How CustomerHub Reached $43K MRR and 560 Customers After Buying Back from Keap (Interview with CEO Kyle Leavitt)

Introduction and Company Background

Nathan Latka

00:00Hey, folks, my guest today is Kyle Leavitt. He's a membership site pioneer and CEO and co founder of CustomerHub, a simple knowledge commerce platform that dramatically reduces the cost and complexity of launching and operating a knowledge business. He's helped thousands of entrepreneurs increase their profits by selling their expertise online over the past twelve years. Kyle, you ready to take us to the top?

Kyle Leavitt

00:17>> Absolutely. Thanks for having me.

Acquisition by Keap and Buyback Story

Nathan Latka

00:19Alright. You have to remind me, thought wasn't CustomerHub acquired by Infusionsoft or Keap or are you an independent company?

Kyle Leavitt

00:25>> Yeah. We are independent now, but it's been quite the journey. Me and my brother, who's my business partner, we built CustomerHub after leaving Infusionsoft back in the early days of Infusionsoft. We grew the business for a few years and Infusionsoft now known as Keap, they acquired our business in 2011. And so we were both back at the company for five or six years. We ended up leaving, starting another business and ultimately we acquired CustomerHub back from

00:57>> Keap two and a half years ago. So we're independent again and we're super excited about the future.

How the Buyback Opportunity Arose in 2018

Nathan Latka

01:05Okay, heck of a story here. Let's go to 2019. How did you know there was an opportunity to buy CustomerHub back out of Keap?

Kyle Leavitt

01:14>> Yeah, so we made the acquisition in 2018. We had had conversations with them at the time we left the company about it and just the timing wasn't right for them. And so we started another business, software business called LoyalStream, and we're growing that product along and they knew we were interested. And so when the timing was right for them, they came back and engaged with us in early twenty eighteen and the acquisition occurred in late twenty

01:45>> eighteen. And when was this thing a baby?

Origins: Building CustomerHub in 2009

Nathan Latka

01:48What was year one?

Kyle Leavitt

01:50>> Oh, well, we built the product and launched it back in 2009. So that software that we purchased back is, you know, is in its golden years at this point. And we actually spent the last year and a half building a new platform to replace the older technology. And we launched that early this year. And so we're off and running with the new platform. We've got a bunch of our classic customers migrating over and we're sort of

02:19>> expanding our market reach to step outside of the Keap ecosystem, which is where we've predominantly been for the past ten years.

Nathan Latka

02:28Do you remember how much revenue you did in that first year, 2009?

Kyle Leavitt

02:33>> Oh, it was minuscule. We were predominantly doing consulting back then and we knew we wanted to build software. And so, I mean, heck, we probably would have been lucky to do $10,000 that first year we launched it. It was just mini, mini. How

02:51>> much total consulting

Nathan Latka

02:52revenue did you generate in the early years to plow back into the software building?

Kyle Leavitt

02:55>> Just enough to pay the bills. That was our goal was let's pay the bills with some consulting and some services that What was need that though? Like what

Nathan Latka

03:03it cost you to build the software MVP, you think, back in the day?

Kyle Leavitt

03:06>> Oh,

03:07>> it was six months. And so and we actually didn't even know what we were building, to be honest with you. We built a little utility product for Keap users to be able to have their customers log in and manage their billing information and make payments for outstanding invoices. Kind of like how you log into a credit card account or a bank online and you can make payments and such. We built that as a utility app for

03:35>> Keap customers, for their users to be able to log into. Then our customers just started asking us for stuff. And, you know, lo and behold, a year or two later, we realized we had built a membership product.

Current Customer Count and ARR Status

Nathan Latka

03:47So totally understand how you got those first customers from your consulting business, but let's fast forward all the way to today. How many customers are you serving now today?

Kyle Leavitt

03:54>> About five sixty right now. Okay. So we're still pretty early. We're pre a million in ARR still, but we're, we're growing, we're accelerating pretty quickly now that we've got the new platform out and we're starting to get a little bit more aggressive with our marketing outside What of the Keap

MRR Today and at Time of Original Sale

Nathan Latka

04:12was MRR last month?

Kyle Leavitt

04:15>> We were 43 last month.

Nathan Latka

04:17Okay, interesting. Got it. So scaling nice. And then what, do you remember what MRR was when you sold it to Keap back in 2011?

Kyle Leavitt

04:25>> Yeah, I think we were, we were very early on. So we were, I know we were sub, we were sub 20 ks a month. And,

04:37>> you know,

04:41>> we continued to run the business after the acquisition under the Keap umbrella for a couple of years, and we ended up growing it to around a million and 0.5 in ARR before really Keap's priorities start to shift pretty dramatically and the product sort of got shelved and didn't get much attention for about five years before we acquired it.

Bootstrapping History and Capital Raised

Nathan Latka

05:07Yep. No, that makes sense. Now had you bootstrapped up to $20k a month before Yep. You sold Still bootstrapped today?

Kyle Leavitt

05:14>> Mostly, we've done some stuff with some angels and some family and friends. We had to raise some capital to buy the product back. That was more than we had sitting around in the bank. So we did that and we're getting ready to do a seed round probably later this year. So we're gonna get a little bit more aggressive about our growth, gonna make So some

Nathan Latka

05:35how much did you, how much have you raised to date so far, including the money you needed to buy back?

Kyle Leavitt

05:40>> We've raised about 750 ks to date.

05:46>> And so, you know, we had, we had a in buying the product back, part of it was cash, part of it was, you know, payback over time. And go dig

05:57>> it there if you can.

Buyback Deal Structure

Nathan Latka

05:58I mean, people do this all time. They try and like buy technology back from a company they sold it to, but they never had to structure it. So like, what was the total deal price and how'd you split it down?

Kyle Leavitt

06:07>> Well,

06:08>> total deal price, I'm not at liberty to share, but what I can say is that,

06:14>> you know, we had a plan that was a chunk of cash upfront, and then we had about a, I think it was about a two or three year term on monthly payments back to to Keap, and that was

Nathan Latka

06:30Can you share percentages? Like this what percent was chunk upfront versus what percent was over the years?

Kyle Leavitt

06:36>> I think it was about

06:41>> about seventy, thirty.

Nathan Latka

06:4570 cash up front, 30 over time?

Kyle Leavitt

06:47>> Yeah. No. No. No. The other way around.

Nathan Latka

06:4930% cash Yep. Up Yep. And it sounds like if you raise $750k to date, it sounds like like the the I guess the total price was somewhere under 750 k. Right?

Kyle Leavitt

06:57>> Yeah.

06:58>> Yeah. Well, the total cash upfront.

Nathan Latka

07:00Yeah. Yep. Did did did they make money? In other words, did they buy it from you for cheaper than what you ended up buying it for seven or eight years later?

Kyle Leavitt

07:10>> They bought it for us for cheaper. And then obviously the product was a cash cow. It still is a cash cow, but it was especially a cash cow back in the day when we sold it to them. And so, the majority of the money that they made wasn't in the increase between what they bought it for and what we bought it for, but in all of the recurring revenues that they were generating through the But it's

07:37>> not a It wasn't

Nathan Latka

07:38a ton though, right? Mean, it's $20k a month in total MRR and they sold it to you and it was doing less than back to you and it's doing less than 40 ks in MRR. So it's not like it was doing 1,000,000 a month in revenue, right?

Kyle Leavitt

07:47>> Well, it wasn't doing It It got up to 1,000,000.5 in annual recurring revenue while Keap had it.

Nathan Latka

07:54Oh, okay.

Kyle Leavitt

07:55>> There was probably a five year stretch of time where it was doing over 1,000,000 in ARR under the Keap umbrella. Then they put the product on the shelf and a bunch of the users started jumping ship. And so it fizzled out over time before we ended up buying it back. So

08:15>> that was where they made their biggest, you know, it was a good deal for them to have purchased the product just strictly from a revenue and cash flow standpoint.

Nathan Latka

08:25It's best year would have been like something like maybe twenty sixteen, 2017, doing $80, $85 grand a month in revenue. Right?

Kyle Leavitt

08:30>> Probably. Yeah, probably 2015 would be my guess.

Nathan Latka

08:34Yep. Yep. Okay. So you buy it back, you have to rewrite the whole system. How to take, how much cash did you have to spend to rewrite the whole architecture, get rid of all the technical debt?

Kyle Leavitt

08:41>> Well, I mean, a lot of that was just sweat equity equity because my brother's a software engineer. I have a software design and product management background. And so, you know, we did a majority of the work ourselves in rewriting software, but, know, it took us over a year. So when you consider the going rate of software engineering, software design, product managers and such, you know, we probably spent between 500,000 and million to rebuild the platform.

09:14>> $43k today in revenue a month, 550 customers, which means the average pay is about a thousand dollars per year.

Team Size and Hiring Plans

Nathan Latka

09:20Is the company How many people are on the team today?

Kyle Leavitt

09:24>> We just have four full time, a couple of contractors, and we have a we have a plan to hire about seven people over the next six months. So How much do you

Nathan Latka

09:34wanna raise in this seed that you're thinking about?

Kyle Leavitt

09:36>> About a million bucks.

Nathan Latka

09:37And what valuation do you think?

Kyle Leavitt

09:40>> We're shooting for a $10,000,000 valuation. So we think with with the right growth numbers and stuff, can get there.

Nathan Latka

09:49Mhmm. What do think you have to hit before you can get the valuation in terms of MRR?

Kyle Leavitt

09:54>> I think if we're around 50 ks in MRR with nice growth numbers, I think we'll be able to get that just based off of, you know, what we're seeing in the industry, which is obviously white hot right now.

Nathan Latka

10:05Mhmm. Yep. No, I agree. Okay. So four on the team right now. It's kind nice. What about churn? Do these folks stick?

Churn Rate and Customer Retention

Kyle Leavitt

10:11>> Yeah. Our churn is sub two and a half right now.

Nathan Latka

10:15Monthly?

Kyle Leavitt

10:16>> Yep. Pretty I mean, it's pretty good considering the size of our company.

Customer Acquisition Cost and Paid Ads

Nathan Latka

10:23And how are you getting customers? You mentioned raising to spend more on marketing. What's it cost to get a $500 to $80 a month customer?

Kyle Leavitt

10:30>> Yeah. So right now, we're we're averaging about $50 a month to acquire customers. So super cheap. A lot of our customers are referrals.

Nathan Latka

10:42What do you mean $50 a month? You mean you're spending a bunch on ads and each month is about 50, like the average is $50 to get a customer?

Kyle Leavitt

10:49>> Yeah. The average. Yeah.

Nathan Latka

10:51Do you spend last month's total on ads?

Kyle Leavitt

10:56>> Really less than $2k.

Nathan Latka

10:58Okay. So you think you can scale that?

Kyle Leavitt

11:00>> Yeah, absolutely. We've already started to demonstrate that over the last thirty days. We've we've about tripled. We've about tripled that ad spend in the last thirty days and we're seeing lift from that for sure. So we know we're going to have to spend more. We think if we can, we can average around $300 to acquire a customer, that's super sustainable for us.

Cap Table and Founder Ownership

Nathan Latka

11:21And it's just you and your It's just, sorry. It's you and your brother on the cap table now or is Infusionsoft and still sit on the cap table?

Kyle Leavitt

11:28>> They don't sit on the cap table. We're actually free and clear of that deal. And so we're we we do have some angels and family and friends that have invested in the business that we've given, you know, that are on the cap table.

Nathan Latka

11:43It's- How much do you still own though?

Kyle Leavitt

11:44>> Pretty small percentages.

Nathan Latka

11:46How much do you still own?

Kyle Leavitt

11:49>> Nate and I own a vast majority of the company still. So, you know,

11:55>> we've had two different, we've had one family and friends round and then we had a CustomerHub race round to buy the business back. Together we still own about 70% of the company.

Nathan Latka

12:08That's great. Very cool. And again, nature brother, right?

Kyle Leavitt

12:11>> Yep.

Famous Five and Closing Reflections

Nathan Latka

12:12That's great. Very cool. Alright. Let's wrap up here, the famous five. Number one favorite book.

Kyle Leavitt

12:19>> Right now it's Outwitting the Devil. I'm a big Napoleon Hill fan. I just recently read that one. Outwitting. Outwitting the Devil.

Nathan Latka

12:30Number two.

Kyle Leavitt

12:31>> It's a leadership principles book, basically.

12:35>> Two Life is success.

Nathan Latka

12:36Is there a CEO or Founder you're following or studying?

Kyle Leavitt

12:40>> I mean, I'm a big Elon Musk fan just because I think he does cool stuff and I like his sort of brashness and his innovation. He always says what he thinks and he doesn't really apologize about it that I So I appreciate some of the things he's doing. Smaller scale, just friends, bunch of friends that are CEOs that I'm buddies with.

Nathan Latka

13:00I meant to ask you this earlier, when you sold the company to Infusionsoft in 2011, what was the deal price on that?

Kyle Leavitt

13:08>> It was over

13:11>> a million bucks, in between a million and $2,000,000 was what we sold it for. We had some consulting revenue, so we had a service business as well, And we were able to, you know, we were able to get some valuation from that part of the business as Yeah, that's nice.

Nathan Latka

13:28Number four, how many hours of sleep do get every night?

Kyle Leavitt

13:32>> Well, I've got some little kids. I got two little boys right now and two teenage girls. The little boys are keeping us up. So I'm averaging about six right now.

Nathan Latka

13:40Okay.

Kyle Leavitt

13:41>> But to be hitting on all cylinders, I need about seven to eight to really be on my game. Game. So I'm working to get out of the hole right now.

Nathan Latka

13:48Married. Four kids. How old are you, Kyle?

Kyle Leavitt

13:51>> Yeah. I'm 43.

13:52>> 43. Take us home.

Nathan Latka

13:53Last question. Something you wish knew when you were 20.

Kyle Leavitt

13:58>> Conflict resolution, how to resolve conflicts effectively.

14:04>> I think if you can learn how to communicate effectively, really business, life, it's all about relationships. And in the nature of marriage, in the nature of business, in the nature of life, the only thing that is that you can count on is that conflict will occur. And so having a skill set around how to lead through the conflict and how to resolve conflicts in an effective way was something that I was pretty oblivious to in my,

14:34>> when I was 20. And that's a skill that I've acquired that served me well, so.

Nathan Latka

14:39Guys, customerhub.com founded in 2009, grew to $20,000 a month in revenue, sold to Infusionsoft for between 1 and 2,000,000 in 2011. Infusionsoft grew it to over a million dollar run rate in 2015 before they put it on the shelf, a solid decline. Then the original founders, Kyle and Nate bought it back in 2018 after raising about $750,000 to get that deal done. They bought it back, rebuilt the software, now it's doing about $43,000 a month

15:02in revenue, about a $500,000 run rate. They still own about 70% of the business serving five sixty customers. We'll go out and try and do a million raise on a $10,000,000 valuation once they break that $600,000 ARR mark again, still own about 70% of the business. We will see what happens. Kyle, thanks for taking us this off.

Kyle Leavitt

15:18>> Awesome. Thank you, man.

Nathan Latka

15:21One more thing before you go. We have a brand new show every Thursday at 1PM Central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every Thursday one

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