Cloudsponge Revenue, Valuation & Funding (2024)

hello everybody my guest today is jay gibb he's the founder and ceo of a b2b sas company called cloud sponge which sells an address book widget and contacts api that companies like airbnb nextdoor yelp gofundme and stitch fix used to grow their customer bases virally jay are you ready to take us to the top let's do it all right so um people know again when they sign up with maybe airbnb and it says invite a friend and you know get a kickback or get something free i think they understand that mechanism are you the guy powering that uh well they they build their own referral program so say they send out those emails and they do all that split testing the part of that um that ui that we're responsible for is everything that comes after like the gmail button or the yahoo button or the aol button so we have a few dozen integrations with all the different address book providers around the world like you know webmail providers like like gmail and yahoo and these companies they don't want to build all those integrations and maintain them themselves right so we're responsible just to make those those address books available inside our customers websites so that their users don't have to switch between tabs and windows and go try to copy and paste and create a comma separated list of email addresses right just make those address books available uh really easily for the for the user interesting and um is this a sas model yeah okay so give me a general i don't want to go on every customer cohort because i'm sure you have a ton of them but for the sake of time what i mean what is the average customer pay per year for your tool uh blended average is 100 just actually we just breached 100 a month we just just went over 100 a month okay 100 bucks per month yep okay got it so you do have a long tail then there's a lot of kind of kind of gamified little kind of apps widgets things like that that kind of build you in as well yep interesting um okay so 100 bucks per month average there and put all this on a timeline for me when'd you launch uh 2010 we started yeah it's been we've been doing this for quite a while and uh i mean where was your head at back then did you just quit corporate hated your boss said i'm gonna go launch my own thing i mean where were you at well this is it's kind of similar to the base cam 37 signals story where you know we're an agency we have an agency with a couple dozen developers and and this is one of the products that we've spun out um on our own uh so that the agency still exists we still do client work which is still a services business sort of powering it and allows cloud sponge to have an elastic workforce but cloud sponge itself was uh you know something where you know back in i think it was 2009 or so we decided we were going to start to you know try to get into the product game and get you know get some more uh some more irons in the fire in terms of you know passive income sources uh so that's kind of where it came from and when you spun it out i mean is it a clean cap table or or does the agency own call it ten percent of the the tool yeah so it's its own company its own it's got its own cap table uh but it's yeah it's not identical to the agency there's some differences there and do you spend most of your time on the tool or the agency now i'm probably about 60 40 uh in favor of cloud sponge right now and though i'm responsible for cloud sponge uh but you know i still have work to do with the agency but come on jay you know the margins are way better on a tool than selling people's time why not take the leap and go all in on the tool yeah yeah it's a good question i ask myself that all the time are you bootstrapped uh well if you count like some initial funding that came from the agency as bootstrapped and yeah yeah basically how much of the agency put in a couple hundred grand okay just a fun kind of initial prototype yeah we initially set aside 100 grand to do an experiment and actually that experiment didn't work out but cloud sponge was one of the things that we discovered in that journey and so then we doubled down and put another 100 grand to actually like get cloud sponge to market and get it to a place where it was paying its own bills that's great and then what do we scale to today in terms of total customers uh you know we went up and then down we kind of went up at one point you know the peak was around 2014 uh we had almost a thousand customers but they were like crappy customers churn rate was pretty high how high you know like over five percent per month okay um and our um you know mrr per customer like our arpa was 25 bucks it was pretty bad so we made a decision to just increase the price increase the quality of the brand and the product and now we have fewer customers than that today we've got about 350 customers or so okay um but our lifetime value is five times higher our turn rate is way better what's the term today logo turn is about two percent oh that's great logo turned two percent per month what about revenue churn uh net net mrr turns about one percent per month okay that's i mean that's that's pretty good um yeah uh two percent logo trim per month that's great and then um look i mean i love this story because a thousand customers paying 25 bucks a month right it's 25 grand a month if you double down and focus right 350 customers for extra price point to 100 bucks per month now you got 35 grand a month so less customers more revenue it seems to be working yep and and if we go so if you're doing 35 grand a month today what were you doing about a year ago november 2017 unfortunately about the same we've been pretty flat for the last couple years um you know and that's that's my challenge right now is to to get off that hump and to figure that out why do you think it's flat individual sales like selling individual companies rather than looking for those those one-to-many sales and looking for those platform partnerships and you know agency partnerships people that can sell us in bundles and into larger groups of customers so we're starting to put a lot more energy into that right now what's the team size today not on the agency just the tool so those are that's a blurry line for me um we have an elastic there's seven people from the agency who participate in cloud sponge in any given year our fte is probably two to three people at a time working full-time um but we you know we have people that come in and they'll do some some ui work or they'll do some security patches you know and people that we don't have a full-time role for they come and go uh and then there's probably about a dozen or so you know external contracts that do things like you know content creation and things like that when we need it on a project by project basis and where's everyone based location wise we're distributed we've been distributed forever i'm in i'm in california most of us are kind of close to the west coast us right so west coast um alberta and canada and bc and canada and then we've got some some contractors in brazil and bulgaria as well and when you look at kind of growth i mean are you do you know what your kind of cac is to get a new hundred dollar a month customer we've tried i i've kind of given up on it temporarily just because it's it's i don't know every time i calculate it i come up with numbers that don't make any sense um so maybe i'm just bad at that right no no that's important i mean honestly the problem is is it's so blurry because you're doing two you have an agency and people kind of going in and out and it's actually really difficult to figure out what the true metrics are yeah yeah as far as cac you're you're totally right it's tough to figure that out uh and we have you know the vast majority of our our our new customers are coming from organic search word of mouth and you know our we have a javascript widget that's like the address book widget we call it and it's got a powered by cloud sponge logo and so like there's just a ton of customers that become aware of us through that logo they click on it they come they say oh this is perfect and then they buy it and so the vast majority of our growth isn't coming from paid channels anyway you know what i mean yeah and so every time we try to do cac you know we'll try to like create channel specific calculations for cac and they always end up being awful like anytime we really try to do much like paid acquisition and things like that it ends up just just being wasted money so if you're not going to like go all in and really commit to the tool i mean or vice versa i mean why not pick one and sell the other thing either pick the tool sell the agency or pick the agency sell the tool uh courage i guess you're just scared yeah i mean it's a it's a tough question it's like i said it's a question i think about quite often in terms of you know making a choice between them it is a lifestyle choice a lifestyle business i guess in a lot of ways and i i really enjoy doing both so you know at this point i'm happy i really enjoy my day-to-day let me let me push ej a little bit on this so 35 grand a month times 12 so it's called 420 grand per year right now on the tool you know it is flat so you're not going to get some crazy valuation on it but i bet you could probably find a buyer for this for call it one or two x ar so maybe between 500 and call it 700k let's say you got an offer for you know 500 you know 600k to sell the tool again would you take that money then go double down and build up the agency no okay so you said that pretty quickly yeah no i wouldn't okay and why is that i think there's a lot of potential i think we have a lot of a lot of experiments left to run a lot of things left to try on the tool but jay it's flat you've tried for two years too right you've been trying up for a while to grow it yeah right so what's going to change like what do you what do you think's going to i mean what's your plan what do you want to do differently well like i mentioned earlier you know i think one of the things that i'm really excited about for the next 12 months is focusing on those one-to-many sales opportunities so building the tool into platforms and establishing pricing models for agencies building a reseller programs affiliate affiliate programs and things like that we haven't tried those things before so i think there's still a lot of a lot of ground left to cover uh and it just you know i'm not ready to get rid of it i think i think we can do a lot better than 35k months yeah no this is gonna drive you crazy but then i would say okay if you believe that then go all in shut the agency down put seven full time not three full time why not do that uh again lifestyle choice i got a lot of people at the agency that depend on me i like it a lot i enjoy working with those clients and it's just not something i want to get rid of yeah it's no it's tough man look i'm pushing you on both sides there's no right answer i'm just want to get your thought process all right let's wrap up with the famous five number one what's your favorite business book uh what would google do number two is there a ceo you're following or studying right now yeah right now i'm addicted to patrick campbell from profitwell number three how many hours of sleep deed every night and uh oops i skipped one sorry uh what billing tool do you guys use a billing tool yeah uh we use charger fire okay charge five and then what you put profit well on top of it uh actually you put uh chart mogul on top of that i'm not a profitable customer i just like to see you oh got it okay got it charged okay so charger phi and profit well um and what do you like about patrick charger fi and chart mogul oh sorry sorry sorry charger five chart mogul sorry what do you like about patrick he's putting out great content he's doing these really great uh tear downs that the pricing page tear down there's all the pricing page well they do the pricing page but then he's also using a lot of profit well data to give insights into how you know things like a case study might affect the you know price points that people choose in your product and he's really taken it to to a really deep level that i found really fascinating and helpful yeah and what's your current situation today married single kiddos married three kids oh wow full plate how old are you 41. and last question what do you wish your 20 year old self knew uh i you know i think 20 year old me would have been it would have been good to know earlier that it's a powerful thing to build multiple income sources for yourself when you're younger don't just depend on the money that you make from your job guys build multiple income sources sooner coming from cloud sponge ceo j launched the company back in 20 sorry yeah yeah jay lunch back in 2010 now about three people full-time on it based in or across many remote locations two percent logo term per month 350 paying customers about 100 bucks per month per customer that's the 35 grand obviously per month that's flat year-over-year because they've changed their customer mix higher rpoo but lower volume they put about 200 grand in the company to get it going again gonna test some things over the next year to see if he can fuel growth again while he keeps the agency on the side jay thank you for taking us to the top thanks nathan