Conquer Revenue, Valuation & Funding (2018)

hello everyone my guest today is Josh Tillman he began building his company dial source in 2005 while studying at the University of California Davis to seal the gap between business and consumers through analytics and automation the engineering firm has since changed the way modern enterprises communicate earning product of the Year honors in 2016 and 2017 he received the Sacramento Business Journal's 40 under 40 award in 2016 Josh are you ready to take it to the top I am alright tell us about dial source what are you doing how do you make money sure well first I say we are a group of professional nerds we enjoy tackling many of the largest most complicated problems and enjoy the luxury of designing our own hardware and our own software from the ground up allowing us to take our custom-built technology and wrap it around some of the largest problems for the biggest enterprise in the world using either salesforce.com or Microsoft Dynamics as their CRM and what does the tech actually do I mean is this like a call rail or these kinds of call tracking companies no it's different in the space the best way to think about it is that we are more like a native IVR PBX inside CRM so we have what my audience won't know hey Josh my audience won't know all those acronyms can you say that stalled-out sure in a simple explanation we facilitate enterprise communications inside the CRM so we help organizations make and receive phone calls based on the data inside their CRM and allow intelligent and dynamic routing of that inbound phone call or that outbound phone call based upon data contained within the CRM are they an existing contact do they have a revenue opportunity associated to it is there a technical case and based on these data points we create analytics with inside the CRM and use those data points to then automate the labor-intensive processes and procedures that sales or service reps are supposed to do at the end of the conversation often take a lot of time to do and if not done the most common scenario then the data does not exist within the CRM management to make actionable and intelligent decisions do you do the call recording and say things like sales person one who always beats quota brought up the word price right at the beginning a car versus everyone else does it at the end yes we do and we can do all kinds of things like maintaining compliance on state federal and national levels so we can automatically identify is the leader contact in a one-party consent state versus a two-party consent state and automatically not only record the conversation but only the right part of the conversation to maintain compliance pump in analytics sentiment and other types of things into the reporting capabilities and the real-time call monitoring all with inside the CRM via dial source okay and business model wise this is a kind of a pure place ass model or pay-as-you-go or what it's a it's a typical enterprise software model there is a seat based license and there's a telephony component and of course the size of the contract dictates is it a 50 user one-year deal or is it a two and a half thousand user three-year deal on general what do you charge per seat per month the record starts at a hundred and fifteen dollars per month per seat and then drives down based on like mentioned the amount of seats in the term of contract how significantly will drive down if I'm signing up five thousand seats I mean we go as low as you know fifty bucks or a hundred bucks or what we would probably be around that fifty dollar mark for that size I won't get into too many details but we do have accounts that are sub fortune 250 of the fortune 500 that do have seats that are in to the many thousands yeah that do have price points is in that range and without getting into specific customers cuz obviously you can't do that what are you doing right now in terms of just total seats using dial source we're well into the tens of thousands of seats on dial source or into the high hundreds ish in terms of accounts but as you can imagine an account could be five seats an account could be several thousand seats got it so I mean it's fair to say you've got north of call she said low ten thousands 20,000 seats those are those are folks that are the companies that are paying you for when their employees to be using your platform via Microsoft where via Salesforce that's correct okay give me more the backstory here when did you launch the company so I started this out of an undergrad at the University of California I was writing a research paper with a handful of friends on telecommunication technology database and outsource labor that college paper then turned into a publication and the American computer Machinery journal I was then contacted by some early players at salesforce.com in the early mid-2000s and as a handful of early 20-somethings fresh out of the University of California we started building some prototypes and selling a cloud-based CRM with built in telephony into real estate into insurance and under other industry segments and it was at that point we were contacted by Salesforce to build our unique hardware in the programming language of Salesforce becoming the first native communication system for Salesforce and 12 years later we still are the only fully flat Versailles and ranked as the number one sales application on the Salesforce app exchange the number two support application on the Salesforce app exchange and the sixth ranked application of thousands worldwide as a result of that technology as Salesforce approached you to buy the company I'm not a liberty to discuss that why haven't you sold the Salesforce I don't believe that our business is in the right position to warrant the dollar amount that I would accept for an exit I believe that we have another couple hard years of work in front of us perhaps another round of to of funding in front of us to build the team to get to where we want to go part of that strategy was diversifying our technology from not just being the leader for Salesforce but over to Microsoft Dynamics and so we've launched many players within the NFL we recently just finished launching all of Madison Square Garden Holdings on our Microsoft product of dial source and so these type of strategies allow our organization to grow in size and in redundancy which of course translate to the value of the organization I would except for an exit event so I have some follow-up questions there number one how much have you raised today total today we've done about seven million in fun okay and obviously I imagine that was not all just comfortable debt you've done a price to equity round at this point correct okay got it and when when was day one start date I know it was in your dorm room but what what year was that that would have been 2005 - okay Wow you've been at this a while 10 10 11 years it's great well more than that yeah it's 15 years oh okay 2005 good - your point though we were a bunch of college students looking to solve problems and then that morphed in' we started generating hundreds of thousands of dollars and into millions of dollars but we really were a technology engineering firm first and foremost it wasn't until just a handful of years ago that I would say we really pivoted from being top engineers to also building a sales and marketing team and a business around the technology which is atypical for how technology companies build by saying let me go raise funds put a model together and then scale we were already doing millions of dollars in revenue before a single dollar was ever raised what year did you raise that first dollar you know probably would have been around the early 15 timeframe and what was trailing 12 months revenue when you do that I'm curious how big you got bootstrapped uh we were we were doing seven figures at that point we're doing a low seven figures okay call it to three million something like that yes okay but I warn the north on the high side of that okay and what are you growing at now year-over-year what do you like to aim for we closed last year at a hundred and twenty one percent growth Oh ACV of the year prior as you can imagine we're a lot bigger now than we were at that previous state I would like to see this quarter at about equal to last year's revenue so we're growing quite a lot but we are also stacking many of the largest enterprise organizations into multi-year contracts into dial sources well develop front uh generally so it's generally we're getting like twelve months up front and then as you can imagine nobody's paying thirty six month contract upfront hole you be happy a genie if you figured that out right right I'd like to think we would but I'm we're happy to do 24 and 36 month contracts and in the larger deals to know we might take biannual payments but it is a contract paid upfront and then there's a lot of land and expand when organizations realize moving from using outbound calling and automation analytics for sales processes and then also using the similar type of intelligent inbound dynamic routing or service calls and tying service to sales as we see rapid growth in our accounts very very regularly more often than not you this number I think is gonna be aggressive but I'm gonna do it anyway 20,000 seats you said your price point typically starts about 115 a seat obviously it goes lower with bulk deals but on the high end that puts you at around 2.3 million per month if everyone is paying 115 per seat or about 1 million a month of people everyone was paying 50 bucks per seat is it fair to say you're somewhere in that range between 1 and 2 million in mr yep got it and we're we're and and I guess you already told me a hundred twenty one percent you over your growth so you were doing what like eight 750 a month 12 months ago yeah most something like that yeah okay that's pretty good and what's driving most the growth so it seems like you've really mastered land and expand how do you get the initial land a lot of it is through conferences we didn't really even have a marketing presence just a year and a half ago it's something that's new to our organization which now drives 30 percent of our lead traffic conferences conferences now we're doing webinars we have some heavy hitters that have come from other well-established SAS organizations in our space that have joined the growing dial source team to help us integrate faster within the messages I'll be speaking tomorrow at the AAI SP the American Association of inside sales professionals where we happen to be a marquee sponsor now I'm a keynote speaker there so things like that have really helped us to drive the message out across but one of the reasons why we do so well in the land and expand is we have a very unique ROI value proposition around this heavy automation and this heavy analytics that cannot be replicated by any other technology why neither because other technologies have integrated the telephony and a large component of that is whether they're using something like Twilio to integrate the telephony into Salesforce they can't control the actual ecosystem since we designed our own hardware and our own software and built our own carrier network we have the ability to control the solution end to end on a per account implementation or should something go wrong like we outgrow a particular vendor we can slot them out and slot somebody else in because we control the entire stack that is not something that can be replicated by integrating external technologies together got it the other the other large component is around security and compliance because of what I just mentioned and that we control our own ecosystem we purposefully built unique security controllers into our ecosystem so we cannot log in to the clients org we cannot see any of the clients data and unlike an integration we do not pull any of that data out of Salesforce and Microsoft so when you're getting into the large enterprise organizations that are publicly traded and heavily regulated on Sox or HIPAA this is an area that we can only hit on and none of our competitors and walk through these global security reviews not touching nor seeing or having any access and the enterprise has become a lot more savvy into the security compliance as these vulnerabilities have been identified in the last couple years Josh with this kind of integration and this kind of securities kind of features built in your turn must be exceptionally low what is your turn annually today negative fifteen percent last year in terms of logo what is it I assume that you just gave me as revenue churn that was actually not revenue its seats so I'm less concerned with logo as I am with seats as mentioned you know I could lose one logo that's five seats and another logo could be 2000 seats so I'm looking at Shirin as a seat basis so that was a that was a net seat basis then right what was gross wreck a13 negative 13 got it so your total additions were 27% that say got to the negative 15 yep yep yeah we were signing more accounts and we were signing more seats per account than anything else that's right you if you take your your current based Theory you started with you lost 12% however you added 27% which puts you at positive 15% kind of a seed expansion right most that came from new deals or from expansion in current accounts it was a combination of both but we didn't have this in years past one of the big big reasons for that is we built an extremely comprehensive customer success management team how many hands on your team nation team we're about 40 right now oh wow okay is everyone based there in Sacramento mostly we have a handful also in Austin oh great okay I'm I'm in Austin right now cool last few last few economics questions CAC what are you spending to acquire these guys it depends upon the department right I mean it's different if I'm bringing in an enterprise sass seller with ten years experience who's holding two million dollars a year quota versus bringing in one of the top PhD computer scientists out of the university of california without any real experience and so we've aligned ourselves with the University of California to bring in a lot of these heavy hitters without the experience so it John sorry I meant with your I meant to acquire customers not to acquire team em ours misunderstood you that's okay so I would say it's probably somewhere around $12,000 per account to land that account yeah no yeah but that is juicing why do you talk about your CAC in terms of per account but ARPU and other metrics are tied to see numbers like in other words what's your tak per seat or do you not look at that we haven't been looking at that it doesn't translate the exact same way as we were looking at for the for the seats but to be to be honest there are always areas of improvement we brought on some deep talent into our internal financial departments across controllers and others who are helping us make more analytical decisions as we grow as chasing our next sure what is the when a new account joins you on average how many seeds do they start with starting is probably around 55 to 60 okay guys so 50 people come on paying in that minimum well it's probably probably don't get that cheap price of 50 bucks per seat with only 50 if so it's probably closer to 100 or 150 yes so 50 times 115 is 57 hundred bucks a month you're paying 12 grand to get them your pay back there is less than three months that's healthy correct yeah that works interesting um what do you assume lifetime this is a dangerous question because it sounds like it could be actually infinite which would be dangerous but what do you assume lifetime value is on these accounts it's a lot the Sacramento Kings where our first NBA account I think they just went they just finished their fifth year on contract going into a three-year renewal same has happened at several subsidiaries at Vista Equity Partners yeah and some other large ones and so to your point we're extremely sticky and are our Development roadmaps outstrip the problems our clients identify and they're constantly growing into the technology that we're standardizing as best practices whether it be Wall Street academia the US sees the Stanford's of the world that are on our technology and sharing these best practices and then as a result we've built these implementation and customer success management teams to make sure that our clients are continually growing into solving problems and that causes major land and expand and very very low churn yeah well I mean what do you assume lifetime value isn't one of these guys look am i doing our percy bases you mentioned you have gross seats earn about 12% that's 1% per months you could assume a seat stays of you for about a hundred months times 150 points says each seat is maybe worth 11 grand to you but that's really fishing it kind of not hard numbers there what do you assume yeah it's it's a difficult one because of the age of our organization and the fact that the size of the accounts have changed dramatically over let's call it the last 36 24 even 12 months for us so the size of the account the price per size and the fact that they're going into multi-year contracts makes it very difficult to determine what is the actual average cost of the lifetime of that account I don't have that number on the top of my head question I asked you why haven't you sold a Salesforce and you said you've got a few more hard years of work to hit the number that you have in your head how have you come to whatever that number is I'd say it's like looking at comps and buying a house right I've looked at other players in our space that have raised hundreds of millions of dollars on multi billion-dollar valuation aim one or 10.we insidesales.com new voice media five nine connect and cell outreach sales loft I can continue to go on while we continue to dominate the Salesforce AppExchange Microsoft ecosystem and take the biggest names away from some of these players into multi-year engagements and so I believe that the market is heating up in the alignment of where crm has been in the last ten years to help management make more informed decisions while onboarding extra work and activities for the sales and service reps as the past and I believe the future will be technologies that should increase output for sales and service reps while increasing transparency automation in analytics without having them to do more work yeah and I believe that we are leading this charge not because I say so but because of what our clients are saying and where we rank and that is a very different way to identify problems and build technology as a solution to those problems equitation question or a different way are you married no oh darn it are you still close with your parents yes which one are you both I'll be seeing them tonight for dinner before I take off for three weeks or travel okay this is perfect you get an email right after this interview front from Benioff he offers let's say you're doing between 1 & 2 million a month right now and revenues let's say you're doing but you know between 10 and 24 million bucks a year let's say he offers you kind of 10x ere are so quarter of a billion dollars if you tell your parents that you turned down a quarter of a billion dollar acquisition offer tonight at dinner do they get pissed to you it would only be upset if I took it interesting interesting all right Josh enough let's wrap up here with the famous five number one with your favorite business book hard things about hard things number two is there a CEO you're following or studying right now uh I am constantly changing that as I want to learn from the greats and from the not-so-great most recently I'd be saying about tracking what Elon Musk has been doing and why he's been making the very very difficult decisions that are high-risk and take lots of money to do so like selling flamethrowers for two grand a pop that was an interesting one but some of the stories uh uh uh previously on launching Tesla SpaceX etc I'm kidding I'm kidding all right number three wits besides you're on with your favorite online tool for growing the business you said favorite online tool yes sir by all source besides your own sales force all right number three how many hours is before how many hours does he feed every night about four and a half ok four and a half and you already told us you are not married what about any kids any kids no okay and how old are you 36 36 last question what he was your 20 year old self knew that I didn't know anything there you guys have it from Josh again building something special here start as a thesis paper in the dorm room you never think those things are actually gonna turn out to anything good it's worked out for Josh and his buds they launched the company back in let's see it put them back in 2005 is sort of reminiscing on it launched it grew it to about three million bucks an hour before taking $1 of funding they've since raised about seven million bucks serving twenty thousand seats paying a minimum of fifty bucks a seat so they're doing between a million and two million bucks per month right now in revenue up one hundred twenty one percent year-over-year so about 750 grand just twelve months ago churn this is gross logo churn less about one percent per month net that's nifty no scent expansion in seats year every year spending about 12 grand on kak super healthy payback looking to continue scaling with his team of forty folks in Sacramento helping people really understand sales calls inbound calls how to funnel them where to put them based off data inside of Microsoft and Salesforce Josh thanks for taking us to this OP wonderful thank you for the opportunity I thoroughly enjoy