How Cloudcheckr CEO Aaron Newman grew to $29M revenue and 600 customers in 2021.

hello everyone my guest today is Aaron Newman he's the co-founder and CEO of a company called cloud checker the cloud management company he's here lunch for and has founded and sold three successful startups he's an acclaimed speaker and author on technology topics enterprise 2.0 and the Oracle security handbook Aaron has been awarded multiple patents and database security and social media Aaron are you ready to take it to the top absolutely all right tell us well first off there's not many people that get excited about writing a Oracle security a handbook so what what is going through your brain what what excites you about this space well I mean the Oracle security handbook was probably about 15 years ago so you know I love to find spaces brand-new spaces and and really be where you're inventing and innovating all right so that's what's excites me so this was back in what not 2003 2004 when security was a brand new and so for me that was all about kind of pioneering you know vulnerability assessment activity monitoring in the database world and and that's where you know I had two startups around database security then I had a start-up around social media when that was hot hold on Aaron take us back what were the names of the two database companies one was DB secure so that was 1998 and when I wonder that one that one got sold to a public company in Atlanta ISS okay and what year that was 2000 okay and for how much all right it was about two million dollars okay a second about four million dollars yes and what about the second one the second one was a company application security Inc raised a bunch of money they raised about 20 million dollars sold that III stayed active for about five years and then it ran for another ten years after that and that got sold to Trustwave okay which got bought by SingTel Singapore Telecom what was general size of that deal when you sold it it was about 35 million okay good so investors got out a little bit of return there for common holders and then you stayed with them for a couple years yep and then I went and did a social media listing platform so that was kind of a fast one so people were taking what was on marketing companies want to monitor what was on Twitter what was on Facebook what was on blogs and they were doing social media campaigns they wanted to measure it they wanted to measure sentiment demographics Geographics around it so we brought we bought and this is 2006 we started ingesting all that content and putting analytics on top of that so this is like a almost like a sprinkler kind of tool something like that yes absolutely but this is 2006 to 2009 very early in the space and what happened to that one and that got bought by a UK company all Tyrian I'll tear him okay but did you bootstrap that one or raised bootstrap that one right so it was funny was the year 2008 it was very hard to raise money so could not raise a dime for that one and would you would you grow that one too in terms of ARR before you decide to sell it uh it was very early right so we only ran in about two and a half years and we were our a our our was running in the kind of hundred thousand dollar range okay so small early yep yeah but we got I mean you know we got about six million dollars for it so you know was it was fairly successful I would argue based off your background that tech was pretty incredible yes I mean it was cutting-edge it was is actually interesting because we were doing we had our own data center and that was the learning lesson around why not to build your data center cuz a huge waste of time a huge suck of you know I was physically ordering hard drives in memory and they were shipping him I was driving him to the Dana Center and installing him and and by the end of it I was like this cloud thing makes sense yep so yep I bring the point upon your tech because I'll have all these CEOs calling me go you know cuz I help a lot of companies buy and sell no go Nathan you got Aaron on he only had a hundred kar and sold for six million that's like a thousand ex return I'm like Mia but he had incredible tech that wasn't a financial purchase on a revenue multiple that was an incredible tech play correct yes all right cloud checker tell us about how you got into it well so after after exiting the last one we we kind of realized this cloud really makes sense and this is 2011 so it's been about seven years and back then people looked at us and they were like I'm never putting in my data center in an Amazon cloud or a Microsoft cloud and having lived and breathed it I said you know what it's it's like the power companies right people in the 1850s people built their own power plants eventually they figured out not an efficient thing to do we're going through that steam cycle so you know we I I immediately said everything's going to the cloud everything going to the public cloud we bet big on it and we started building management platforms around it and so what is the main is first off we understand I think at a high level technically technical listeners might understand that but for someone who is a CMO at a b2b SAS company hearing you right now how should they think about what cloud checker does well think about it as your move all these tools in the data center to do everything from manage your inventory help you track costs help you make sure you're utilizing your resources well when you move it into the cloud all the tools that worked over there they don't work in the cloud because there's fundamental differences you don't have I P addresses that are round for months they're they're gone in hours so how the tool interacts with it has to be rewritten so we have to throw a lot of the old tools away and reinvent things and so we've we've written those tools that approach the cloud from a cloud friendly way to do inventory management to do security to do cost optimization and allocation yeah and then to give us a sense if someone's to sign up for you on average what are these what's the average customer paying you per month would you say assuming it's pure place s so we range anywhere from we have customers as small as 100 bucks a month to you know 50 a hundred thousand dollars a month okay so it's a pretty wide range our average price is maybe two thousand three thousand dollars a month AR mr r and and you've I believe yes you wouldn't have this on your pricing page if you didn't test it because I can tell you're a data-driven guy you have a very interesting layout on your pricing page where essentially pricing you lead with 2.5 percent of your cloud bill and at the bottom it says get started at 500 bucks per month that helped us understand why you structure pricing that way well it's designed to be like the cloud right you want to get in easily so if you have a small a small cloud deployment you know you don't want a B ton of money for if I pay a thousand I would I want a management platform that cost me you know two thousand three thousand dollars so we have to design it to scale with what you're doing yet let it grow as our need for infrastructure and all that grows so it's really designed to image or mirror what a what a cloud deployment looks like you start small and you grow and I you know previous companies we had enterprise sales cycles where it'd take a year and you finally land a million-dollar deal to sell them software um that doesn't exist anymore it does it's just as much harder now it's sign up tomorrow put it on your credit card for a couple hundred bucks a month and then grow with it and by the time a year into it our sales cycle is really that first year where they're using the product at the end of it they got a big deployment and now they have to decide whether this has been valuable or not how do you track the where and how do you track how big their cloud spend is well I mean part of a you know part of what we're doing is cloud is cost optimization and allocation so we have visibility into there oh I say into they're spent so we can tell them and and it's interesting because people wonder is a counterproductive for us we're trying to keep your bill down we're trying to help you run it efficiently but we never see a customer's actual spend go down what happens is they run things so much more efficiently in the cloud that they move more workloads in and so it may be more efficient but your your dollars spent the amount you're running in the cloud is always going up I want to try and really paint this picture so my first company heyo when we are doing 60 70 grand a month in revenue I would always look above the line above gross margin we have four or five grand in a we just call it server costs that's essentially our cloud bill yes yes got it so you would we would connect with cloud chucker you'd analyze where that five K spend is going you maybe reorg some stuff maybe it drops down to four grand but it's more efficient so we actually put more in it so now it's six grand a month and then we're paying you two point five percent of whatever that is starting at five bucks a month correct okay yeah talking about the security component I think I get the optimization component you make it run smooth or is Vladimir Putin your best friend every time he hacks you see more customers no I mean you know we try not to use Fudd you know and and and and try to do it really based on value but think about it now I put my data in the cloud what's the perimeter you know it used to be your perimeter in the data center you knew you had firewalls along it you had routers you know exactly where all your data was now you put in the cloud it's a very different challenge your your perimeter is really this software-defined network and so when you when you've on a verify is there a hole in my perimeter somewhere it's by looking at all this metadata and analyzing you know what ports do I have open open to what resources in my network so it's it's actually interesting because it's a totally different science but you can really be very accurate and you could be much more secure in the cloud because you can scan millions of ports and IPS and know exactly what's coming in and not it used to be you'd you'd put a scanner out there that was trying to ping ports and IPS to see if they were open very inaccurate way of assessing your perimeter in the cloud much more discreet where you can really map what's what's opening and what's not I mean how advantage I mean will you do things like set up honey pots in case someone does get in they tack the wrong thing no I mean so there's two things we do secure configuration so make sure you have locked down you're using all the security capabilities and features I mean Oh any system you buy today has the ability to be secure it's just have you turned it on the right way have you set it up have you enabled the security features yeah the second piece is activity monitoring so yes then we're monitoring who's doing what within there so we don't specifically do honey pots but we'll monitor who's using who's who's creating resources who is changing permissions you know a lot of it is is keeping the record of that or everything from audit logs to identifying anomalous behavior to just helping you see hey when you're when your security guy comes to the dev ops person says hey give me the IP addresses of who connected into our app three weeks ago well the IP addresses changed a hundred times in the last three weeks so how do you answer that question it's very different it used to be you'd go to the logs for that server and you look through it you don't have logs for that server anymore so very different problems so we've we've constructed so you could answer that question just in a very different way optimization and security launched in 2011 what have you scaled to today in terms of total customers it's about 600 customers you know we we actually grew it really based or but using our own funding until last year last year we took a fifty million dollar investment five zero or one five five zero from level equity in New York City and that allowed us to really build out the infrastructure and no that's all it so if I asked you total funding to date it's 50 million yes okay general sighs I mean I can take six in our customers times at two thousand price point per month earlier I mean you're somewhere north of a million bucks a month in revenue is that accurate yeah much higher than that okay yes very good and talk to us more about something economics around us so obviously any SAS company has to think about churn tell me how you think about churn well so so absolutely I I'll tell you I'm not a typical CEO I'm not a CFO right there's a lot of these things I leave to my CFO and I spend a lot of my time worrying about culture and product and all that but you do you do have to study you know and make sure your churn is not happening you know we're we've we have about a 96 percent annual retention rate that's a very good basis or revenue on a revenue base and it's the gross or net that's that's that's net that includes expansion revenue exactly a fee oh no that doesn't are we actually have a hundred and forty five percent net retention rates on which is really incredible but that's because we have customers that their cloud is just growing so quickly that what they use last year grows by about forty five percent a year so let me make sure let me make sure I get this right because I think these numbers are incredible ignoring up cell revenue you retain at a gross level about ninety six percent of your revenue annually you then drive an additional forty to fifty points of revenue expansion across your base so together net you're driving one hundred and forty percent net revenue retention annually correct yeah great that's really great and what are people upgrading for is it a usage you kind of they're everyone's different pricing axes the number of seats is a usage what is it what's cloud spent right Scotland okay we have the auto scaling a sales model where if I spent twenty five thousand dollars a month in the cloud last year I'm spending fifty thousand dollars a month this year and that's almost all customers we see that kind of growth we're getting we're able to build them twice for that okay last few economics questions before we wrap up payback period how quick do you like to get paid back our LTV well so are our payback is well I mean so listen we took fifty million dollars last should be getting longer because you're investing it's changed last year last year was it was sickly small like like what three or four months okay so it's now in the eight or nine month range and and it does grow because we're investing to keep our growth up so very easily in the early days we used to see tripling every year which is super nice as you get bigger you can't do that even Aaron even nine though is not bad I mean I know companies at have raised the same amount that you have in there up in the 1819 month payback period so you at nine months and people are paying two grand per month on average that means you're spending up to eighteen inch or 20 grand to acquire these new customers right yeah and and for us it's we're in Rochester New York right so we're not actually a typical Boston store or Silicon Valley startup where we actually are a lot more physically fiscally responsible so that's where we do a little bit better on the numbers but not quite the flash that the hot the latest hot startup in Silicon Valley has and what's your team today what size it's about 150 all in Rochester no about two-thirds in Rochester we're in four continents Argentina India Portland Rochester DC in the UK amazing okay and then you are gonna tell me LTV to CAC ratio where is that hovering right now LTV the CAC I don't know off the top my head that's my CFO do you use LT me to drive actually any real decisions or is that just more like a number of investors asked for him you just gotta figure it out for them I think we use it more for the investors I mean for us we're in a we're in a market that expanding so quickly that it's all about product and delivering value and the numbers work themselves out yep last question what are you guys growing at year over year last year we grew about eighty five percent okay that's how the year before we triples that's pretty healthy and I mean when do you think you break like the forty million dollar a or fifty million dollar a are mark forty billion dollars will be early 2020 okay and we'd love to go public kind of 2122 that that would be kind of the goal so it's far enough out we got a lot of work to do but we're we're here to build a big business and and grow something amazing I love that okay let's wrap up your errand with the famous five number one what's your favorite business book the book I just read was servant leadership so I'm all about I work for the people at this company they don't work for me what is the tattoo on your arm mean is it servant related this one is through endurance we concur ernest shackleton one of my personal heroes while I uh you know took fifty guys to Antarctica got stuck there for two years didn't lose a single guy that's leadership and anytime I complain about my life I say I'm he you know I I'm not in Antarctica for two years yeah guys have if you're if you're applying on on Aaron's job page read the contract carefully clause 3 it says must be willing to take trip to Antarctica with Aaron for six months and survive right that's how it works exactly I climbed I was in Antarctica November for a month client Vinson which is the tallest point there Wow alright number two is there a CEO you're following or studying right now yeah I mean I I really like to look at what Andy Jesse and Jeff Bezos do I mean they've done some incredible stuff I I'm also a big fan of Bill Gates just because of what he's done where you know the the the human side of what he's done in terms of donating his money and building the foundation so I think that's the ultimate goal it's not about leaving a ton of money or your kids number three what's your favorite online tool for building a business my favorite online tool for building a business I think everybody's core everybody's built on Salesforce these days from from that lazy and as well on the on the engineering side so those are the tool tool tools that are instrument to what we do number four how many hours you sleep are you getting every night I get plenty of sleep I can't operate on no sleep in hours yeah I mean seven seven and a half I got six and a half last night I could tell it's it's a little dragging so and what's your situation Erin you married single F kiddos I'm I'm have a fiance I have kids she has two kids a little bit of the Brady Bunch and there's definitely the work/life balance you know when I was 25 I did not have a work life balance I have a better one than how are you today forty five and and take us home what he was your twenty year old self new uh I wish I would have gotten into tech earlier you know I can't I graduated with accounting degree and never did day of it I stumbled upon tech tech you know and I I never took a class in tech and probably the programmers that read my code we laugh at it because that's what it looks like but you know I wish I would have got into tech earlier guys there you have it from Aaron he's had three startups that he started and sold to in the database space one of the social media space that grouped about a hundred thousand bucks in a are then sold at the tech was so good for about six million bucks then he saw the pattern everything's going to the cloud so he jumped into that space 2011 launched cloud sucker boots dropped it up to last year they've now raised fifty million dollars serving six hundred customers paying at least two grand per month so there are well north of 1.2 million bucks per month in revenue right now one hundred forty percent net revenue retention annually with their team of 150 people between Rochester and other remote locations again helping you or not only organize your cloud spend make it more efficient but also keep it nice and secure Aaron thank you for taking us to the top thank you