How Duetto CEO Woojong Yi grew to $51M revenue and 3K customers in 2017.

they launched in 2012 three co-founders now 105 people helping hotels and specifically Hotel locations better optimize their pricing they raised $51 million serving over 3,000 individual Hotel locations paying on average 17 grand per year so they will very soon be doing about a $50 million run rate 75% gross margin which they've really like tripled uh over the recent future which is incredible how they how they work that fixed cost structure to drive more growth and and bring the margin up over time additionally again spending about 20,000 bucks on CAC so super healthy pay back period about healthy payback period at about 14 months again based out there in San Francisco and Vegas this is episode 737 coming up tomorrow morning I talked with Mariano the question is is he the future of design collaboration well folks 1,200 customers are paying him and $3 million every year my answer would be yes what's yours but first here's today's episode this is the top where I interview entrepreneurs who are number one or number two in their industry in terms of Revenue or customer base you'll learn how much revenue they're making what their marketing funnel looks like and how many customers they have I'm now at $20,000 per talk 5 and6 million he isent on global domination we just broke our 100,000 unit soul Mark and I'm your host Nathan lka hello everybody my guest is Patrick Bosworth he's the co-founder and CEO of a company called duetto research which and his Focus is driving vision and growth at the company he has nearly two decades of experience as a leader in the hospitality technology nonprofit and government sectors he also holds an MBA from Harvard Patrick are you ready to take us to the top yeah all right is your NBA is your NBA from Harvard worth anything in the startup world or no yeah I don't think the company would exist without it um tell me why well so the company was started through a section made of mine convincing me that there was an opportunity to build a tech business here and then he introduced me to one of my co-founders Craig Weissman who is the chief technology officer of salesforce.com at the time and was looking to found his own business and um and then in the fundraising process you know it's whe whether it's the just way the world should run or not um it definitely created a lot more credibility that you know I had an NBA from Harvard another co-founder had an NBA basically from Cornell and my third co-founder you know also went to Harvard and those networks are very strong and it helps you get meetings with uh Venture capitalists um and that's that's how we raised our first round for a young student listening right now that doesn't want to go through the work of actually completing a degree at Harvard but sees the value in the network like you do is there a way to hack that is there a way to get access to that Network without actually you know going through classes for four or five years um yeah there are um I I I think that you do get other benefits other than just the the network by by going through I did the 2-year program so it wasn't a four or five year commitment um but uh so in particularly in my case where I was going from a non-traditional background having worked in the Arts as an actor and singer to then working in politics um it was really helpful for me to have a a grounding in business terminology The Way businesses work meet a lot of you know people that had worked in banking and Consulting and other things that had a lot to teach me um aside from just the network there is a there are abbreviated programs so there are things like the Executive Education Program the advanced management program and other short short courses that you can take that give you access to the network so if that's the the primary interest now they tend to be expensive so it's like 60 or 70 I think it's like 60 or 70 grand I mean don't quote me I don't know the pricing but it's I think it's like $70,000 to go through an abbreviated program that then gives you full access to the alumni database you can put it on your LinkedIn and and start kind of networking in that Circle maybe that's what I'll do I'll raise a VC fund and all I will do is write a 100 Grand checks to smart people to go through the program so they can get access to the network with a guarantee that I get 5% of whatever company they create coming out the other side I don't know Patrick tell me tell me more about duetto what do you guys do and what's your business model how do you make money um we are a hotel software company um we Leverage What I would refer to as medium data not really true Big Data but large data sets to um help Hotel um managers at the property level make smarter decisions about their business so so our first product is pricing optimization so um we pull in a bunch of different signals of demand at the market level and for that particular hotel and help them pick the right price for each customer segment each Channel each room type um for every day for the next 13 months um and in general that increases the revenue by anywhere from 6 and a half to 8 and a half% which increases their profit by 75 to 100% M what is the I mean how do you make money on this is it a software as a service product or you're taking a cut of Revenue rise you generate or what most of it is a just a subscription uh payment that's paid annually um that's based on the product that they're buying and the number of rooms in the hotel we do have a performance kicker that allows us to get a share of The Upside um and helps align our our risk with the client surprisingly Hotel companies typically want that to be a small part of the deal of course wait why is that surprising to you that's what I would have guessed uh well I think I I thought particularly in the earlier stages of our company when we weren't as proven I would have expected them to want us to take on more of the risk and then make money more on the upside but because of the fragmented nature of the hotel industry where you have a separate party that owns the the property another one that manages it and then another brand that could be on the you know on the outside of the building um getting alignment among those three parties can be pretty complicated and what they want is to know what their expenses are going to be and have a a fixed price contract and so anytime we try to do a more variable contract a pricing negotiation that might take one to two weeks would drag on for one to two or three months and uh and so they wanted to limit the risk but having some of our fat risk does give them the confidence that we're willing to kind of um put our own uh livelihood and you know behind their success last month what what percentage of your Revenue came from just the flat SAS model versus the up you know hey we got a percentage of The Upside we created model I'm not certain but I'm guessing it's about 5% from the variable oh got it yeah okay yeah so this definitely is like 8020 even even more sharply at like 955 something like that yeah it may have been seven or eight% but no more than that yeah yeah Okay cool so take us take us back actually help us understand kind of averages here so I imagine you have all kinds of cohorts of different customers that you're selling to who are you actually selling to though is it the person that owns the building is it the Marriott that operates the building is like who are you who's the buyer it varies um so if it is a strong brand like Marriott who's not a customer of ours currently they control all of their brand systems and we would need to integrate into their ecosystem of inventory management distribution and so on and they would then have complete control so if a real estate owner wants to work with us at a Marriott property um Marriott would would prevent that because we're not integrated into their ecosystem today um so in the case of a very strong brand like that we have to go to the brand in the case of smaller brands that maybe don't exert as much control or have more of a membership model um or when it's more of just like an independent hotel in a market um then it can be more of the management company the people that are actually hiring the employees and operating at what a lot of people don't realize about the hotel industry today today though is that a lot of times the brand is no longer the operator they they've gone so asset light that they no longer not only do they not own the the underlying real estate they also don't actually hire the employees that service the guests got it um and so those management companies tend to be our first point of contact and our ultimate Champion to then get alignment from the brand and from the real estate owner to make a purchase of our software and give me a sense of the general size of that right so on average are they paying 30 grand for the year 300 grand for the year what's a range so on a per property basis I think today we're getting about 17 or $18,000 per Hotel per year got it um so depends on the number of rooms number of rooms and the product that they're buying got it okay take us back more to to the backstory here so what year did you guys launch this company in we founded it in February of 2012 okay 2012 and you say we there was two other co-founders that's correct okay and how did you guys have the equity conversation right there's always lesson in that between the three of us yeah I mean some people say we just SPL It 33 33 33 and I said you're that's weak somebody's worth more than somebody else you just didn't want to have the tough conversation how did you guys have the conversation um we certainly had the tough conversation um so you know Marco and I were working on this business we hadn't founded yet we hadn't created the actual entity but Marco and I have been working on it for about a year um and we met Craig Weissman uh let I think we met him the beginning of September of 2011 and it took about five months to court him and uh his last two companies that ipoed um but he'd never been a founder of a business um he was the CTO of Salesforce for he was there for about nine years and was the CTO for the last three years that he was there and um when we were Marco and I were in Vegas at the time and we were trying to raise money there um we were getting valuations more in the you know one to two million range um and the day that Craig joined the valuations jumped up to the $10 million range did you tell him that did you want him to know he was that valuable before he agreed to how much Equity you were going to give him or did you test putting his face on the PowerPoint side and see what the valuation increase would be I he didn't need to be told he knew he knew his market value and and he was a party to those discussions so it wasn't a there was no information asymmetry there um nor would I've wanted there to be one um and so you know we had already been having some conversations about the equity split um but um those conversations came to AE pretty quickly and um you know I'm the CEO of the company but Craig owns um don't tell me the exact number because you're getting in trouble but like does he own more than you oh yeah he owns significantly more got it so is he the majority share he's the majority shareholder in the company no no because we we've raised four rounds of capital got it how much total um we've raised 58.3 million got it okay good so 58.3 million so okay besides investors is he the he owns the most uh he is the largest common shareholder he he has a plurality but not a majority got it makes good sense com and what so so you guys have raised all this Capital well I mean how do you I assume you have good e good economics you understand what it costs you to go acquire a new hotel right at the ACB of 17K per year what are you spending to go acquire a new hotel um our payback period um is about 14 months right now okay 14 so so if your average deal size is 17 grand I can assume you're spending what about 20 grand to acquire a new customer somewhere in that range is it super sticky I mean I imagine once you're integr there's a on boarding and once they're integrated is it hard to switch we we've literally never lost a company a customer in five years yeah that's amazing um so um we've lost individual Hotel uh we had a hotel that there was a military coup in a country and they closed the hotel um there was one that was exploded in you know Vegas to build a new expansion to the convention center and so forth but we've actually never lost U uh a customer only individual properties got it um and so it's very unusual for a software company to have that degree of stickiness um I've never found one that did well so let me ask you an interesting question about this right because these are tough these are interesting numbers especially when you start to extrapolate them which can be dangerous but you kind of have to do it right so if you know that your churn is so low and right now you're spending 20,000 bucks to go get a hotel chain I mean what if your lifetime value is 2 million bucks for that one hotel like how do you know whether to double your C or cut it in half by one how do you make those decisions um we don't know um what I will say is that the selling into the lodging Market is incredibly difficult um some of it's because because of the fragmented value chain that I described earlier um some of them it is because it's about as old school of an industry as you can get um that does not Embrace technology quickly although that's beginning to change and so the The Dilemma for us is is that we've experimented with pouring additional cash into additional sales reps or demand gen or other things and it the the cash gets spent very inefficiently so that that ratio of sort of cact ACV doesn't actually hold it becomes massively less less efficient and so there's almost this force of nature where it's actually really hard to grow the business faster than it's naturally growing because there are these time periods where a hotel company is looking for new technology um either because they've bought one of our incumbents um and they're stuck in a 5-year contract and you know no matter how many times you call on them they can't buy for another three years because they have to wait um or because they're in the process of doing a massive um rep platforming of their property management system and until that's done they just really can't take on something I mean so there's these there are these sort of fixed impediments to some companies moving quickly and so what we've learned is we can grow more rapidly by expanding the new geographies which is why we have offices I think in I think we're in seven countries today and we'll soon be in nine countries in terms of physical offic how many how many hotels out of by the end of this quarter we should have close to 3,000 hotels that's amazing okay in in I think 98 countries okay wait hold on my math something in my math is wrong then here because because if I take three or no maybe it's right so if I take 3,000 kind of hotels times your $177,000 ACV what get are $50 million run rate on average um well so um that that will be contracted then some of that will be lagging behind Integrations and so we actually don't count those as confirmed bookings um until the integration are done right so we we have this weird concept so another idos syncrasy of our business is that we have this lag of a gross booking which is then broken up into confirmed bookings and deferred bookings the Deferred bookings can sometimes hang out there for as much as a year well um while we work on Integrations into their custom in-house systems or new vendors that we haven't worked with before and so you know our current run rate you know is you know I don't usually share the exact numbers but we're we're we're a fraction of of the number that you just claimed you know you the back of the envelope that you did but we will be there next year got it got it and so there's this constant lag where we're basically moving from deferred to confirm to confirmed this year and then that's what we claim to investors and our board and Y and and internally that's what we talk about is our confirmed bookings but then on a on a gross bookings basis you know that's the number more that I was quoting do you have any like when you look at your gross margin do you have any weird costs that the average software company doesn't have or are you looking at like a 85% gross margin like like most SAS companies we have a larger Services organization than most um because there's a a pretty significant change management initiative um that a hotel needs to go through in order to implement um our software they have to so you put that above the line as a cog uh we put that above the line as a c got it interesting and so um now our ours was hovering in the mid 70s so it's still healthy it it's healthy but but a year ago it was in the 30s right was it holy mackerel what what change did you make to do go from 30% to 75% gross margin um I it was just I think the natural I mean we focused on it for one thing we knew it was important um and so we've done things on the engineering side to make that sort of onboarding and and training process and configuration process more um efficient and then we've also just gotten smarter and and refined our place Playbook um much more than it was and so the the way the Rhythm kind of worked and the way we staffed up our company is we we staffed up sales pretty quickly globally then with about a six Monon lag we staffed up our services organization um pretty quickly and we did it in multiple geographies around the world and that was highly inefficient for a period of time but we needed to have those teams in place as the sales came in to make sure that we kept our virtually you know churn rate um and and get them successful in each of those and get reference customers quickly in those markets but then as we continue to grow the business we haven't had it to continue to add and headcount on a linear basis I mean obviously most of it's people so the technology side for us is very inexpensive so our our platform gross margin is north of 95% y our Blended gross margin including you know the the onboarding services is where it dips down into the 70s so you know we've more than we just about doubled it maybe a little more than doubled it in the last 12 months Y and um we expect it to get into the 80s by next year so just be clear you kind of had to have a fixed cost structure when you launched because you need to make sure on boarding was efficient and that lifetime values and sticky rates you know prevailed to what you want them to be as you're adding new customers with that same fixed cost structure which is this in the form of salespeople and new geographies it's becoming more and more efficient over time that's right makes good sense and that's also why cash burn over the last 18 months has been more than cut in half and we expect it to get cut in half again well I mean and you're worse you're way better than this now I'm curious though I mean have you ever burned more than a million bucks in one one month oh yeah really yeah we did it we did it for a couple years how do you sleep like I I mean that's not a derogatory question but I'm just curious how do you sleep when you're like crap our bank's going down by a million bucks this this month um part of it was n uh naive at one point I thought you GNA say drugs um no I've actually tried really hard to avoid I mean I I travel to like 30 countries a year so I I'm constantly dealing with jet lag and I try really hard not to I mean I know you were joking but like to not take drugs to sleep has actually been something that's been with New Tropics I have I've I've kind of done it all um in the end I just find that sometimes you're just tired yeah and usually I'm an easy sleeper and so it's it to me it's about diet exercise mindfulness um and uh and then the sleep you know Falls in line that's great when the other things are balanced but anyway to get back to your question so I mean for a long time I was just being told by the so the the types of investors we have um which there's good and bad of the investors that we have where we've got people like Excel Partners uh battery Ventures Trinity altimer um Benchmark Capital was in our our first couple rounds um they uh they've got very high expectations they've earned their reputations because because of their ability to pick you know not just you know doubles or triples but home run companies and they do pattern recognition where they say the businesses that have become billion doll businesses end up burning huge amounts of cash for a long time yeah um and they they reassured me that it was normal that as long as I kept hitting my milestones in terms of product Market fit and then growth that the capital would always be there now that's changed so back back in 2015 when we raised our last round um which was how much uh we raised 30 million um in our first closing was August 1st of 2015 and then we did a secondary closing um in October okay um for some smaller investors to come in that were more strategic and so Q3 of 2015 uh was just the tail end of a period when valuations of growth tech companies were inversely correlated with cash burn the more you burn the higher you were Val valued because there was almost an exclusive focus on growth um now it's about 50/50 so about 50% on growth 50% on cash burn and so back when I raised money it was true that the burn just didn't really matter at all as long as you were hitting you know the north of 100% bookings growth which we which we were comfortably doing year over year uh year over year yeah and uh now the world has changed and cash burns more important which actually makes sense that's yet though right no we're not you can be because of how much you raised you have to spend it somehow right well yes that's that tends that was the old mentality but how do you do that though you can't you can't raise 50 million bucks and be Break Even unless it just sits in your on your balance sheet and and does nothing I I would be happy to have a war chest sitting on my balance sheet what would the VC say at the board meeting they say what are you doing with our cash it's sitting here you don't know how to use it give us it back uh in 2015 that's what they would say in 2017 that's not what they'd be say saying it's funny all right last last few questions here we got to wrap up uh what's your team size uh we're at 105 people right now and where's uh where's the Home Base headquartered in San Francisco but our biggest office is Vegas many of you know I am buying companies that I really really like and there's no quicker way for me to get to the bottom of what is happening on that website than using this tool called naa.com hotjar h o t j a r it basically will give me a recording okay when anybody lands on the website it'll give me a recording of where the viewer is scrolling and obviously does the basic stuff like heat Maps too but I learn so much about where the users are scrolling and clicking on my site using that tool it helps me increase conversion rates make more money and grow those businesses faster and we'll have to see what happens with those businesses but I'm buying them I'm buying them very quick and I'm using Nathan locker.com hotjar for all of my website Analytics you can too I work with them it's totally free you can go to Nathan lad. hotjar no credit card required again use it as much as you want Nathan la.com hotjar I'll see you there okay very cool let's wrap up here with the famous five number one with's your favorite Business book oh gosh um you know I still like crossing the CM even though it's out of favor that's goodless Jeffrey Moore he hit it beautiful orange cover number two is there CEO you're following studying right now um I've been learning a lot from a friend of mine uh Matthew Prince uh who runs uh Cloud flare number three is there a favorite online tool you have like a scheduling um no number four how many hours of sleep do you get every night uh a year ago I would have said four and a half and now I'm trying to get seven okay and but what do you get sorry I try to get eight and I get seven got it and what's your current situation married single you have kids um divorced with kids okay how many kiddos three three all right and how old are you 39 right almost 40 nice good hey happy happy early birthday last question take us back 19 years what do you wish your 20-year-old self knew um I I will wish that I had believed that it was okay for me to be happy back then I I had a pretty unhappy 20s and um I've kind of come into my own skin more in the last several years um but um I think I could have better served myself there you guys there you guys have it he would have given himself permission again to be happy and really go all in on life based off how this interview went I think he's going all in you guys heard it with Duo they launched in 2012 three co-founders now 105 people helping hotels and specifically Hotel locations better optimize their pricing they've raised $51 million serving over 3,000 individual Hotel locations paying on average 17 grand per year so they will very soon be doing about a $50 million run rate 75% gross margin which they've really like tripled uh over the recent future which is incredible how they how they work that fixed cost structure to drive more growth and and bring the margin up over time additionally again spending about 20,000 bucks on CAC so super healthy payback created about healthy payback cre at about 14 months again based out there in San Francisco and Vegas Patrick thank you for taking us to the top thank you if you enjoyed today's episode go back and listen to seil yesterday his mobile analytics company went from0 to $4 million in Revenue in Under 12 months how' he do it