How Collective Hub CEO Hooman Radfar grew to $13M revenue and 2K customers in 2024.

guys he had a nice success learned a lot growing at this exiting to Oracle for a report over 200 million bucks then took a break at another company eventually said you know what this one man business is the new way to build a company in America profitable three million four million bucks in revenue is the way to go he saw an opportunity launchcollective.com in 2020 they're now getting thousands of applicants every month very clear pricing at 300 bucks a month or a slight discount 15 if you pay up front he said quote they've got thousands of customers today caught between one thousand and ten thousand they've grown using outside Capital seven million seed Rays back in 2020 sold around 15 to 20 of the company then raised a 20 series a and a 25 million dollar call it note right extension on the a we'll see what happens next they look to grow and scale out new pricing plans and continue serving these one-man businesses hey folks my guest today is human radfari is a Serial entrepreneur and the co-founder and CEO of collective the first all-in-one Financial platform designed for businesses of one he previously started to add this which was acquired by Oracle was a founding partner at xbud as an early investor in Uber sweet green Convoy and more who won you ready to take us to the top let's go all right so real quick again when was that Oracle acquired at this right correct what year was that uh the acquisition I believe uh was done in 2015 and I want to say it closed the beginning of 2016. okay so did you go right into Collective after that or you take a break no actually so I was an expert at the time and uh I was very lucky so I didn't uh have to join the rest of my team at Oracle oh interesting now TechCrunch reported the cut line was Oracle by his audience tracking from address for around 200 million bucks so you can really I assume do whatever you want it's good money it's not Fu money you don't have a private jet but is that generally accurate I'm doing okay I'm doing okay I'm really I'm really grateful for it that's great okay I guess looking back there's a lot of funders on right now in a recession they're all considering selling is just based off what you went through to add this any advice you'd give them on running the process of exiting yeah I think honestly I mean this is a longer discussion but my you know tldr advice is you never really want to sell your company you want your company to get bought and uh I know that's a tough thing to say but in our case it had this you know oracle had partnered with us across I think three different opportunities and then they've concluded as a result of those Partnerships that it was more cost effective for them to you know buy us and I think that drove a better outcome when you drive a process to sell your company typically there's a banker involved and it's almost like a more auction stop process and so when you just look at the math behind that you don't often get that how can you run now of course if you're stuck in that situation it is what it is and so I would give a different set of advice but I guess my advice is don't sell if you if you can't uh if you can wait that's my advice and then I guess second question here are some of these folks that are listening right now maybe they are doing five million in Revenue but they've raised 2 million from VCS right and VCS all want a 10x which I mean they gotta sell for at least 20 million but these Founders are getting offers for 10 million which they'd still like to take there's obviously a balance you have to do there you I believe will do the same thing you guys raise 73.2 million and add this if you did sell for around 200 you had to do some kind of management with the VCS because not everyone was getting a 10x how should Founders thinking about that today managing their VC specifically think about it yeah I think ultimately it's a conversation and most VCS now in particular are um more founder-friendly they of course their first customer they have to make sure that they're returning their fund and and their LPS are doing okay but you know while VCS do want to get call it that proverbial 10x it's a portfolio right so every company doesn't need to get that 10x so if a Founder you know is emphatic and convinced that the best strategy is to sell and ultimately the VC is getting a positive outcome you typically can get that to happen um and you know more often than not the VCS tend to be aligned yep all right let's get into let's go get back into Collective here so what is collective today describe your customer who's using you so you mentioned we call them businesses of one that's a term we coined because when we first started uh we called everyone Freelancers and uh maybe obviously uh some people don't self-identify as that as an example my parents they were both psychiatrists they were both business of one I don't think they would consider themselves Freelancers Realtors and whatnot so we we want to work with anyone who's really hanging up a shingle on their own uh as solo and and you know that's 36 of the workforce so it's a fairly large uh percentage of the population oh what's going on there YouTube good to see you guys now imagine this you love watching these interviews with SAS Founders but imagine if we took all of the valuation data out from over 2807 interviews I've done manually saves you a lot of time well we've done this we've built the into the beautiful interface inside of founder path check this out I'll show you how you can access this in a second but you log in you connect your stripe account you see your valuation real time you can see what it changed over the past 88 days and even set goals for evaluation this year now the secret evaluation is there's many different ways to value a SAS business so the reason you're going to see three or four different evaluations inside of your founder path dashboard this is all free by the way is because depending on who's doing the buying of your SAS company you're going to get a different valuation a VC is going to pay a different valuation private Equity Firm is different if you're going to do a minority sale that's different and if you sell the whole business that's a different valuation you can see all those when I hover over here here right so the teal is what a VC would pay yellow is what private equity and red is if you sold the whole thing outright now what's cool about this is this is not built off random data again you guys hear these interviews on YouTube all these datas are built from real-time valuation data points Founders share with us on the show so traction 1.2 million seed round 3.7 raise they sold 22 percent of their business go in here and filter by the event maybe you only want to see companies that have sold the whole business well here are a bunch that have been acquired the valuation and the multiple maybe you're going out right now and you're raising your seed round well go in here and look at all this recent seed deals that went down what they raised what valuation they raised at and what percent that they sold there's never been a larger data set of SAS valuation than what you can get now inside of founder path and we're thrilled to bring it to you all right we're gonna go back to the YouTube video here in a second but if you want to check this tool out if you want to jump in and sign up you can check it out for free to get your valuation at this link this link founderpath.com forward slash products forward slash valuations or if you go to founderpath.com and hover over products click on get your valuation here and go ahead and sign up to give it a whirl again all that valuation data live right inside the platform I hope to see you there all right let's jump back into the interview how far away from way when somebody takes a company public and there's only one full-time employee the true business of one you know it's actually a really great question um I haven't thought about it but I know that there are folks that have uh you know when Instagram sold there was a lot of questions around the um exit value per employee because I believe Instagram was like sub 40 or something like that and they sold for a billion dollars and so that's become you know a number to track and it's interesting um I don't know I guess with AI That's there there's that possibility to be honest right so obviously there's a lot of counters that don't realize how big you can get with a with an army of contractors and you you have you see this data firsthand you're sitting on it so you can look in your database and go wow these guys I mean you're not going to name them obviously we can say wow these guys are doing 10 million there's only two ftes it's amazing yeah so I will say I have especially as an operator been overwhelmed and impressed by the scrappiness of some of these folks you know I think you know one of my great passions is being a Founder helping Founders and oftentimes I think there's a cognitive bias in the Venture Community to assume that Venture back Founders are like the you know top one percent right honestly I think these Founders are more impressive in many ways like my mom for example sharing her business for 30 years she was profitable the whole time never raised a dollar right now granted the scale of it is smaller but to your point if you have contractors and you're you know just doing ftas you can go pretty far and again I I don't want to jump on the Zeitgeist here but there's a really compelling argument like say for example you want to build a content-driven business if you're using tools like chat GPT and these other things you can build a fairly large business with very very few ftes so I I do think we're at the cusp of something uh interesting to say the least so it's a great Point all right so very good so just to be clear like can you can you name do you have any cases community name a couple of your actual customers today so we can really get in their head um I mean we have some of the customers on the website um that we can share I'll send you some over but um yeah well no here I just want my audience to really get it so Doug is the founder of win Sprint David who's a freelance designer at dhg on Twitter uh David Stewart working on a next-gen digital Health thing another freelancer and marketer named Michael these are the kinds of people that are using you exactly exactly but we have people who you know I remember when Deli amberos uses like a podcaster on CNN and she's just been starting I mean her business skyrocketed so I think one of the things that we're seeing which is new for me is that um you know the because the world has become democratized and you have tools like look at what we're doing right now like folks can go set up a podcast folks can go set up you know Tick Tock and the just the self-serve notion of some of these tools has led to this explosion of these businesses of one that can grow and we people are making like two three million dollars a year and they go from zero you know maybe in a year and I've seen it several times now now again you can look at a venture-backed business and say wow this is like the Pinnacle but I mean if you're one person you get all that gross profit yourself I mean that's pretty amazing it's a new American Dream It's the new American Dream Dollar company with two million in profits that's better than a white picket fence you know I know I agree with that I agree with that and uh I'm just I'm really really excited um I'm learning a ton from our community so it's been pretty awesome talk to me more about how let me just you know not actually What doug binder from wins burnt is paying you but what is your Revenue model is it a flat fee is it a percentage GMB is it something else how do you monetize yeah great question so um we don't do percentage uh of anything like that it's a flat fee we want to be predictable and we really look at it as you know from an Roi driven perspective ultimately what we're doing is providing a solution right by forming your company providing payroll doing the books and doing the taxes that's a solution and the outcome is we drive tax savings now on average we're saving ten thousand dollars and for that we pay a subscription fee which you will predictably know you can pay that monthly or annually and if you pay a month it's like 2.99 a month so it's a pretty good deal you get you know basically three times what you put into it plus it's tax deductible so how great is that what does that mean that like when I go on your site I look at the pricing page and it's 300 bucks a month it says business formation but so why would someone keep paying 300 bucks a month after the business is formed oh great Point great point so no of course we we don't just form the entity so we'll form the entity we actually will set up your books for you we have payroll so payroll comes with it bookkeeping comes so we do your books every single month we'll do quarterly taxes estimates we'll answer any questions you have and we'll do your annual taxes so it's a full service again we deliver that outcome to deliver those savings that's all the work you have to do because you need to I mean as as you probably know a lot of the magic comes in how you set your payroll when you're trying to get Savings in an S corp so yeah there's quite a bit of uh work that goes into it's full serve so one then one there's really one plan it's either paying 300 bucks a month or you're paying 254 dollars per month but paid annually up front those are the only two pricing options correct for today but we have some other options that I think our members have um helped Inspire us to create that we're going to work on so both in terms of higher end services that some members are demanding but also you know we have you know I would say like 50 times more applicants um than we do uh members and we're growing very quickly and part of the reason is because we very much sorry what do you mean by that I don't know what you mean by that applicants members so it's a member service right um do you have to fill out an application and so we just get tons of applications now one of the reasons that we don't work with people right now is because look as a small company we have a focus point and our small human how many folks are full-time today at our company yeah yeah we're about um 175 employees okay you're getting up there I mean that's that's you know that's a real you have HR problems I mean 175 people is a real business yeah yeah well I I think I think we're still we're still pretty small and we need to stay focused and so we focused on the business of one where you can be helped by an S corp so if your income is between say almost 100K in a million that's our sweet spot but you know there's the majority of people are starting out or smaller and we we can you know package our services for an offering there so yeah I'm excited to add more plans uh on the go forward because ultimately our vision has stopped all business of one but you know you got to stay focused at the beginning right that if you're not then you're not really delivering for anybody interesting so are you fine like you would be filing 10 40s for these folks or one of the other ones corporate or self-employed yes correct okay interesting this must be a massive Market have you tried to map it how many folks in the U.S are self-employed that doing between 100K and a million on the 100K to the millionth side uh it's on the magnitude of um I'd say 3.5 to 4 million it's a little difficult because there's some overlap in the data right like when you pull it there's not like a one data source but I'd say it's about that's about right interesting well you're on Trend because I think when the job support came out recently another stat that came out is like there's a record number of new business applications being formed over the past quarter or half year or something like that so certainly on Trend here um I guess walk me through so you get tons of applications per month where are you getting these applications from what's sort of the growth strategy yeah so uh you know we're an interesting business because I guess you could call speed to be right because we are a business serving other businesses but their business is a one so our um go to market motion is direct to Consumer so channels that you'd be familiar with right so Facebook Google referral is a massive um channel for us um we opened up affiliate so like we have opportunities now for people to make you know 400 600 1 000 per uh new customer that they sign up because do you pay that one thousand to an affiliate all up front uh if they sign up a customer yeah so there's different tiers we're still working the affiliate program um we just launched it and so I think the initial tier is like you get 400 and then I think it goes up to a thousand depending on how far you get along the affiliate program but we're still working on it but you know it's it's it's been great so it looks like that direct consumer motion because there's just so many folks right um and they ultimately are individual but they are businesses so we have to serve them in that way and so can you share order of magnitude how many new applications not not what you're accepting but new applications you're getting every month uh right now let's see gosh I mean it's thousands right now I have to go look but it's yeah it's definitely it's thousands per month it's increasing like crazy because um to your point that you mentioned earlier uh as you know where you know we're going through some economic uh turbulence right but when you look at 2008 where I was running my first company what ended up happening is the freelancer population boom because what do what do companies that have W2s do in periods of uncertainty they shift to contract labor and that either increases the income of existing contractors right because they're already in business or creates opportunity for new contractors that same phenomena happened in covid we saw it firsthand right we saw a boom and now it seems like it's happening again so you know I I've been an investor for years I've got 50 companies in my portfolio if you're serving other businesses they're cutting you know like SAS and all of these other things they're cutting uh all their forecasts and we're sitting here we're growing like crazy actually um so we're hiring I think there's this article in TechCrunch in fact we were mentioned in it I didn't even realize when our employees ported so I said like we're one of the only fintechs that are that are hiring right now yeah you know it makes a lot of sense so thousands new per month so that means fair to say between 1 000 and 10 000 new applications per month something on that order yeah yeah easily okay and put this on a timeline for me when did you launch the company what year so we launched uh officially Collective at um it was September of 2020. is that also when you wrote the first line of code or was there a bunch of MVP work before that a lot of MVP work before that it's a great Insight so um we uh we did we closed our seed round at the beginning of 2020. right right when right when the covet started in fact how much was that for um the first seed round I believe was on the magnitude of 7 million and we've raised 50 million to do that who man tell me why you do that why people are gonna wait he just sold a company for 200 million bucks why would he why wouldn't he bet on himself in his next business he has all the money in the world why not keep as much Equity as possible um I mean look it's expensive uh to start a new business so you know you always you always need outside capital for these types of businesses we want to build you know a brand that's enduring an iconic like a square and at the pace we want to build it at it just requires a lot of capital I think if you want to build a business that's um sustained off of retained earnings or you know the cash flow that's a different business right then you can you know do something more like self-funded at least at my level but I mean even my partner from Expo Garrett who'd done Uber I mean we typically will raise outside Capital it's just a speed issue second I would say is the more folks you get around the table it's not you know you get additional perspectives but also it's you know building resiliency in the capital structure right so General Catalyst one of the best investors world top five EC QED one of the best fintech investors so as we're growing I not only gain their perspectives but they both you know of course have funds so as there's periods of economic uncertainty you have more resiliency in the business right it's not just one person yep understood and I guess most folks you're also an investor but most folks in a preced around are selling you know 15 to 20 of the company were you pretty average there pretty standard um at that point yeah I think that was about right yeah we did we did we were along those lines and then I cut you off I apologize for that you raised more sense than what was the second round you raised so our total that we've raised is around 50 million okay got it well when was the second so 20 did you raise more in 2020 or did you wait to do a series a in 2021 I'm just trying to get the timing of the rounds yeah so I can I can walk you through it so seed round was in uh close in 2020 and then in 2021 we had our series a and then 2022 um we saw kind of the economic climate going as it was and um we had uh you know partner that partners that were really excited about and so we just did a quick you know small like you know note basically to to move forward right um I'd been through the first one and uh I think one of the mistakes that I made is you know a lot of Founders when they they're used to only the growth period right and I was in my 20s movement real quick sorry before you tell the story can you quantify so series a how much was the a uh the a was for 20. okay and then what the extension was for another 20 or something like that yeah it was about 25. okay sorry now now tell the story now that people have the numerical context yeah I guess one of the things and I'll speak to all of the entrepreneurs out there when you've only managed through a period of increasing uh multiples right so what ends up happening is you have one thing to think about people will think about growth right and they'll say oh okay if I wait six months 12 months and months right all things be equal my business should be worth more money that's actually not true in these types of economies because you may wait six months but if the market is going down and the multiples are compressing and for those notes and all multiples are basically a multiple is a proxy a way you calculate evaluation so you take whatever the forward revenue is let's say for example 10 million and you multiply it by 10 you get 100 million dollar evaluation that's an example of how you apply multiple those multiples were going down and so I'm like wait a minute I may create more value in the business I'm convinced I'm going to do that but the value of that later on might be less so all things being cool you want to err on the side of speed and you want to raise money at those periods of uncertainty quickly because that there's a lot of unknown later it's very difficult to kind of like rock as like a first time like I have companies I would tell them that I sold them in March paper I'm like dude this is this is going crazy and they waited um and they had brutal rounds at the end of last year I was gonna say so was that 2022 round you did call it 20 25 million was that debt from QED or was that like a traditional convertible note that you were expecting to convert to actually just a note it's a YC safe that will convert yeah yeah so so we had a bunch of outside investors that we were very lucky again same philosophy can we bring more value can we bring more folks to the table that can help us so you know we had a partner who who was an operator-led fund um at an obvious we had the founders of nerd wallet um uh they came in through you know better tomorrow Venture so that was a great one it was just a lot of people we wanted around the table anyway quickly coming in while things were still you know it was shaky but it wasn't quite you know where it was and you could see my evaluation from the series A or a little markup uh we were very happy with it okay fair enough all right let's talk about where you see the space going right so you've got a big customer base now you're going to build new products for them I guess can you give us context there first before we talk about future products how many customers how many of these one-man businesses one women businesses are you serving today um thousands okay so fair to say between a thousand and ten thousand again yeah okay can you break 10 000 this year you think uh there's a lot of ways we can grow faster uh it's a lot of this is so so let me let me kind of throw it out there for you our problem is in demand our problem uh why wouldn't you say problem our opportunity is how do we navigate in this environment where uh raising money the cost of raising money has changed because you know as a venture-backed business we don't operate profitably right so I can grow way faster I could grow three four times faster if I lend in more members the question is that profitability gonna work for us and the answer is well probably not so we have to work on that so we we actually are limiting our growth uh purposefully which is tough uh in certain ways but um just to focus on being a little bit more profitable get a little more progress so that's again another thing that changes it used to be one variable that people are looking at hey what's your Top Line growth they looked at the other parts of the system but with less scrutiny now they're looking be specific though so break down your rule you're talking about rule of 40 profits first growth right so a lot of people might have said last year hey we're okay to grow 100 and have profits be negative negative 60 even better to get your rule of 40. you might have a different combination of that in your profile rolling forward can you cut break that down from me like what do you hope to grow by Top Line this year and what are you happy with on a profitability perspective for the next 12 months so we don't like rule of 40 for me uh it's not something to look at at my stage right now as much I look more unit economics so I look at you know gross margin and I look at um Top Line growth right because uh for us when I look we're subscription business which is very attractive we have incredible retention um I would say like above above 120 um well we don't we don't have any upsell so you can't you can't do that right so okay so but we very very strong attention so we're in the pop decile for a category let's put it that way and I'm sorry I have to push I have to push you back on that because I've had Zen business on I've had Rippling on and and they've got 130 141 50 ndr you're telling me you don't even have the possibility to go above 100 because you have no upsell so how can you say your top decile we're top desktop on the retention for our core products so if they were to just look at their um their core product and not the add-ons there's a retention rate there I would say that in that zone we I know we're top decile just based on the stats there but um they have add-ons so you brought up Zen business as an example they've started to add add-ons or a couple years ahead of us we'll start doing that as well so whether it's add-ons or new plans or you wouldn't upsell plans like we just don't have that we're not focused on we're focused on our core product right now because once we optimize that then you can add on more things so we have that potential obviously to go above that 100 I think you're absolutely right we would not be in the top like we're a public company for example you have to be it's usually like a buck 20 plus is considered top to SL on a public yeah I would say one 140 150 120y I don't know you'd get a premium for that but yeah somewhere in that range I mean there's a lot of private companies though that are at that 130 140 150 private SAS companies um 0.0 again you're focused right now you don't you haven't uploaded anything yet we'll see what happens there yeah um yeah we'll let you know up come back and like walk through our attack yeah our cash sorry well listen I had Ross on three times as he was growing his own business over the past five years and it's crazy how much he changed his pricing you know there was selling one-off things to file the thing and then they tried they started as free like uh three yeah yeah it's all over the place and then you've got Rippling that feels like they just want to go build everything and so they they get a little diluted I mean I like that you're leading with the Persona the one man we believe in the one person business we believe in profitability I mean this makes a lot of sense to me so um Hey listen we're running short here on time I do want to try and get a growth number out of you though so like moving forward how what do you hope to grow by Top Line this year I mean are you targeting 50 and you're happy with that are 200. no I think um on the magnitude of like uh two to three times is what we think is pretty good um okay you know because we have to balance again that growth and profitability do you think you can grow 200 and stay profitable on the unit basis absolutely yeah so like on a per customer basis is what we do yeah no we're very profitable on per customer basis we've been profitable per customer basis um for two years three years yeah that's great well listen before you wrap up with a famous five obviously you have one price point it's basically 300 bucks a month unless people pay annually you have a couple thousand customers if it's a 3 000 customers times that are poo you're doing about a million bucks a month in Revenue are you able to comment on that um benefit of being a private company no comment but I I hope I hope to build the comments soon when we get we go public but yeah all right fair enough let's wrap up here with the famous five number one what's your favorite Business book my favorite Business book it's probably a little bit boring so it's a personal productivity book uh if that counts uh so getting things done okay number two what's your uh is there a CEO you're following or studying see how I'm following or studying I follow quite a few um CEOs but um I like the um I like the Intel kind of family of CEOs like the Andy Groves and and The Operators right now just given the nature of our business is very complex...