How Databox Reached 650 Customers at $140 per Month with Zero Paid Ads (Interview with CEO Peter Caputa)

Introduction

Nathan Latka

00:00Hello, everyone. My guest today is Peter Caputa. He is the CEO and founder of a company called Databox. The company is a monitoring company of... Basically, sorry, it's a tool to monitor company performance data all in one spot, really on any device. Peter, are you ready to take us to the top?

Peter Caputa

00:16I am.

MRR and Product Overview

Nathan Latka

00:17Alright. So you emailed me this beautiful email before the show. I know you listened. So like, let's just jump right to it. What's what's revenue today? And then let's go back and get more of the story.

Peter Caputa

00:25We're doing a little over 91,000 MRR.

Nathan Latka

00:29Okay. And what are people paying you for?

Peter Caputa

00:32You mean how much? Or

Nathan Latka

00:34Well, yeah. So tell me more about the product and then tell me the ARPU.

Peter Caputa

00:37Got it. So the product allows companies to pull all their performance data in from other tools. So we integrate out of the box with, like, 60 plus other tools, and then you can also integrate data, in a variety of other ways. And once you get the data in there, they can visualize it, however they choose. We make it pretty easy to drag and drop or choose templates based on the data sources that you connect so you

01:02can get up and running quickly. And then you can set goals. You can set alerts or scorecards. You can, so you can get data coming to you, the the most important metrics. And then also you can put it on any device. So we have a very award winning mobile device, a mobile app that's on both the stores that that you can download and and use to monitor. We also... You can put data up on TVs as

01:23well.

Nathan Latka

01:23And so what are people paying on average per month for this?

Peter Caputa

01:26A $140 a month.

Nathan Latka

01:27Okay. So how many customers are you at today?

Peter Caputa

01:29650.

Nathan Latka

01:31650. Okay. And give me a sense of growth rate. Turning back a year, how much are you doing a month?

Peter Caputa

01:3623,000. I'm sorry. Yeah. They're on 23,000 MRR in... At the end of May last year.

Nathan Latka

01:43May 2017 scaled nicely, more than three x that to date. Where's most of the growth come from?

Peter Caputa

01:49Organic. Just doing a lot of organic marketing, organic search, organic social, just a lot of content marketing.

Nathan Latka

01:57And so tell me about the team and how many of the team members are focused on those organic channels?

Team Structure and Headcount

Peter Caputa

02:02We have 20 people total. The majority of the team's in product, and then we have pretty much three people in each of sales, marketing, and service. A little heavier on the service side, a little lighter on the sales side. So three people in marketing, basically.

Nathan Latka

02:16Okay. And what are some of these... You mentioned some kind of SEO, some other things. What are... What's the, like, the number one organic tactic they're using to driving new customers?

Organic Growth Tactics and Content Strategy

Peter Caputa

02:24We do a lot of, content sourcing. We do a lot of roundup posts. We have a lot of, agency partners who write guest posts for us. Since we integrate with so many tools, the topics that we can cover are pretty diverse. So like one day we'll write about reducing your bounce rate in Google Analytics, the next we'll talk about the new features in Facebook ads that you should be taking advantage

Nathan Latka

02:45How do you get the partner to take the time to write the guest blog post for your blog? That's where a lot of people get stuck in this whole process. They can't convince other people to take the time to write for them.

The Agency Guest Post Process and Peter's HubSpot Years

Peter Caputa

02:54Well, in the beginning, was a lot of personal relationships. I built the channel program, the agency partner program at HubSpot. And so I tapped a lot of agencies to do that. At this point, we have a pretty refined process, which would take me like twenty minutes to explain. We have people that are constantly reaching out on social. We have a list of past contributors that we ask to contribute to new posts. We always give a link,

03:19back to them when they contribute. And a lot of it is just very short stuff. So we're only asking them to take like five minutes, to contribute to a post, which then becomes, a post with 50 contribution to it.

Nathan Latka

03:32I see, I see. And have you... This is going be very meta. Have you written a post on your post process?

Peter Caputa

03:39No, but I just recorded a podcast yesterday for for the... That I think will get published next month. Give a shout out for that.

Nathan Latka

03:46Which podcast?

Peter Caputa

03:47The Entrepreneurs HQ.

Nathan Latka

03:49Okay. Good. We'll we'll we'll link we'll link to that in the show notes. That'll be good. Alright. Because I mean, that's... If you figure out a way to scale that, that's fantastic. Now quickly, because you mentioned HubSpot. When did you leave HubSpot?

Peter Caputa

03:582017. So a little... A year and almost a half ago.

Nathan Latka

04:01Okay. I mean, so you were there for the ride. You you... How early were you there?

Peter Caputa

04:042007. I was fifteenth employee.

Nathan Latka

04:06Oh, yeah. So you saw it all.

Peter Caputa

04:07Yep.

Nathan Latka

04:09Yeah. So let me ask you a question. Yeah. A lot of people would say when you go through a journey like that, obviously you had equity, you built some... And I'm assuming a nice chunk of wealth for yourself. It's hard for someone that just was made kind of wealthy, right, to then get motivated to jump in and start something new. So talk to me emotionally in your brain in 2017 when you left, how did you deal

04:28with the extra money and keeping yourself balanced?

Peter Caputa

04:33I always had a goal of making money, like enough money to be comfortable at least. Like I literally wrote in my high school yearbook, like that I wanted to make a million dollars by 30. I missed it by about ten years, but... And I like... So I'm... Didn't make enough from the IPO myself to like retire.

Nathan Latka

04:50Yeah.

Peter Caputa

04:50So I needed to do something. I also knew I wanted to do a startup again. I just love the part of the business where you're designing the strategy and figuring it out, and that can still be relatively one person, you know, like, and I can stay involved and all that. Whereas with HubSpot, you know, it's thousands of employees now. A lot of decisions were bay... Are made and baked, and I I didn't have that ability to

05:16continue to influence that. Quickly. I knew I wanted that rush.

Nathan Latka

05:20Quickly, I I have you and you're the guy. I mean, what was the number one thing that... I mean, what was the number one leverage point you were able to execute in terms of growing the value added reseller program at HubSpot? That's what you owned. Right?

Peter Caputa

05:32Yep. The agencies in, like, a decade ago to, like, five years ago really struggle... Marketing agencies really struggle with cash flow because most of their business was projects, web design projects, short term SEO engagements, etcetera. And so what we did is we figured out that we could teach them to sell a set of services that they deliver on an ongoing basis under a retainer agreement and allowed them to improve their cash flow. And that's really what,

06:00you know, attracted a lot of agencies to the program and allowed us to really help a lot of them grow from, like, guys on the dining room table to multimillion dollar agencies.

Nathan Latka

06:08Yeah. Because you really helped them with their whole business. Right? You put together, here's a template contract. Use this.

Peter Caputa

06:13Yeah. Yeah. We did everything from, like, here's what you should sell and how you should price it to here's exactly the scripts that you should use in your sales calls and the questions you should ask and and how to deliver it, of course. And yeah, we did a lot of that stuff.

Nathan Latka

06:27Yep. That's great. Okay. So fast forwarding again, back to Databox now. So was 2017 one?

Company History and Pivot to SMB

Peter Caputa

06:32Yeah. No, the company was founded actually in late twenty fourteen, twenty fifteen, early twenty fifteen. They raised 3,800,000.

06:42Another CEO joined about that time. They were trying to sell to the enterprise. It didn't work. You know, the CEO actually went back to the investors and said, take your money back. I don't know if we can make this work. But the founder, who's this third time around, took... Know, basically said, no, we're not doing that. It pivoted more towards a self-service model away from enterprise and started started basically marketing to the SMB. And that's around

07:09the time when we met.

Nathan Latka

07:10Well, okay. So what happened there? Did you buy the whole company and keep that one founder or what'd you do?

Peter Caputa

07:15No, no. We kept the whole team that was... That remained... The previous founder had gotten rid of the go to market team basically, parted ways to the... With the go to market team, which is all in The US. But the majority of the product and customer support team, which was in Slovenia, was retained. And so I joined, you know, it was like 12 people on the team and they were all amazing. It's all still with us.

Cap Table and Peter's Stake

Nathan Latka

07:40But are you, I mean, if I looked at the cap table, is it very clear that you're like a co founder 20, 30%? Like, did you get a big stake in it or or... I I don't understand. Are you like a hired CEO or...

Peter Caputa

07:50I... No. I got a stake. Okay.

Nathan Latka

07:52Okay. Good. I was gonna say a guy like you, you can pretty much do anything after HubSpot. You know, you you might as well go do something you own a big chunk of that you also think could be a really big pie.

Peter Caputa

08:00Yeah. I I probably could. Now that you say it, I probably could have negotiated for more, but

Nathan Latka

08:04Well, no. It doesn't matter. Right? As long as you're happy. Right? Because look, the difference between two or three percentage points long term doesn't really matter. Right? Okay. Good. So 3.8 raised today. That's all?

Funding Raised and Investors

Peter Caputa

08:14I raised 1,100,000 on a convertible note when I joined. A bunch of the HubSpot executives put in amounts. One of the existing investors put more in, and then I got two other funds to put some money in.

Nathan Latka

08:27Okay. So call it kind of 4.9, 5,000,000 all in.

Peter Caputa

08:30Yeah. 4.8.

Nathan Latka

08:31Yep. Is is David Cancel being too aggressive? Has he raised too much money?

08:36Guys must text message. You guys must text message about this.

Peter Caputa

08:39Sitting on it. Yeah. I've gotten the opposite way. Right? Although, you know, he's got an amazing traction with that viral and freemium model. So I have no idea. I don't know I don't know all his metrics, so I don't know. That's funny.

Nathan Latka

08:51You guys stay in touch? You recall the ex HubSpotters stay in touch?

Peter Caputa

08:55A lot of... Yeah. A lot of us do. Yep. Yeah. A bunch of the ex HubSpotters invested in Databox. So keep in touch and, you know, hang out with them once in a while. I see cancel quite a bit. We... You know, we go over there once in a while.

Nathan Latka

09:06Are you in Boston?

Peter Caputa

09:07Yeah. Yeah. We're based in Cambridge. Yep.

Nathan Latka

09:09Got it. Very cool. Let's talk about churn real quick. So walk me through your churn. What's it today, and how do you manage it?

Churn Metrics and Revenue Retention

Peter Caputa

09:14Churn's too high from where I want it to be. It's four to 5%. This month, it's a little... Right right below 4% on the customer churn number. Our revenue churn number hovers between 2 and 3%.

Nathan Latka

09:27Monthly?

Peter Caputa

09:30Monthly, yes.

Nathan Latka

09:30Okay. And that 2.5 revenue churn, is that net or gross?

Peter Caputa

09:36Walk me through what you mean by that, Seth.

Nathan Latka

09:37So do you include expansion revenue back on that?

Peter Caputa

09:40I do, I'm including the expansion revenue.

Nathan Latka

09:42So that's net, yeah. So you lose, I'm gonna make this up, you lose 5%, you gain, know, 2.5% back. Exactly. So yeah. Yes. Okay, Net revenue churn, good. And walk me through, I mean, is expansion revenue like a critical growth driver for you right now or is it really just get more subs in the door?

Peter Caputa

10:01No. It's still more of a get more subs in the door, approach. I think that's where we're getting the... That is that is where we're getting the majority of our revenue. We have a pricing model that scales with usage. And so a lot... And we have a free version. It's pretty generous. A lot of people start with the free version. They kind of continue testing and building out with their dashboards on the platform and they might

10:23hit a hit a limit. They'll upgrade to the basic. And then maybe a few months later, they'll upgrade to our plus plan or something like that. So, and then we also with agencies, I have expansion where they're adding new clients to the platform.

Nathan Latka

10:35Got it. Walk me through... Okay. So that's helpful to understand. With that churn number in mind, what do you assume kind of lifetime value is and how do you keep yourself honest about that number? Because it can get crazy quick.

LTV, Gross Margin, and Unit Economics

Peter Caputa

10:47Yeah. The... So based on that churn number and my ASP lifetime value right around, like, a little bit lower than four k.

Nathan Latka

10:57Yep. And you gave me the math on this. Think you're taking $140 a month times your gross margin of 70%. By the way, why is your gross margin so low? Mean, most SaaS companies like 85, 86%. Where's your... Why do you have more costs there?

Peter Caputa

11:10I added all of my support costs in there because we don't charge for any services right now. At some point, we will. I just hired a director of customer success, so starting to shift a little more focus there, but but I included all my... I have basically three or four heads there.

Nathan Latka

11:26That makes sense. That's good. Okay. So that's an aggressive gross margin in terms of you being very conservative, which is good. So 140 ASP divided by 2.5% monthly churn gives you kind of lifetime value in terms of dollars, and then you multiply times 0.7 gross margin to get about $3,900 in LTV.

Peter Caputa

11:39That's right.

Nathan Latka

11:40And what do you... What's your CAC right now?

CAC, Payback Period, and New Customer Growth

Peter Caputa

11:42It's pretty low. So it's basically just my marketing team of three people. We don't spend we don't spend anything on paid. My biggest expense was a thousand bucks on t shirts.

11:53So our our CAC, I have around $315, around $12 per customer. So adding about 80 to a 100 customers a month.

Nathan Latka

12:02And payback period is what? Two, three months it looks like?

Peter Caputa

12:05Yeah. It's it's back. Right? Two and a half. Yeah.

Nathan Latka

12:07Yeah. So are are you generally getting more aggressive with that or less aggressive?

Cash Flow Breakeven, Debt and Building for SMBs

Peter Caputa

12:11I'm kinda status quo right now. You know, we raised a bit of money. There was a little bit money left over from the previous round, but I'm actually shooting for cash flow breakeven here in q three.

Nathan Latka

12:22Oh, great.

Peter Caputa

12:23And so I'm I'm not try... I'm not accelerating too much. It's kind of... I wanna get my... I got my marketing processes in place. I got most of my sales process in place. Now we're getting more of our customer success processes in place. And then I'm hoping I can reduce that that customer churn number further and raise raise the large rounds.

Nathan Latka

12:43Yeah. I was gonna say, it sounds like you're you're building more leverage for yourself. Get to profitability and then go raise so that no one can have you by the balls. Right? Exactly. Yeah. Very good. Said very eloquently, right, by yours truly. Less salute of you. Now let me ask you a question. If you had the option to raise debt capital, let's say you wanna raise $3,000,000 versus, you know, 3,000,000 in equity. I mean, have you

13:03considered debt capital before?

Peter Caputa

13:05I haven't. I'm not the best on the financial side of stuff. I don't know what the benefit to that would be.

Nathan Latka

13:11Just non dilutive basically, right? It's but no personal guarantees.

Peter Caputa

13:15Literally, again, alone. We hadn't thought about it at this point. My ambition is to build a... Like, similar to HubSpot, build a very big business in the SMB market. I'm keep... I'm purposely keeping my CAC low for that reason, my price low for that reason.

Nathan Latka

13:30The hell wakes up and says, wanna build a huge business in the highest churn cohort of business as possible? It's just as you're setting your...

13:36You're you're signing

Peter Caputa

13:37No.

Nathan Latka

13:38Up for

Peter Caputa

13:39I'm passionate about it. It's like... That's my roots. I got uncles that run small businesses.

Nathan Latka

13:43What do they do?

Peter Caputa

13:44What's that?

Nathan Latka

13:45What do they do?

Peter Caputa

13:46You know, plumbing, construction, automotive, like a lot of consumer stuff. I got an uncle that sells medical equipment. I just... I'm passionate about that. Love working with SMBs. There's no bullshit. There's no bureaucracy. You know, it's dollars and cents. And like I I started my first business, you know, a few years out of college and, you know, worked with a lot of SMBs, helping them do their marketing, and so I don't know. I'm just passionate about

14:12it. I like it. I hate I hate the bureaucracy of big companies and, you know, kissing ass.

Nathan Latka

14:17Is that is that is that what made you kind of pop out of HubSpot? Is it was too big at that point?

Peter Caputa

14:22Yeah. I think part... Yeah. Part of it. Yeah.

Famous Five Rapid Fire Questions

Nathan Latka

14:24Yeah. Alright. Very good. Let's wrap up here with the with the famous 5 Theater. Number one, what's your favorite business book?

Peter Caputa

14:29My favorite business book, probably Baseline Selling by Dave Kerlin.

Nathan Latka

14:34Baseline Selling. Actually, quick before I go to number two, people always ask me, Nathan, why do CEOs come on your show? I'm like, they're so cool sharing numbers and stuff. I go, you know what? Honestly, I don't know sometimes. You're a guy, you listen to this show, right? Yeah. Yeah. Because you email you email me ahead of time. Tell me the psychology. Why does a guy like you come on the show and you're totally cool being

14:50so transparent?

Why Peter Shares Numbers and the Rest of the Famous Five

Peter Caputa

14:53Why not? Like, I've learned a lot from other people being transparent. I'm proud of what the team has done so far. There's no reason to hide it. I don't see any reason keeping it secret. I've always found that the more I share, the more people care about what I'm doing. I didn't mean to make that rhyme, but it did.

Nathan Latka

15:12Peter, the answer I wanted to hear was that I'm very charming. I beat the hell out of people. They have to give it to me, but you gave me none of that. You gave me none of that.

Peter Caputa

15:19Well, I've listened to some of your things. I can't believe people come on to this call like expecting to avoid Yeah. Telling you like their churn number.

Nathan Latka

15:28That's like what I do.

Peter Caputa

15:29Why would you join?

Nathan Latka

15:30Yeah. I'm like, you're an idiot for not managing your time. Anytime you're gonna commit thirty minutes to something, you should research what you're getting into. Right? Yeah. All right, Peter. Number number two, who's a CEO you're following or studying right now?

Peter Caputa

15:41I enjoy what Cancel is doing since you mentioned him. I think he's he's built an impressive product organization and he's slapped on a marketing, organization that's getting the message out. So I like what he's doing there. Numerous. I owe a debt of gratitude to Brian Halligan. I learned... Even though I gave him a lot of crap while I was there, and he wasn't always easy on me, I learned a whole hell of a lot of things.

16:08And now that I'm in his more in his shoes as a CEO, like, I I really appreciate what I learned there.

Nathan Latka

16:15Three, what's your favorite online tool for building your business?

Peter Caputa

16:18Online tool for building my business.

16:21We couldn't do without Asana, the project management tool. I'm a big fan of being transparent up and down the organization and even external as we talk... As we as we just talked about. And so Asana gives us the abilities for everybody, the newest employee, me, any of the managers to see what's going on in the organization and and be aware of of vendor dependencies and and all that.

Nathan Latka

16:46Number four, how many hours of sleep are you getting every night?

Peter Caputa

16:48I am a solid eight to nine hour sleeper.

Nathan Latka

16:51That's great.

Peter Caputa

16:51Love get that.

16:52My sleep. What's difference? The only thing

16:54that really cuts into it is if I get hooked on a Netflix show at like 09:00 and I can't stop watching

Nathan Latka

16:59What's the last one you got hooked on?

Peter Caputa

17:01Black Lightning right now.

Nathan Latka

17:03Yeah. Alright. And what's your situation? Married, single, you have kids?

Peter Caputa

17:06I am married. Thirteen years now, I believe.

Nathan Latka

17:09Congrats. Right.

Peter Caputa

17:10It year old boy.

Nathan Latka

17:12Alright.

17:12And how old are you?

Peter Caputa

17:1341.

Nathan Latka

17:1441. Last question, Peter.

17:15What do wish your 20 year old self knew?

Peter Caputa

17:19SaaS economics. I started a SaaS business back then and like, there wasn't really a word SaaS. It meant, you know, just being sassy. Yeah. So... Yeah. No. I wish I understood the fundamentals and the dynamics of it, and and the importance of focus on processes and efficiency and and just the levers that that drive growth.

Nathan Latka

17:39Guys, there we have it from Peter. Grew the value added reseller program at HubSpot. Now joined Databox, which helps you pull all your data to one place. You can track performance and get insights all in real time. Right now, doing about $91,000 a month in revenue. That's up from 23.4 k per month in a... Sorry, $23,400 per month in 2017 about a year ago. So healthy growth rate there. They raised about $5,000,000, really 1.1 though,

18:02kind of the new product after the the changes in the organization. Serving 650 customers paying a $140 a month, 4% gross customer churn per month, 2.5% net revenue churn monthly with his team of 20 people based up there in Boston. Peter, thank you for taking us to the top.

Peter Caputa

18:18No. It was fun. Thanks, Nathan.