:17>> Quite hard to get all that... All those ducks in a row. Right?

Nathan Latka

14:19It is. It definitely is. I mean, yeah, know it is. That... It's amazing. I mean, that's... I didn't realize it was that big. I mean, four fifty a month times, you know, call it ten or twelve months. I mean, you're putting $4,000,000 to $6,000,000 in ARR. And if you do think they're a best, best, best company and pay five x, I mean, that's a significant amount of your cash, $20,000,000 to $30,000,000 at least from the last raise out

14:36the door. Now you're profitable today, you said. Right? Yeah. And how much total have you raised?

Giles Palmer

14:44>> 50. 55.

Nathan Latka

14:45So so how are you able to be... I mean, this is gonna sound a little bit weird, but how can you raise that much capital and be profitable unless you just let all of it sit in the bank and do nothing?

Giles Palmer

14:55>> Oh, so, I mean, that capital was raised over four different rounds. So the last round, which we did in end of fifteen, just over two years ago,

15:10>> we we didn't... We ended up not not needing anywhere near as much of that round as we thought we would.

Nathan Latka

15:15Got it. So you had way longer runway than you thought.

Giles Palmer

15:18>> Yeah. We we were, you know, actually pretty close to profitability at that point. As it turns out, we we were gonna be burning more, but I'm... I I can't... Our CFO is a pretty prudent dude. Yeah. That's a good thing. So, yeah, we were we we were sensible with it.

Nathan Latka

15:34So that was two years ago then.

Giles Palmer

15:35>> Friend of mine said friend of said to me the other day that the the first thing you should do when you raise big round is is make loads of cuts. I was like, what? That doesn't make any sense. That's the right signal. But we we we were we were sensible with it.

Nathan Latka

15:45Yeah. That's good. I mean, so that was two years ago. Right now, you're you're either you're either raising additional capital or you're in talks to be acquired. Which one is it?

Giles Palmer

15:52>> It's neither actually.

Nathan Latka

15:54Come on, I don't believe you.

Giles Palmer

15:56>> We're not raising.

Market Consolidation and M&A Landscape

Giles Palmer

15:59>> Is an opportunity, and everybody knows it in our space to rationalize the market a little bit have a have, you know, a bit of a consolidation in and around these kinds of social tools.

Nathan Latka

16:13You saw a mini version of that in 2012.

Giles Palmer

16:15>> Yeah, exactly. But it's not clear which entities are going to be the ones to kind of create this. Sprinklr have kind of done it a little bit by making lots of small acquisitions. But there are some significant companies, a bit like us, some bigger, many, many smaller, who've got duplication of G and A, duplication of data storage, duplication of all sorts of stuff, without giving too much benefit to the customer in general. So if you take

16:46>> six or seven of these competitors, and turn them into one or two, then you've got one or two very, very valuable businesses.

Nathan Latka

16:53Even a company, mean, even a company like Ryan Holmes at Hootsuite, I mean, if he's looking to deploy capital in a smart way, and his idea is how do we increase ARPU, right, across our current customer base, which they have a huge base, they bring on a tool like yours and, you know, add an upsell.

Giles Palmer

17:05>> That kind of thing. Absolutely. I mean, you know, they're they're they're more... I mean, they're they're going enterprise. That's for sure. But historically, they've been more SMB.

Nathan Latka

17:14That's right. That's right. Interesting stuff. Okay. Cool. Last few economics questions before we wrap up with the famous five CAC. What do you spend right now to acquire new customers?

CAC, Marketing Team and Website Traffic

Giles Palmer

17:22>> Tens of thousands, annoyingly. So our CAC payback, we wanna get our CAC payback on a margin basis below fifteen months. And with there or thereabouts, right?

Nathan Latka

17:34When you say on a margin basis, you take ACV, right, and then you multiply times 85% gross margin. So call it $30K times 0.85, it's like $25K. And so you're spending about $28K, $29K to acquire money, you get that back in fifteen months.

Giles Palmer

17:48>> Exactly.

Nathan Latka

17:49Interesting. And where are you spending that money typically? Is that mostly a sales team or is that paid ads?

Giles Palmer

17:54>> Mark, we don't do enough paid ads. I don't think, actually. I think that's an opportunity. Marketing, we've got a big marketing team.

Nathan Latka

18:00How many of the 420?

Giles Palmer

18:03>> Thirty? Thirty two?

Nathan Latka

18:05It's pretty healthy.

Giles Palmer

18:06>> That includes in house design. We've got an in house design team of, like, seven or eight.

18:13>> So probably 25, 24 marketers and eight eight kind of graphic creative design guys. Just eight. It's how we've built the the brand. We get 15,000 uniques to our website every day and and over a 100 demo requests. That that... That's because we've taken a long term view with our with our marketing and our and our kind of content our content strategy. And, Josh, what

Nathan Latka

18:40do you assume, like, on these folks? Lifetime value can really lie to you, especially if you just multiply. Right? What do you assume a minimum LTV is? They're definitely worth X amount.

Lifetime Value and Customer Tenure

Giles Palmer

18:52>> I mean, it's it's interesting. It's like we would look at a five years as a as an average tenure, but it's increasing because the company is growing. So... Yeah. I mean, I I I... Hopefully, we can get that to 10. You know, five to ten years is is the is the play over the next five years.

Nathan Latka

19:14Well, even at even at five years or sixty months. Right? I mean, you... You've got... I mean, if I do the math on that, what is that $30K a year? That's assuming no expansion revenue year over year, which I'm sure you have a 30 times six. I mean, that's a $180K minimum, right, lifetime value.

Giles Palmer

19:27>> Which isn't bad. That's good. But as you scale a business, you wanna keep pushing that out. And then the growth rates don't slow down.

Famous Five: Books, CEOs and Habits

Nathan Latka

19:37Yep. Interesting. All right, let's wrap up here with the famous five. Number one, what's the last business book you read?

Giles Palmer

19:43>> The last one. I thought it was a favorite one. The last one is is Nassim Taleb's book, Antifragile.

19:51>> Antifragile.

Nathan Latka

19:52Number two, is there a CEO you're following or studying currently?

Giles Palmer

19:55>> Not really. I don't... I should do that. I I mean, I admire CEOs. I don't tend to study them. I don't know how to

Nathan Latka

20:00Who do you admire?

Giles Palmer

20:01>> I like... I mean, I I I I think Larry Page has done an astonishing job at Google. I mean, you have to admire the the older... The CEOs of the super famous companies. But if I had to pick one, I'd pick him just because I love his... He's more understated than than the than the other guys. I like that.

Nathan Latka

20:17Number three, what's... Besides your own, what's your favorite online tool for building the business?

Giles Palmer

20:27>> Google Docs.

Nathan Latka

20:29And number four, how many hours of sleep are you getting every night?

Giles Palmer

20:33>> I get about eight.

Nathan Latka

20:34Oh, that's good.

20:35Yeah. Okay. And what's your situation? Married, single, you have kids?

Giles Palmer

20:38>> Have kids, divorced, but with with with a partner.

Nathan Latka

20:41Okay.

20:42So not married,

Giles Palmer

20:43>> Above.

Nathan Latka

20:43But two Yeah.

20:44Two kids. And how old are you, Giles?

Giles Palmer

20:46>> I'm 48.

Nathan Latka

20:4748. Last question. What do wish your 20-year-old self knew?

Giles Palmer

20:51>> Move to San Francisco. That's what I would tell.

Nathan Latka

20:54There you guys have it from Giles. I I... Look. I love first off. He resisted the urges in 2012 to sell. He founded the company 2007. Really hard to stay disciplined in those early years when so much capital has to go into just building the engine to even make this thing run and get your first dollar in sales. Usually, the presales playbook is good one to start. It's hard for him to do that, but he did

21:12it. Now 420 people full time again, Brandwatch helping enterprise brands paying on average $30K in ACV, about 1,500 of them right now, helping them monitor themselves and competitors in the market space across online sources, especially social. Growing about 30% year over year, up from about 40,000,000 run rate in December 2016 up to over 50,000,000 today. 12% or less than 12% annual gross revenue churn, about a 100% annual net revenue churn. Obviously, retention, sorry, that varies.

21:41$28K CAC, a $150K minimum LTV payback around fifteen months. Giles, thank you for taking us to the top.