How Cleeng Turned Down a €14M Acquisition Offer and Reached Breakeven by September 2020 (SaaS Open 2023 Talk by CEO and Founder Gilles Domartini)

Introduction and Talk Overview

Gilles Domartini

00:00>> Thanks for joining on this Friday afternoon. So, quick story about our past four years. It's been as always a bit of a bumpy ride. Many of you here are founders. So you certainly know what I'm talking about. But pleased to share some of the learnings that we had, because I think some of it can be beneficial for any of you raising money or facing a bit of a challenging situation. So that's what I'm trying to share.

00:28>> First, I'll start with how the fundraising almost killed us. That's literally what happened at that moment. We raised money. We were super happy, but actually it turned out not to be the best choice in our life. Surprisingly, may have happened to some of you how COVID actually saved us. So in the early days of COVID, we were very scared, but actually it turned out to be more of a positive. And then sharing a few lesson learned

Company History and Early Years

Gilles Domartini

00:56>> from that experience. So first about the company evolution, it's quite an old company, if we could say so. It's a twelve years old company, founded myself with three of our colleagues. For many years, we haven't been doing much. It's rating quite a bit. I used to work for Apple for five years at the very beginning of iTunes as a genesis of cleeng was actually to put iTunes as a white label. So the intent was really to

2018 Pivot to Subscriber Management

Gilles Domartini

01:26>> provide the solution of selling your digital content, providing customer care, managing the payment, that was really what we were providing. When we launched, we were multimedia. And in end of twenty fourteen, we started to focus on the video space. That's where it started to improve quite a bit. In 2018, we took a pivot to concentrate purely on subscriber management within the video space. So if you think about Peacock here in The U. S,

EUR 5M Fundraise

Gilles Domartini

01:54>> Netflix like type of service, that's basically the type of services that we would power. And then while you see the recent growth and the acceleration. So the story for today is starting here in 2018, we had like decent growth for like four years. So finally we were able to raise some money. This is really what we did in 2018. Raised EUR 5,000,000, which was very substantial for us prior to that. We only raised EUR 1,500,000, so

Investor Pressure to Spend and Grow

Gilles Domartini

02:26>> fairly small amount. We were largely bootstrapped. As soon as we got that money, the investors told us, guys, you need to go and spend that money. You need to hire a lot of people. You need to increase your marketing spend. It's very important you achieve your 50% to

02:43>> 80% growth. You need to do this in a short timeframe. So you start to go run and you spend the cash as much as you can.

02:54>> But unfortunately, one of the investors, the one that came in actually in 2018, we are facing a few challenges in 2019. And they tell us, look guys, we'd like to do an exit at the time where we started to spend like crazy. So how does it look very concretely, but the official announcement. So great moment, I think for those of you who had a chance to raise money, I think it's a moment of relief because you've

03:21>> been bootstrapping and working with very limited resource. Finally, you get proper means to accelerate your business. So finally, you do your nice press release and you have a big party and you are ready to go.

03:37>> Why we raised that money? That's today's positioning of the company, at least to explain a little bit. We wanted to build that subscriber retention solution and we established this very well nowadays and that's why we got that growth. So that was really the mandate from the fundraising. You get management of your subscribers and we developed a very unique stack for the analytics. And the combination of the two is what makes us quite unique inside the industry.

04:06>> So we started to invest in this and that's how basically well, very simplified view of the P and L would look like, mostly looking at OpEx and losses in that case. We've never been really losing a lot of money, but of course, as you raise with an investor, you start to spend way more substantially. So you see that you go deep into the red. And it starts to be scary, of course. You start to burn $200,000

Burning 200K per Month and Running Out of Cash

Gilles Domartini

04:38>> at that time we were burning about $200,000 a month. So even if you raised $5,000,000 actually, you realize that the 200,000 a month of burn won't bring you very long until you run out of cash.

04:51>> And because of that, we end up like 2019, so just like eighteen months after raising funds, this is one of my message, end of the year, December 29, you start to freak out, you're not been sleeping very well for quite a few nights already and you start to spin the story to say, look guys, this is not all perfect, we are sorry, but actually there is some growth, there is some potential, we are executing on our

05:18>> strategy, but we are running out of money. It's obvious. So what do we want to do? Do we want to continue? Yes or no? Or do we stop the company and to show how serious we were about stopping the company and how risky that time was.

05:35>> This is a mail that I wrote to our accountants, because in Europe there's a bit of regulation associated with bankruptcy, especially if you are a founder. And you write your accountants, okay, what happens from a pure liability standpoint if you crash the company? And I can tell you this is very painful. And I wish that none of you have to experience this, because you really realize that okay you've been putting about eight years of efforts, my

Near-Bankruptcy and the EUR 14M Acquisition Offer

Gilles Domartini

06:05>> wife is a co founder in the business, and you feel like okay potentially in three weeks all of this will be over. And I will have to carry that legacy in the future. So it really turns back to the fundraising into a situation that was a bit shitty. The investor says, you know what, actually we have an offer on the table to acquire the company for €14,000,000 And all of them are saying, well actually this is

06:29>> pretty good deal. You guys should take it because anyways the company is crushing. But when we do the math and we see that for the four founders that we were, that's more or less what we would end up with. Luckily, working through Apple and a few other activities in my life, I did make a bit of cash before. So I said, no, this is not a good deal. You know what, if we crush the company, we

06:54>> crush it altogether and that's it. So the investors were a bit taken by surprise, because we felt like, no, no, let's do it nicely and so on. I said, no, I'm the CEO. I'm still owning 22% of the organization with the rest of the founders and the friends and family. We are close to 50% and we are close to 50% today. So we said no, either we crash altogether or we continue altogether. And actually that paid

07:24>> off, because they reinjected a little bit of cash just to help survive for the remaining six months. But they told us, okay, it's the last time that we do this and new driver take an exit. That's where comes the second chapter of the story.

COVID Slows the Exit Process

Gilles Domartini

07:43>> When we got that offer at 14, this was like in Feb March twenty twenty. And suddenly COVID kicks in. We cannot do the due diligence because we were outside of Europe. So all of this is slowing down. Everybody also was in doubt what would happen to the industry and how many companies would react. So the process is slowing down. We were also doing everything we could to slow it down.

08:17>> We start to optimize our business and it's very similar. I don't know if some of you saw the appraisal of Gill earlier, metadata.io, very similar process to look at our P and L and I'll show you some of the examples of what we did. How you can optimize your OpEx and cost and how did we actually reaccelerate the business after that.

Optimizing OpEx: Going Fully Remote

Gilles Domartini

08:44>> So here you see basically the two key metrics, I guess, that you monitor as a business. One is revenue, one is OpEx, one is MRR and OpEx. And you realize actually running a business is fairly simple. These two lines needs to be at the same level or ideally the revenue is higher than OpEx. So you see more or less a gap between these two, clearly the red one, September 19 is wire and the blue one.

09:13>> This is March 20, so this is a COVID period. And you see basically that the two by September 20, it starts to be at the same level I. E. We become breakeven at that moment.

09:26>> So how did we do? And that's maybe the main part of the appraisal. I realized I could have split this in a bit further slides. We really did it in three main programs. And that's that simple almost to improve greatly your runway as an organization. First, and this was driven by COVID and personally,

09:58>> I've been managing teams for quite a while in many different types of organizations. I would never have thought that we could work in a fully remote model. We were fairly loose and open as an organization to let people work a day, potentially two a week from home, but at no point I would believe that it would be possible to run business 100% remote. But luckily we had teams in so I'm based in The Netherlands. Our main

10:29>> R and D center is in Poland. We have a large team in Manila in The Philippines for all the sales qualification process and some of the customer care processes. And we have a distributed team in The U. S. So we were already largely working remote. We didn't fully realize it, but we were on Google Workspace, we were using Dropbox, we were using let's say all of these kind of tools of Skype and chat and the rest.

10:56>> So we were largely already operating as remote. But the moment you decide to move from you are largely operating remote to you go 100% remote, you can save so much money. Honestly, if you guys need to save money, this is a largest part potentially of the saving that came from you can sell all travel instantly and at that time we are just forced to do it. But all the little trips that everybody is doing here and

11:23>> there, you do save a lot, it goes pretty fast. We stopped renting office. So a lot of people were not going out of the office and we were still carrying the office, said why do we keep an office? Let's stop having offices. So we only kept here, we have an office on 115 Broadway, but it's an office for two people. Largely we use it as a mailbox and we can still use the WeWork card to go

11:49>> in different locations. But we don't anymore let's say pay for the heavy office. So this was quite substantial. No more perks like the food,

12:00>> the HR team was always, yeah, know, well, it's important, you know, fridge is always food and so on. But actually we fill up the fridge on Monday, we throw half of the fridge on Wednesday, and we throw the rest of the fridge on Friday, and then we refill it up on Monday. So not a lot of money, maybe like €300 a week. But at the end of the day, just adds up and more of this does

12:25>> add up.

Biweekly Town Halls and Team Cohesion

Gilles Domartini

12:27>> So that was another element. We started to do and we still do to this day, we started to do every two weeks, there is first day call, but we call town halls. And these have proved extremely, extremely effective. I get often questions, how do you keep the bonding? And that was really I'm quite I think social oriented in the way we deal with the team. And one of the big weakness I felt about remote is nobody will

13:00>> think they work for cleeng, right. They will work for whatever desk they are at home, but how do we have this sense of belonging to the organization. And the way we created the sense of belonging was through this biweekly bimonthly town halls. So how does it work with the town hall? Basically, usually I do like ten minutes intro about state of the business or some important messages to pass. And then we invite about two to four guest speakers

13:32>> from different fields of the organization. So sometime we speak about the product and because we have some new product release, sometime we may speak about new clients that we signed and then people start to go, okay, is a new client, this is how we work and so on and this is why it's a good client. We run many interviews. We have a bit of format. When did you join? What do you do? What people don't know

13:55>> about you? So suddenly if you do this every two weeks, you actually rotate quite a bit. We have now 100 people in the organization. But by doing this, do rotate quite a bit and everybody gets some exposure. And that's how, let's say, we kept, let's say, the cohesion. We have very limited staff turnover. And I think a big part of this was associated with the town hall execution. And the last point related to working remote is that

14:23>> we also financed

14:28>> for many teams. We allocated that time we did it a few times, but typically it's an allocation of EUR450. But we said to people, you can buy anything you want that helps you do your business at all. And because we had about, so back then it was 20 people, now it's 30 people in Manila. I can tell you most of them they bought an air conditioner. Because when they were working at the office, they had air

14:54>> co at the office. But as we work from home, their homes didn't have air co. And they were so happy to be able to buy an air co and to bring the air co for the rest of their family that was living in the house. And because of that, we have very limited turnover inside the team. So you really give the tools for these people to

15:16>> work better. And this was a fairly small amount, 50. So that was one part of working remote. The second part what we've been doing and this has been also executed fast and it went better than we could have anticipated is the so called, well work from home was what everybody knew, but we say actually it's work, family and health. This is what is most important in that period. Work is what we said, we commit, but nobody

15:47>> will get fired because of COVID. And this created also the cohesion inside the organization to say, okay, thank you, we appreciate, but of course we were all scared. But we said our commitment, nobody gets fired. If somebody wants to move, okay, they can move, but nobody gets fired. So counter part of that is that we had to reduce our OpEx and we've asked everybody to reduce the salary by 20%, well between 8% to 20%. So of

Voluntary Salary Reductions and Survival Mindset

Gilles Domartini

16:12>> course, this was a bit of a hit, but then you felt like guys, either we have a bit of a fraternity approach and we all do a bit of an effort or we'll have to fire 20% of the people. It's one way or the other. It cannot just happen both ways. And actually everybody, we were at that time about 65, everybody but two employees didn't accept that voluntary salary reduction. That was really interesting to see that.

16:43>> Stop external services, more what seems to be a no brainer. So that was the work part. The second part was about the family. And we really wanted to create not only with the team inside, but also with their own families to say, okay, if you guys need anything, back to the air co example, you could get this air co. We try to help each other. We recruited a few people that were close to friends and these type of

17:10>> things, so that helped create that bond. And because people were staying at home and like all of you guys, I'm sure you have a lot of engineers, engineers are not very health centric or they don't always pay attention to their well-being. So we started to give cooking tips and fitness coaching and stuff of things. This really helped also. And last but not least, we said okay, we just need to sign one big deal per year so

Simplifying to One Big Deal per Year

Gilles Domartini

17:38>> to succeed. So we started to simplify everything, make it a lot easier to focus our limited resource on this one objective, get a loan from a bank and we got the loan at the worst time, it was in June 2020, went pretty fast. Make sure the platform works. So very limited priorities from pure business running. So these were the main activities. So basically we were back to bootstrapping. That's the way I would mention it. We

Back to Bootstrapping: Lessons Learned for Founders

Gilles Domartini

18:10>> didn't rely anymore on investors and that was a change of mindset, which to this day we still carry. I don't want anymore to rely on investors because it creates a wrong behavior as you build your organization. You really want to build good proper organization. Focus on the business metrics. Focus on your clients, of course. Remove all the nice to have, concentrate on the must do, create that unique culture through the town halls and the rest, and believe

18:36>> in yourself to the point about saying no to the investors and say okay, if we crash, all crash together. That was a very good learning.

18:45>> And the change of all of this, at least just to illustrate the benefits, that's what I was representing. That was the worst case, almost going bankrupt here. And investors saying okay, well you'd rather let go. And that's how things have turned out. So luckily, a, we didn't sell and b, we didn't crash. So it was a kind of story. So to do a quick wrap,

Closing Summary: Never Underestimate Your Power as a Founder

Gilles Domartini

19:10>> never underestimate your power as a founder. Very often you read all these things, you know about TechCrunch and all the rest, about the investors and co. And investors can be great, they really help optimize our processes. But I think at the end of the day, you are the one to run the show. What you do is for your business and the employees of your organization and keep on tracking your key metrics. At the end there's so

19:32>> few and that's easy to do. Thank you. All right.

Nathan Latka

19:37Thanks, Gilles. Great comeback story. Appreciate it. Thank you.

Gilles Domartini

19:43>> Any questions, I'm happy to address after or now, depending on who's time.

Nathan Latka

19:47Yeah, if there's a question while Joe gets mic'd up here.

Gilles Domartini

19:53>> Go ahead, go ahead.

19:59>> All right, very good.

Q&A: Moving Up-Market and Larger Deals

Gilles Domartini

20:23>> It's a very fair point. I think it's what we've been for long working more on mid sized deals like at 50 ks average deal size, yearly average deal size. Now some of our deals are in the million range. So that's but it's kind of easier to I think the mid tail continues to flow. But somehow from a mindset standpoint, we don't want anymore to concentrate so much on this kind of mid tail because this we became

20:54>> quite good. And I think you're certainly right to say we need to be careful and to continue to be diligent at closing those. But we feel that especially as a SaaS, when you go more up market, you get into an opportunity to sign way bigger deal than you ever thought. And we keep on signing larger and larger. So we move from 60 ks, 200 ks million and now we're in the multimillion software deals, So, I would

21:22>> never afford the client would pay multimillion for software.

Nathan Latka

21:26All right. Thanks a lot, Gilles. Appreciate it.