How Design Pickle Reached $10M in Revenue in 2019 Selling Flat-Rate Creative Services (Interview with Founder and CEO Russ Perry)

Introduction and Positioning Against Marketplaces

Nathan Latka

00:00Hello, everyone. My guest today is Russ Perry. He is building a company called Design Pickle, which is a platform that allows you to grab flat rate creative services. He's the he's the... With the world's most successful flat rate creative service. He leads a global team as they rethink and deliver a remarkable new way to find the perfect creative. All right, Russ, you ready to

Russ Perry

00:18>> take us to the top? Let's do it.

Nathan Latka

00:19All right. So this is obviously a competitive space. You know, I've used tools obviously like Fiverr and Upwork and things like this before, you know, Dribbble maybe on the other end. Where do you put yourself on the spectrum of these content services, creative services?

Russ Perry

00:32>> We're what you do when you graduate from those marketplaces. We find that our services is like the perfect blend between the benefits of a employee, but without the risk or the cost of that. And you can dial it up, dial it back, add it to subtract it, really dynamic with the needs that you have.

Nathan Latka

00:48When did you come up with the idea? What year?

Founding Story and the Failed Agency

Russ Perry

00:51>> 2015, after I unsuccessfully tried to run a creative agency for eight years and was an unemployed consultant trying to get, like, help. And I couldn't find it on the marketplaces. And I was like, damn it. There has to be a better way to find reliable help. And then you know how the rest of that story goes.

Nathan Latka

01:08Why was the agency unsuccessful?

Russ Perry

01:10>> We never specialized. We were a generalist agency trying to do too many things to everyone. We couldn't develop a process. We couldn't develop a system. And that was my moment afterwards. Was like, look, I could just do really, I'll even say it kind of boring design, production design, straight level stuff. And if I could get it really dial in and optimized, I think I could have a different kind of business than trying to do, you know,

01:34>> everything under the sun.

Nathan Latka

01:35So that agency, just out of curiosity, I mean, what did you... Its best year, how much revenue did it do?

Prior Agency Revenue and Team Structure

Russ Perry

01:40>> We did around 3,000,000 at our best year, but we were doing high ticket items. I'm talking $500,000 branding projects, $250,000 trade show events. So one and done huge monster projects. I never had more than eight clients at a time and it was unscalable and there was no sales system. I I made about every mistake in the book possible with that agency, which I actually think is like 855% of why Design Pickle has done well is because I

02:07>> got all my mistakes out of the way.

Nathan Latka

02:10Okay. So best year, 3,000,000. Were never more than eight clients. And what was the team size there about?

Russ Perry

02:15>> We had a team size of about six people here in Scottsdale. And then this is when I, you know, kind of fortuitously tested the outsourced model. I had a partner in Buenos Aires in Argentina, and we had 12 designers and creatives down there. And the whole model was to try to use international teams to have a lower cost of goods. It worked on that part. But what I misestimated was just not having a system for the

02:44>> projects. And so we spent so much time redoing work, managing clients. We lost all our profits in the client management side of it.

Nathan Latka

02:52Interesting. Well, by the way, six employees and a $3,000,000 in your best year. I mean, 500,000 per employee is not that bad.

Russ Perry

02:59>> Plus plus the 13 in Argentina. So I... He was a fifty fifty partner, so half my money had to go there.

Nathan Latka

03:06I see. Okay. All right. So 2015, you jump into Design Pickle. So walk me through your mind, is this typical marketplace model, where do you make money?

The Design Pickle Business Model

Russ Perry

03:15>> So it's not actually, we're the only service out there. All of our team is full time dedicated to us. And this was a decision that I had from the very beginning is I just knew how hard it is to always having to like find someone, build that relationship, explain what you need, explain your brand. And from day one, our creatives have just worked for us. So that was started with one creative, one project manager and myself,

03:38>> three people launching in January 2015. I never wanted to actually be in between the client and the creative. So our clients just work directly with the creatives and it was a super bootleg hacked together system. The running joke is actually, if you knew what email address we used, you don't even need a paid account because you could just circumvent the whole paying us thing. And we just launched from there and just really looked at what is

04:04>> the average utilization that I could think of a client and what they would need on a week to week basis. And I was listening to a ton of startup podcasts at the time. Was like, shit, I just want recurring revenue. What's a price I could pick? And I just picked that and went to went to market.

Gross Margin and Offshore Designer Economics

Nathan Latka

04:20So how many designers now are full time?

Russ Perry

04:23>> Around, four seventy.

Nathan Latka

04:25Okay. 470 full time. I mean, back in the napkin, I'm thinking, oh my gosh, this guy's headcount expenses per month are through the roof.

Russ Perry

04:33>> It is, but when you think about that, most of that is our labor in other markets. This is where our cost of goods really comes into play. Because our gross margin is on a good month, 68% when we start to grow and we're adding middle management, it gets down to low 60s, but our teams are in markets, I call them emerging markets where they are on average making $3 to $4 an hour if they wanna get

05:03>> a job where we'll start at $6 to $7 an hour. So we're 3X ing their take home, still fractional what you could hire here and tons of automation and systemization that we've built on the software side to streamline everything.

Nathan Latka

05:17Of the four seventy full time designers, how many are not in The United States?

Russ Perry

05:22>> 470.

Nathan Latka

05:23Oh god. So they're all... They all in Argentina?

Russ Perry

05:26>> No, they're in Philippines, Mexico, Indonesia, Argentina, Colombia, moving into Peru, India, couple of countries that are escaping me. So our goal is to be the best employer in every one of those markets. You can't make a living working on a marketplace. Like you can't make a living cobbling together jobs off Fiverr or 99. And that's where a lot of those companies get their teams from their labor. We give them full time rates, weekly contracts, benefits, all

05:55>> of that. So we can recruit from the best of the best. And we're also having a nice labor arbitrage as well, providing really good talent from countries that have a much lower cost of living.

Nathan Latka

06:06Is that the is that the growth play? Go on Fiverr and Upwork, sort by designers with most reviews to least, then go pick the top ones off and say, Hey, instead of hunting every month, we'll give you guaranteed $6 an hour.

Russ Perry

06:16>> So that was our play the first eighteen months. And then we ran out of people.

Nathan Latka

06:21Yeah, not a bad way to get started.

Russ Perry

06:23>> Upwork, we were just hunting on Upwork all the time. And, you know, we just ran out of talent. Now it's all, we have an entire dedicated recruiting team. So of the four seventy, not all our designers, they all at one point were, but we have HR training, recruiting. All of the functional side of that is included in those numbers as well.

Nathan Latka

06:42Interesting. Okay. So let's fast forward, to today. How many customers are you serving?

Customer Count and Subscription Structure

Russ Perry

06:48>> Actively, we have 3,300 subscriptions. So that could... A customer could have multiple subscriptions depending on how much of our service they want. How many unique customers? I would say on that, a little shy of 3,000.

Nathan Latka

07:03And can you explain to me why one customer, like one person might have two plans?

Russ Perry

07:08>> It's unique economics on how much volume you get in a day. So each subscription you have guarantees you a certain amount of creative output. And if you just want more done per day, you can pay more and sort of buy up more of their time. Also, we do more than graphic design. We do right now graphic design and illustrations. Later this year, we're doing motion graphics. Next year, copywriting, video editing. So we're... So eventually you could

07:33>> build your own virtualized team with multiple subscriptions across each service.

Nathan Latka

07:38Yeah, I mean, I wonder what a platform like what you are building is the moat that you're building as Buffett would say, your ability to recruit globally, right? And get people in a system that can deliver that talent also globally. And then there's a spread between what an American company would pay for a great design from someone in Argentina, or is your competency a design competency? I think it might be a recruiting competency.

Russ Perry

08:02>> It's not the design competency. We're not winning any off Madison Avenue awards here. What we are is we've built a system that optimizes creativity really. And, you know, anyone I joke, anyone can go out and make a couple hundred thousand dollars a year copying what we do, but there's like legitimate and really complicated scalable, like challenges that you have to have. Like we'll do, you know, 12,000 requests this week, individual unique requests. We're serving, you know, hundreds of

08:35>> thousands or millions of emails and messages and all of that and managing it. We have AI, we have all this tech. That's the moat. It's managing that, not just finding some cheaper designers compared to US and reselling their time.

Nathan Latka

08:48Yeah, yeah. Okay, so of the 12,000 requests you get per week, first off, explain what that is. So I'm on the homepage right now. As a request, when somebody clicks one of these green buttons on one of your plans, $399, $995 or $499 a month?

Pricing Plans and ARPU

Russ Perry

09:01>> Nope. That's just your subscription to the all you can eat buffet of Design Pickle. So we're flat rate. Whatever you pay per month is what you pay no matter how much you request. So our entry plan is $400 a month. We have a pro real time plan, which plugs a designer into your Slack. So you can actually have a nine to five designer in your Slack, into your own channel for a thousand dollars a month. And that's

09:25>> the flat rate. So it's all about the utilization there. So a request is just anytime you log into the app and you need something.

Nathan Latka

09:33So what, I mean, obviously people can pick one of these plans. What would you say the average price point is that a customer's paying per month?

Russ Perry

09:40>> I mean, ARPU is like $512. Okay. Got it. Good split.

Nathan Latka

09:48Yep. And if you just count by popularity, so sort of an average, is your $995 the most popular or the $399 per month most popular?

Russ Perry

09:56>> So by volume, it's all... It's the entry plan because it's been around longer. But I I I laugh the day we launched the thousand dollar plan. It's easier to sell. The clients stick around longer. Our cost of... Our cost is negligible. It's... It was like the running joke, like, why didn't we do this sooner?

Nathan Latka

10:15Interesting. Interesting.

10:17Yeah. And so the upsells there are real time collaboration, same day delivery, API integration, and a couple others. Which one of these upsells that are not available in the $400 a month plan were the most powerful in terms of converting people from 400 to a thousand bucks a month?

Russ Perry

10:30>> So I wouldn't actually say it's an upsell or a conversion. They're two different audiences, but the what people value the most, the value metric that's the most powerful is I can talk to my designer real time.

Nathan Latka

10:41Got it.

Russ Perry

10:42>> The collaboration, here's a dropping in a file in Slack. What do you think about this? Check out, take a look at this. And their little green dot turns on at 9AM and it turns off at 5PM and they're there. They're available. It's pretty it's pretty cool on that front.

Revenue by Year, Retention, and Annual Plan Strategy

Nathan Latka

10:57Interesting. Okay. Talk to me about revenue growth. So first year, do you remember how much you did?

Russ Perry

11:02>> We did 300,000 our first year. Do want me to just go through all the years?

Nathan Latka

11:06Yeah. Why not?

Russ Perry

11:07>> 300,000, 1.2, 3.4, 4.2, 10.

Nathan Latka

11:13Okay. Interesting. So you did 10 last year? Yeah. What do you think you'll do this year with the with the prices and everything?

Russ Perry

11:20>> We rounded down conservatively. We'll be doing 14,000,000.

Nathan Latka

11:24Interesting. And all of that, like when you look at your hiring plans, you have to have some sense of what of that is fixed true SaaS sticky revenue versus what is kind of one time kind of work. So break down the 10,000,000 from 2019, how much would you put into that and a predictable recurring SaaS revenue that you can make hiring decisions around?

Russ Perry

11:44>> It depends on the time horizon. So of the first year, year zero through or month zero through 12, it's gonna be around 50%. And I'm gonna explain something on the back end because these numbers might seem a little scary to an average SaaS business. Lifetime signups, it's 25%. Like we'll retain 25% of our signups for life, but we really focus our sales strategy on multi month and annual plans. So we will, our numbers, we might have

12:19>> a client that would normally only stick around for three, four, five months, but we really aggressively look to sell them on a discounted twelve month plan their first ninety days to capture that full revenue. And that's just learning about the utilization of design. It's not a sticky service like an accounting tool or some other thing. So we have to have a much different approach on how we capture that revenue from a client because we know at

12:44>> some point they might just change their mind and not wanna use us anymore. And there's really not... We have like a whole categorization of happy churn. I love you. You guys are amazing. My project's done.

Nathan Latka

12:55Yeah. Yeah. And there's nothing to... You see this in the event business as well. You know, these sassy has gone to show and they go, Nathan, I hate how high our churn is. I'm going, well, if you do your job and do a great event, they're gonna stop it, and they're gonna come back next year when they do the event.

Russ Perry

13:07>> Like Yeah.

Nathan Latka

13:07You can call it whatever you wanna do, but you have to understand how people are using the tool. So this makes sense. I wanna dig into the the annual sales. So first off, break your team down for me. So what's the total team size today?

Team Breakdown and Engineering Headcount

Russ Perry

13:17>> Total team size is like five zero five folks.

Nathan Latka

13:21Okay. Including the four seventy outsourced kind of designers, managers.

Russ Perry

13:24>> We categorize it as HQ because we do have a few people outside The US on that side, sales, marketing, engineering, customer support, and then production. So HQ plus production is about five zero five.

Nathan Latka

13:36So 35 is HQ?

Russ Perry

13:37>> Yep.

Nathan Latka

13:38How many are engineers?

Russ Perry

13:41>> We have five engineers now.

Nathan Latka

13:42And how

Russ Perry

13:43>> many are quota carrying sales reps? Zero.

Nathan Latka

13:45So how do you motivate your sales reps to get the customer to go to annual in the first ninety days?

Russ Perry

13:52>> We incentivize... So quota carrying is, they have a bonus past their salary. They get incentivized on the percentage of the first deal a customer has with us. So if inbound lead only signs up for a monthly, they're only gonna get a percentage of that monthly contract. But if they're able to sell them into a three, six, or twelve month plan out of the gates, then they'll have a much larger, I guess, numerator for the, bonus on

14:27>> the sales side.

Nathan Latka

14:28Okay. And then talk to me about how you've capitalized the business. Bootstrapped or have you raised?

Bootstrapping, Debt Financing, and Unit Economics

Russ Perry

14:33>> We are bootstrapped. And then about two years ago, we did a debt lending, and just use borrowed some money. And that has been the best for us because we cash flow really well. Our LTV is well over $4,000 and our CAC is anywhere from $600 to $700. So we can return on a client in two to three months as long as we have the cash available.

Nathan Latka

15:01Yep. How much did you raise on the debt side?

Russ Perry

15:03>> 1,200,000.

Nathan Latka

15:04And which from just SaaS Capital, Lighter capital?

Russ Perry

15:07>> Lighter, Lighter. The guys are Lighter.

Nathan Latka

15:08Lighter,

Russ Perry

15:10>> I love it. I mean, I always joke. It's like the sketchy college credit card you get, you know, high interest and it's super easy to get, but they were easy. I mean, they understand it. It was a great decision for my business because of my numbers. But if I was selling a $25 to $30 product without a big return immediately, I don't know if that would have been the route.

Nathan Latka

15:29What year was that that you did that with Lighter?

Russ Perry

15:33>> In 2018.

Nathan Latka

15:35Yeah. So people that founders that have come in that looked at Lighter and ultimately passed, you'll commonly hear, Nathan, it was too hard to figure out what the interest rate was. It was four to 8% of our gross monthly receipts plus a 1.2 to 1.8 X repayment cap over like targeted three to four years. But if we grow fast and we pay it back faster and then the cost capital goes through the roof.

Russ Perry

15:54>> Yeah. So we actually... I don't know how many people have gotten this. We just got a term loan with them.

Nathan Latka

15:59Got it. Got it.

Russ Perry

16:00>> I think it's a new... A newer product and they saw our numbers and they... It was just three, three... 36 payments. We know what it is. We can budget for it. Easy peasy.

Nathan Latka

16:09Can you... Are you comfortable sharing a range of what that rate is? Usually these you see between like 14 and 25 percent.

Russ Perry

16:15>> You can probably do the math quicker. I just know our payments like around 60 ks a month. So I don't know what the

Nathan Latka

16:21Yep. Yep. That's good. Okay. So 6 ks a month, three year term, we can come back to that later, but interesting. So this is by the way, a trend. I think you're gonna see a lot more companies using debt, especially healthy ones like this, because you can essentially then own, you and your partner keep a 100% control of the company.

Russ Perry

16:35>> Right. Exactly.

Nathan Latka

16:37Interesting. Okay, cool. So you're expanding into additional spaces. Would you ever look at M and A right now? Are there any companies you'd go buy?

Russ Perry

16:44>> So this is the... I tease it, not anyone that's like us, but I actually have this sort of weird, fantasy. I don't know if that's like a right word of like finding burnt out agency owners and gobbling up their account managers and putting them just all on our customer success team. So, and then, you know, buying books of business that we could resell our services directly into to recoup on the M and A transaction. But you

17:13>> know, I haven't been too aggressive about that, was talking to one company, out of South Dakota of all places and before COVID hit and just put the ice on that.

Nathan Latka

17:22Interesting. Yeah. I mean, this is... You know, there's a lot of these like Chrome extensions that are like color palette Chrome extensions or like, you know, small small marketplace that just fizzled out because they couldn't get the chicken and egg problem done. But like, I mean, like, is a... The way I currently do this is I will come up with one design, like a podcast logo and I will just pay, I'll give it to six people

17:40on Fiverr. And then they'll... And they're all cheap. They'll... I'll get six options back and I'll pick one. I, you know, I used to use 99designs, but like the quality was just like all over the place. It was very hard to get anything predictable.

Russ Perry

17:51>> Yeah. Well, you know, when you're ready to not have to even mess with that anymore, we'll be here for you. I think with Fiverr, they actually tried to buy us twice last year. Uh-huh. They were on premium, but what comes down to is like when you need one every week or one every day, and you just wanna send the info to someone and not have them give them a brief, not have it to go through the

18:12>> commerce checkout process or sync it to your Asana, you just put the details in there and it zaps right over to Design Pickle.

Nathan Latka

18:18Interesting. Okay. Here. Before we wrap up, so you said you got 1.2 from Lighter on a three year term. Right? Mhmm. So, yeah, something's wrong. I mean, unless it really is as high. So if you're paying like $60,000 a month, that basically means, that you're paying like a 40% interest rate. If you're... It's $60,000 a month for three years, it can't be that

Russ Perry

18:35>> It's not that high. I know that. So I must I must have gotten something off in that. And Okay. And I'm the creative guy. Remember?

Nathan Latka

18:43So Yeah. Yeah. Yeah. My... I mean, I have a thesis that a lot of these lenders right now are lending based off the spread they have to make cover their expenses, not based off the true risk of the SaaS company defaulting. I look at what you've built on the surface and it seems like a stable, predictable thing. I just think over time, the cost of capital for folks like you are gonna come come way down into

19:02the 11%, 12%, 13%, 14% range.

Russ Perry

19:05>> Yeah, I know it's not the cheapest out there. It was just the easiest for us at the time because we are not a pure SaaS business. We're a tech enabled service. So it was harder for us to try to find other lending, that would have been, you know, at when we were smaller.

Nathan Latka

19:22Yeah. What did, what Fiverr offer you?

Fiverr Acquisition Conversations

Russ Perry

19:24>> The first round was 2 or 3,000,000. The second round was 20,000,000. And then I said no to both.

Nathan Latka

19:31The the second round was what year? Last year?

Russ Perry

19:34>> Last year. Yeah.

Nathan Latka

19:35Interesting. And why'd you say no to 20 record.

Russ Perry

19:37>> There weren't there weren't any term sheets. These were casual conversations.

Nathan Latka

19:40Yeah. Yeah. Yeah.

Russ Perry

19:41>> Yeah. Technically, they didn't offer us anything for the record. Yeah.

Nathan Latka

19:44Yeah. Yeah. Of course. Of course. But general chat. And and why why no to 20,000,000? You own a 100% with your partner.

Russ Perry

19:49>> You know? I loved actually the Fiverr team. You know, don't get me wrong. I think they're badass. I think they have a lot going through them. They were early adopter. It was a lot in what the deal was going to be public stock earn out performance. So it was just complicated. And I don't think it was the right fit. I don't think we're gonna say no. I'm still friends with them. I think I knew there was

20:12>> a number for me to make it work and we just weren't there. But, I think just the timing was off.

Famous Five Rapid Fire

Nathan Latka

20:18Yeah. Alright. Let's wrap up with the famous five. Number one, favorite book.

Russ Perry

20:21>> Ender's Game by Orson Scott Card.

Nathan Latka

20:23Number two, is there a CEO you're following or studying?

Russ Perry

20:27>> Oh, I love Cal Newport. I don't know if you can call him a CEO. He's an author, but he does do a little coaching and speaking.

Nathan Latka

20:34Yeah. I'd count him. Number three.

Russ Perry

20:36>> Alright.

Nathan Latka

20:36What's your favorite online tool for building the company?

Russ Perry

20:39>> Right now, it would have to be ProfitWell, like, couldn't live without it.

20:43>> Yep.

Nathan Latka

20:44Number four. How many hours of sleep are you getting every night?

Russ Perry

20:46>> Seven to eight.

Nathan Latka

20:48Situation married single kiddos?

Russ Perry

20:50>> Married with three daughters, 14, eight, and four.

Nathan Latka

20:54Wow. Okay. And how old are you?

Russ Perry

20:56>> I'm 37.

Nathan Latka

20:57Last question. What do wish your 20 year old self knew?

Russ Perry

21:00>> Stop drinking immediately. It's not helpful.

Nathan Latka

21:04Guys, there you have a design pickle. He built his own agency up to about $3,000,000. Now has over 3,000 customers closer to a SaaS model, 68% gross margins. They pay for designers' time. They built a team of four seventy offshore designers that are very talented making $6 to $7 an hour. Those customers pay between 500 and $600 per month on average. They're doing... They will do about 14,000,000 this year, did 10,000,000 last year in 2019, processing over 12,000

21:27design requests per day as look to scale. Own a 100% of the company. They bootstrapped, raised $1,200,000 in debt a couple of years ago, building the company the right way. Russ, thanks

Russ Perry

21:36>> for taking us to the top. Hey. Thank you so much.