How Bullhorn CEO Art Papas grew to $13M revenue and 11K customers in 2008.

hello everyone my guest today is art pappas he's the founder and ceo of bullhorn the global leader in software for the staffing and recruitment industry he was the original architect of bullhorn's flagship customer relationship management system which now helps more than 10 000 companies around the world run their business are you ready to take us to the top yeah let's do it all right so uh you you are early on to the game so so tell us first off when you launched this company what year and what are you working on today yeah so we started bullhorn in 1999 and uh we were originally we were a online service kind of like if you've ever used or seen upwork or fiverr we were we were an online marketplace and specifically we were focused on creative talent and it and it was really too early for that business model so it wasn't too early to get people to come online and build profiles and and uh upload examples of their work but it was really hard to get companies to hire those people over the internet to do freelance work um which now that seems like really common and uh it i think it was just we would go to sit with companies and they'd either a say we don't have internet connection in the office which in 99 was like shocking but okay uh two um or they would say i just don't trust the internet and um which is ironic because what we pivoted to become was a one of the early sas platforms and i convinced people to put their business data on the internet um which arguably should have been harder but i guess in the the sort of year or so subsequent to us uh pivoting away from uh the marketplace and and becoming a staffing software provider uh you know that the views the views changed or i just got better at convincing people to trust the internet so with that i want to i want to fit now what i'm going to do is i'm going to get where you're at today and then the rest of the show we're going to fill in the whole story in between okay sound good so today first off you guys on track to do the 175 that you predicted uh we beat that yeah okay good so what do you think i know you're trying to get i think you said 220 by 2022 or something like that what's the goal to end this year at yeah we're way ahead of even that already okay good what's driven what so so just to be clear you're north of 200 million bucks in terms of ar run rate today what drove the accelerated growth you were making predictions as recently as a year and a half ago that it you know take it till 2022 to hit that number um well we uh we continue to grow really really quickly uh and i am conservative and so i tell somebody to do something i like to do it and so i want to make it i want to make it such that i i don't have an interview and somebody says oh did you do what you said you're going to do and i said well not quite let me explain why yeah no you it's uh there's probably something to that you now this company's gone through many deals we'll talk about your conservative approach has given you leverage uh in those deals uh your historical deals to date um but first off one other data point from today how many customers are now serving ten thousand ten okay well and that's not like a fluffy duffy number that's ten thousand paying customers ten thousand paying customers um majority are in the united states and uh and emea and then we also have i'd say asia's emerging for us so that's still still uh sort of a growth area for us so 10k customers into 200 million in ar fair to say average acv is about that 20 grand mark yeah that's right okay what it is let's fill in the back story now so 1999 you remember uh when the first was the first line of code written in 99 yeah i wrote the first line of code in 99 uh in my apartment uh in cambridge yeah okay apartment in cambridge and do you remember how much total kind of however you quantify it how much you put into building and the mvp before your first dollar revenue yeah so um i we spent about a year and a half and i probably coded every day for like at least 60 hours a day uh for six days a week sometimes i would take sometimes i would take sundays off i think but like yeah it was pretty intense for a long time and a lot of that was just wasted work trying to come up with products that people didn't want to use um what's interesting is once so one of our investors introduced me to our first customer and he said you had investors on day one we did oh wow how much did you raise on day one uh our initial angel round um was 1.4 million okay so you were just like a smart guy that could really tell a story and that's what allowed you to get that money early i really couldn't tell a story my co-founder could he was amazing uh his network was amazing and he was an incredible salesperson and he very smart guy and uh he and i went to pitching investors and um you know these were people who were like his his uh boarding school friends and they were um like one was a hedge fund manager and they had well you're talking about barry or roger which one was there at the beginning barry okay very hinkly um and roger came along later uh because we realized with 1.4 million we needed somebody to help like actually figure out like how are we going to like spend this money and how are we going to manage it and we should probably get incorporated and all that so it was uh yeah so it was a good trio like barry was really roger was like a co slash cfo barry was like super salesperson and uh and then i was really the product lead and i really did most of the coding up until uh up until we had revenue yep so what year was first dollar of revenue 2 000. okay so you spent about 12 months kind of coding learning uh did you guys spend any of that uh angel money on on the mvp as well do like can you quantify how much you spent on mvp we blew all the angel money like blew all the angel money on the first marketplace idea okay so 1.5 million on mvp yeah worse um then we we raised like nine nine months in we raised uh four million dollar series a which was promptly blown um on the original marketplace idea all right this must have been like extremely dilutive oh it sucked i mean can you how bad was it like you're selling like 30 of the company between those two rounds back then um because you're pre-revenue yeah it was like 30 of the company yeah however that it ended up being like 60 because we had to do it down round so so we pivoted with about a million dollars left in the bank and dramatically cut our expenses and then we got our first dollar revenue and we went to our investors and we're like we actually have revenue and they were like how big can software to the staffing industry be that business sucks we are not investors and not only that if you raise money we have an anti-dilution clause and a full ratchet and so we did we did a down round so just to be clear this was with the pension general electric pension fund for 628 thousand bucks you said it this is back in the day this is 2002. 2002 yeah and we did a very small like 700k round at a 50 haircut to the the prior round ouch ouch now we did that did the prior folks ratchet up did they did they go ahead and buy their pro rata they did it okay so then that was extra dilution so we got obliterated yeah so if fun exercises go plug that scenario into like a full waterfall for a uh you know with a full ratchet it's just it was just horrible i was i couldn't understand it took me like a week to get my head around like technically what was happening in the cap table um but once i did i was like well look i actually really believe in this company's going to be a big company um and we had i had our first customer saying this is amazing you should sell this to every staffing firm in the world we all have the same challenges we all need an internet-based system and so we didn't we didn't the dilution hurt but it didn't ultimately we weren't really doing it for the money yep you know well how old were you how old were you at this point yeah i was 20 uh 25. okay so you're caught well like 42 ish today 43 yes yeah so okay so let's fast forward to 2008 you've taken 26 million from general catalyst highland what was revenue at that point um we were and a half trailing okay and so that last uh little bit we raised um ge came along in 2005 was like you guys are doing great you need some more money they give us um so so it's funny like the business they thought was horrible like they were like oh actually it's really great well yeah but you had four years there to turn around right uh so so we raised one and a half then we didn't spend that and then we got to 13 million and we were always profitable after 2003. so that one five was that that was not another haircut that was at a better valuation i was at an up round yeah and uh and then um and then hyland and general catalyst came along and said let's recapitalize the business so um so ge was able to get out and then so part of that was secondary yeah a lot of it most of it was secondary just buying out ge ge and and then uh there was internet.com portfolio so we outlasted our investors they went out of business that's pretty impressive by the way did you and and your folks figure out how to get a chunk of the company back or did these guys come in and still buy like fun guys were really great they came in and they were like look you know you're essentially a hired gun ceo yep with your package let's let's get you real equity in terms of options and now i'm so glad they did that because um that that had a pretty transformative effect oh huge art i mean i'm doing the math on your full deal history i'm going i gotta something had to have happened here for him and his folks to say incentivize because there's no way they would have stuck so kudos to general catalyst and highland capital partners you typically see this they know damn well if they're coming in and a founder owns less than half the company that they're going to be diluted to like nothing lose interest they said you know what let's create an option pool post round obviously all the equity will probably invest and did they didn't give it to you immediately did they no no at all yeah yeah it was tied to it uh can you share what the size of that pool was obviously didn't all go to you guys there's probably some for employees but you're talking like 20 30 option pool it was a 20 option pool okay fair enough so investors at this point were back down at like on a fully diluted basis something like 40 percent there was 20 up in the air that you guys could earn over a couple years we're still 60 we really got hammered oh okay okay good okay okay so fast forward to 2012 tell us what happened then so then uh vista equity comes along and says i want to buy your business and um i i was like i'd never heard of vista equity i didn't really understand private equity how it was different from venture i had heard all sorts of horrible stories uh about how like they just cut costs and it's all about managing the ebitda and um then i did some homework and found out that that's not really what vista's all about and um that was a pretty you know like like highland coming in and and sort of you know being really pro management and pro the company um and so was uh so was vista and that had a really positive effect and they allowed us to re-platform our product which at that point you know sas 100 product had never been uh redesigned with stone cold fusion what was ar what was ar in 2012 uh 2012 was like 40. 40. yeah so i assumed that this was called like 150 200 million-ish kind of deal i can't comment exact valuation oh come on dude this was like a decade ago almost oh six years ago you're still you're still under ndas yeah oh wow okay i swear i'm not sure but but yeah i mean it it's like when the the it did leak that it was a nine figure deal so yeah and it wasn't high nine figures obviously yeah i mean look we'll move on past this is it can we just put a cap can we say between 100 and 500 million is that a fair range yeah perfect yeah so okay so what were the first off were you doing and were you doing with robert or brian because vista was kind of early you know now obviously everyone knows vista but alan klein was a head of the foundation fund um and i did have robert and brian on my board and those guys are all three of those guys are everybody at vista i worked with was really great it was a great experience okay so here's my big question here's my here's my next big gap in your story that i was really looking forward to interviewing you about vista will not let a cash flow positive portfolio company go uh you know almost regardless of the premium you know their issue right now is they have to deploy 14 billion dollars of capital and if they find a good company they're gonna keep it why did they let you go to insight yeah good question so we were the last investment to liquidate out of the foundation one fund so foundation one was their first uh their first fund that was geared at mid-size growth companies and all the other investments had been uh huge home runs and they were like look we can close down the fund there's a lot of interest in bull horn and once they close down the fun the returns on that fund were just unbelievable like it was an unbelievable fund and so there was i think there was a there was a sense that if the price was right and um it was a return that looked in line with the rest of the portfolio that which you know they had some deals that were like 10x and so it was a really it was a good outcome yep okay what so what and what year was that with insight that was uh just a year just over a year and a half ago okay so call it 28 17 18. it was the end of thanksgiving 17. yeah and right before you did that deal so while you were under kind of vista's arm between 2012 and 2017 what did you go revenues to we started revenues at 40 and we ended at 130. okay so 2017 you guys work on doing 130 and then today obviously over 220 what were the first two things that insight helped you do in the company that you would have not learned from anyone else except insight yeah so um well one of the big things that we did when we were closing the deal with insight was we did a really strategic acquisition um and i think being having a new a new partner their appetite to go after something that had a very long range uh impact to revenue but was strategic like hey you're going to get into a whole new product line and it's going to take time to make that happen are you talking peoplenet or connexus people not people now yeah we did we did connexxus with vista and then peoplenet was with insight okay and um and so that one was like a really transfer the other thing that insight did which i thought was cool was they came in they're like um hey guys what about ai and we're like look you know we we really we have some stuff going on with ai but we're not investing a ton because we're not venture backed and uh you know we want to generate ebitda insight was like look like you can't be a software company and not be investing in ai yeah and so um you know so they they took sort of the progressive move of saying like let's right-size that investment so that your positioned to give your customers the benefit of all the things you can do with ai and so so that's been that's been really cool so fast forward we're almost back up now to where we're at today but let's go back one year ago today so north of 200 million bucks in ar today do you remember where you were at a year ago um where did we end last year it's blurry for me because because uh because of we did a lot of acquisitions last year so yeah no you guys did i mean i'm looking at them yeah talent rover job signs and and and vinnies or something like that you could we had to rebrand that one yeah but i'm just trying to get a general sense of year over your growth rate so i mean did you guys obviously doubling at this scale is extremely difficult you're more probably in the 20 to 30 range yeah that's exactly where we are yeah okay so 20 20 year over year growth um now one of things i like to look at with coming to your cell you know i've had region with cvent i've had a couple other folks on with 200 to 400 500 million are they're all thinking about e40 metrics relative to public sas companies obviously because most the addressable market yeah i was going to say so what's your e metric okay good so you're e50 uh which means which means if you're doing 20 year over year growth you've got to be taking 30 ebitda margins yeah or 25 25 or 25 25 yeah fair enough okay that's great so moving forward right um help me understand some other things here so a lot of growth at your scale can come from expansion revenue um are you driving a meaningful expansion revenue now and do you see it as a growth channel or more of your growth it's going to come from new customers yeah we you know it's interesting like we were all new logo sales for the first decade maybe even 15 years and um you know you get to a point where you realize like my customers buy other software products and so it takes a while for the organization to shift to say okay i'm gonna go spend time with my existing customers and try and upsell them and um but once you do you discover that there's this whole new gear for growth um and so that's been so part of the part of the acquisition strategies like the peopleman acquisition gave us two new product lines um the uh there was some acquisitions we did a couple years ago that uh gave us two product lines and so those are really starting to take off in the customer base now okay there's a lot of work you have to do like we had to do a lot of r d to take a product that was standalone successful with 100 customers and make it scale to you know how is it going to flow into 10 000 customers and yep yeah gonna work so if you peel back this onion for me here for a second if you look over the past 12 months just uh gross so ignore expansion for a second gross revenue churn are we talking like 10-ish percentage or what was that number uh we're we're in the low 90s gross and around 100 net okay got it so just obviously that's not churn that's retention so you're retaining about caught 92 93 percent or churning seven or eight percent annually and then you're just said your expansion is also seven or eight percent for 100 in net yeah and and i would say the expansion number is the one that we think in the next couple years could go to you know we could be at 110 115. well i was just going to push you on that in a very polite way look most folks at your scale you're you're seeing and especially at these acv sizes you're seeing expansion revenue world class i'd say is between 20 and 30 percent annually and you're significantly below that why haven't you driven more expansion revenue especially with all your acquisitions yeah so i i mean my my quick answer to that is um like i said about the r d when we first bought our first add-on acquisitions we did not sync the kind of r d that we needed to into it and so now what you're seeing is like the ramp is is high i mean that was the upsell factor was probably like three four percent a couple of years ago and so now it's starting to ramp so it's growing it absolutely should be like you know 20 30 yeah you guys can get there i mean i would i would say that's a massive part of your growth story in the next is the next five years i mean that's just money on the table for you guys you've been sitting in our management meetings yeah good that's good i have little birdies everywhere you know all right uh some other questions here about aggressiveness cac so let's role play here for a 20 000 acv account will you spend the full 20 grand up front to get them what do you like to optimize payback period for we'll spend about 25. uh 22 22.5 to 25 depends on the segment so bigger customers more expensive so you'll spend up to 25 and you know a dollar fifty yep to acquire acquire dollar recurring revenue smaller customers you'll spend about a dollar ten you get a buck okay love that are you generally getting more aggressive there are less aggressive um in the enterprise we're getting more aggressive and in the smp it's all about like how do you focus on driving the efficiency yeah so the right customers right like the high turn customers how do you avoid signing them up and putting a lot of effort and energy into that did you spend much time when you were with this i know this was before their time but with like reggie at cvent or andre ping identity or bill at media ocean those guys are no i uh i i know reggie and uh and andre okay and i've met bill but i don't the only reason i ask the only reason to ask is andre and and reggie both when i had them on i pushed them on this and they said yeah and one thing they're doing is they're driving uh you know they're driving up even to sometimes two dollars for a new dollar of aor because they're driving competitors out of their distribution channels and once the competitors leave those channels because they've made it so expensive they just drop the cac back down are you doing any of that tactically in any channels we haven't had to do that and market dynamics might be different in our our market yep but that's we i'll tell you when we add sales and marketing heads we don't see a dramatic like our ramp is pretty quick and so maybe they're more enterprise focused and so i think in it if you have competitors who can really give you a run for your money in the enterprise like that's yep yep okay let's you just mentioned ram time let's talk about team quick and then we'll wrap up um team size today how many people total uh we're just under a thousand okay and how many are engineers versus quota carrying folks um good question off the top of my head i would say there's probably in the r d team about uh 200 and then sales is about 160 and what do you optimize your pro formas like per sales person you get sales person profitability right so you compare their on target earnings right when they hit quota their full comp relative to their bookings targets is it like generally like a 5x multiple you're optimizing for a 10x or what yeah so um it's in the smb it's about three to three and a half and then in the enterprise it's a full five that's pretty good okay good good stuff anything that i should have asked you about like like metrics you're looking at that i've been asked about or you're like you missed this um yeah i mean the one we look at a lot is cac to ltv um and so especially by segment so if we're talking about a large customer that the cac to ltv and i i i exclude upsells from that i just look at sort of like you know what's it cost to acquire the initial customer you're extrapolating first your acv well and and also like the upsells really blur like okay you know you had churn over here so you'll end up with like an infinite cacti ltv to cac and so i like to look at it sort of a raw basis and that for us has been a really good metric and like the smb we were good but not great and it's allowed us to become great and in the enterprise we're you know excellent amazing like what do you consider excellent you get one percent churn and it costs you two dollars and so you keep the customer for like 99 years excel excel excel sheets are not your friend in this case because it gets very unrealistic very quickly yeah so you could spend 99 acquiring the customer and break even yeah yeah um as long as you can manage the cash gap which potentially with private equity backers you can yeah yeah that's right and that is great so when are you going to ipo i don't know it's not really on my mind because the private markets are so good and um yeah but how do you personally get rich i mean one of the things i always like is how founders get personally rich and early employees and all employees like how do they get rich and like you give up so much early on now you strike me as a guy likes learning you're probably learning a ton still so that's one factor right but like the other is like how do you make personal wealth from this well i mean there's plenty of personal wealth and private equity deals you can sell a little bit of your stock and reload with options did you with the inside deal some of it was secondary you know with the vista deal i did quite a bit okay and uh and regretted that actually um like enormously because you know you saw what happened to the revenue right like had i just held on um but you know when you're you're like 30 you're like 37 at that point 36 yeah that's right so but like um you know so now for me it's it's definitely just about having fun and building a great company and really i think more about like the legacy of like the like what are the employees going to say about their experience at bull horn yep and i think you know of course people like people on my team are like yeah we're gonna get paid right yeah right you're a young guy i mean you have one or two more hits than you i would say after this and they'd probably be big successes baseball you learn so we'll see what happens i just we just did our 28 this is actually august is our 20th anniversary so i don't know man i i'm i may not have any hits i'll just keep doing this we'll see what happens all right man let's wrap up with the famous five number one what's your favorite business book oh uh winning by jack welsh number two is there a ceo you're following or studying uh i find benioff intriguing yup number three what's your favorite online tool for building the company online tool for building the company oh that's a tough question i don't know that i use i must use some online google docs i don't know number four how many hours of sleep we get every night uh i get a solid seven to eight okay in situation married single kids married kids how many kiddos two kids oh good and how old are you uh 40 43 44. i got that right on the nose earlier that's pretty good all right 43. last question what do you wish your 20 year old self knew oh uh how anti-dilution worked [Laughter] guys bullhorn.com founded in 99 raised 4 million early on basically sold 60 of the company before going on having a lot of success and now over 200 million dollars in ar up 30 percent year over year essentially their e40 metric is about e50 25 ebitda margin 25 year over year growth at this scale obviously pretty impressive thousand folks on the team uh seven percent annual gross revenue churn eight percent expansion as they look to drive more expansion revenue over time with more acquisitions now that they're part of the insight family art thank you for taking us to the top all right thanks