How E-Days Absence Management CEO Jonathan Maddison grew to $3.5M revenue and 1.4K customers in 2019.

hello everyone my guest today is steve arnold he's been working with the team growing it fast around his company called e days and absence management software they did leading the commercialization and growth of their award-winning global employee leave tracking and absent management solution uh he led them from startup phase to their current market leading position and securing private equity backing to further accelerate the growth steve ready to take it to the top yeah let's do it all right so just to be clear are you is this your baby did you found the company or you joined later yeah i joined um a friend of mine had a company that was specialized as a web agency um and i joined him in order to grow that company and then we started e-days as a product within that company so i've been with e-days from the start although there was a pre-existing company within which we incubated the product so what what was day one and for e days what year uh 2007. okay 2007. now today it's its own private company yeah yeah we carved it out in uh march 2016 as its own legal entity but we'd run it as a separate company division within this other parent company that we had at the time okay let's talk more about that later but first give us like product context what's the company doing how do you make money yeah sure so we're a specialist hr solution focused on absence management so that's leave tracking and absence management it's a business solution um in terms of how we make money it's a subscription model so it's per person per year um fee or per month fee but we built annually up front um the value proposition is really it helps companies be super efficient in this area which most companies need to run some sort of uh process to manage employee leave and and time off in absence um e-days does that really well it helps them be compliant the local rules it's used globally so it can be customized for different parts of a different company based on what requirements it might have and if used properly it'll reduce the absenteeism within a company so steve is this more kind of enterprise level what's the average company paying you per month for this well it's a real range um so we've got some companies that are paying us as little as 50 hundred dollars per month for the system but we've also got our larger sort of mid market enterprise i'd call them companies that are paying six and a half seven thousand pound uh dollars per month i'm using the numbers in dollars rather than pounds to make it already thanks for doing that yeah so so just because we don't have time to learn every cohort i mean so what would you say a fair averages if you look across your entire base right now a thousand a month yeah um customer has got about 150 employees and they're paid about 200 per month okay 200 per month and 150 employees so you're only only charging like a dollar 20 10 per employee something like that yeah interesting okay very good so launched in 2007 spun it out in 2016. walk me through that process is the parent company on the cap table of the new entity no no um so we in in march 2016 i basically sold my interest in the other company which um i had negotiated with the start founder founder of that company um i sold my interest in that and just retained e days um the the partner that i had at the time the founder of of the parent company um came with us to the new business the e-day's absence management solution uh system company um and then i bought him out in november 2017 um with private equity uh backing so um previous company is no longer on the scene okay interesting all right and so over the time period from 2007 all the way up to today how many customers have you scaled to we've got 1400 customers now okay and is there a free plan or no no free plan okay so 1400 at 200 bucks a month or do you know 280 grand a month in revenue yeah okay and where were you exactly a year ago so we understand growth rate so it was quite slow to begin with because we were incubating e-days within this other parent company and our focus really was on that other company at the time because that was the one that was making us the money we didn't get any outside investment bundy day so it was all organically funded it was quite slow to begin with i mean it took us about ten years or um nine to ten years to get to a thousand customers um and then over the last 12 months we've signed up another 330 odd customers and added about um a dollar value of about 600 000 pounds worth of uh recurring revenues business over the last 12 months okay so again if you're doing today 280 000 per month what were you doing a year ago was it 200 grand a month or what um yeah it would have been about that i'm trying to i'm trying to use uh convert to dollars again so yeah it would have been about that amount that you said so so that would have been about 180 000 pounds per month yeah something like that okay good so so not doubling your where you're about call up maybe 40 50 year over year growth that's kind of where you're at today yeah actually the numbers that you stay probably a little bit inflated so it's more about our arr has grown about 30 over the last 12 months okay and so where are you today in terms of run rate so our recurring revenue is um 2.7 million pounds okay two so we'll call about that's about three million bucks right divided by 12 months yeah about three and a half million dollars i think yeah about it good so yeah that's that's about uh oh three and a half yeah yeah yeah you're right yeah so about so i was right about 280 grand per month in revenue and then that's up from you said 30 so maybe you're doing about what's like two 230 000 bucks a month a year ago something like that that sounds about right yeah where's most the growth coming from what's the growth channel you're using so our um direct market uh model uh is all funded uh fueled by our followers fueled by digital marketing so we've got seo and pay-per-click strategies to get people to our website we get about 120 inquiries per month there's a bit of seasonality in there based on um on the months where we're a little bit busier sometimes towards the end of the calendar years and the beginning of calendar years um so we get these inquiries coming in and we convert 25 of those to customers that's our metric that we've we've kept pretty consistent okay so what do you do walk into the process 120 new leads come in every single month what's the next step between that and then writing a check or paying you for first the first month yeah yeah sure so we've got a team of six sales guys at the moment um they're split into enterprise and smes uh enterprise for us is kind of a mid-market company anything up from 500 people up to maybe 25 000 people in large companies though it's got 25 000 so we split the teams between sme and um and this sort of enterprise mid-market side um because there's a different sales process that you kind of need to go through but ultimately what we're trying to do is have a conversation once that inquiry comes in very quickly whilst people are still on the website if possible so we'll follow up a an email form that's come through our website with a phone call we'll engage with that customer understand what their starting position is what they're wanting and we'll try and get them onto a demo an online demo via screen share when we get them onto an online demo by screen share we've got a 50 conversion rate of people who see those to signing up in the system um so we run them through a demo it takes about 40 minutes normally we'll demo by by a user and an hr manager often our buyers are hr managers or um hrds or payroll or finance type people um and then following that demo they'll get access to a trial system which will put their logo on and we'll give them some pretend data in that trial system then we'll let them loose on it for a week or so and during that week we'll send them a few emails to try and trigger them to use the trial and see if they um can use some of the advanced features and then we'll get in touch with them during that week as well to try and see what they're doing and how they're finding it and then we'll try and sign them up this uh how many demos is the sales person doing each week on average um probably seven or eight demos it's about one a day yeah maybe it's a little bit it's a little bit um less for some of the enterprise guys because they yeah and and so walk me through kind of capital history today so have you raised any additional capital besides the private equity no okay um we all we have to do is raise funds to um buy out uh the the my partner previous partner essentially the business um and now we're just running uh into growth mode okay and so how much did you have to raise to do that um it was about 10 million okay about 10 to buy them out so your partner had what like 60 70 of the company he no he had more than that he had um well there were two there were two of them really one was a silent partner so one of them had in total they had 80 of the company yeah and then there's there's um there was another guy who was running it with me who's still here he's our cto uh chris and him and i shared the rest of the company and then since the buy out we've kind of re-jiggled the numbers with a private equity firm um and made it really interesting um does the private equity firm now own obviously if they only if they own eighty percent you're still in the same situation you were before do they own less than fifty percent now yeah um no sorry they own about sixty percent okay this is interesting so this is almost like a reverse search fund model like right where you actually had the company is spun it out i don't know if you're familiar with search funds uh but that's what this feels like to me so you were essentially valuing the company you know it's you were at 3.5 million run rate i mean you were valuing the company at basically 12 million bucks right or about 3 4x when you decide to buy them out yeah it was about that but i mean it was it was really us going to market to find to find a private equity company who wanted to get involved with um but the management buyout um then it was down to us making sure that we had the right numbers for that for the for the guy that we wanted to move on um making it a sensible film it wasn't a hostile thing it was a very friendly situation it was different times of our lives 20 years older than me by the way he's getting paid 10 million bucks it shouldn't be hostile it should be on a yacht somewhere yeah exactly all right exactly what's the team size today how many people so we got 30 people remote um everyone's in this one office i'm sitting in here in nottingham which is right in the middle of england um there are four new starters this month which takes us up to 30. so one of those guys is actually a cro um our first cra so i've been kind of running that the sales division as well as a lot of the other things you do guess when you're uh in this in the situation um behind the cro his task really is to take our sales team up to about 20 people including putting together an sdr team um to do some proper outbound we're also starting to partner with other companies um so we've got a really nice partnership in place with a large talent management solutions provider we've got about 30 odd billion users of their platform and they're they're selling ebays as a partner hr solution cornerstone okay and are you operating a break even today or profitable we're profitable yeah yeah i mean this is a different situation from a lot of the us companies i think with uk companies often um you know you've got a more of an eye on that profitability um and we're about 45 um ebitda margin okay that's great so on just to be clear that would mean on 230 grand or sorry no not 230 you're doing 290 a month you're saying you're taking essentially every month what would that be 130 000 bucks to the bottom line uh yes it's about a million pounds a year so yeah roughly about the same as what you said there yeah yeah yeah that's interesting very good all right what we're trying to do now nathan is is really um not focus so much on that on that margin and really focus on ar growth yeah so we're starting to load a lot more cost into the business we've moved offices we've got really nice location here now we're adding marketing team what's your turn today um so we've got net negative churn um what's gross turn um eight percent of our customers um is is our is our which would be our uh sega annually yeah and then when you say net revenue retention is greater than 100 how far above 100 um it's about 105 106 but um what we haven't had up to date is anything additional to sell to our customers now we're starting to widen the application so we can actually start putting more um through the upsell route to be clear though steve if you're turning eight percent you've got to expand that same cohort by 13 to get to net revenue retention of 105 is that right uh your brain probably moves quicker than the mind it sounds about right yeah if i just take a if you just take the core that sent up a year ago and you assume all of them say so 100 but they don't so you lose eight percent in order to make up that gap you gotta sell eight percent plus an additional five percent so 13 to get to 105 net revenue retention uh maybe although a lot of the customers that do leave if we're looking at logos churning a lot of those customers that leave are those little companies that don't actually make that much of an impact oh what's revenue churn not logo churn um yeah sorry i was talking about logo churn what's revenue churn it's lower than eight percent it sounds like uh oh yeah it's a lot lower because those customers that i mean i don't know that number off top of my head but um the the low um the customers that are turning are normally the smaller customers yeah yeah what about you know growth you said you're going to go all in here kind of be more aggressive what are you paying to get a new 200 a month customer [Music] um our average actual notes on that one our average cost of acquisition in dollars is just below two thousand dollars okay so ten month payback uh eight and a half months is how i calculate the payback yeah lifetime value is really strong on on e days i mean companies um seem to just stick on board on board for a long time so i mean we choose a five-year ltv um average to calculate our lifetime value yeah but it's certainly it's all six and a half or so times the the cost of acquisition that's great yeah you said you took notes you might listen to the show um so my marketing guy this was arranged when i was in mexico on holiday um so my marty guys did this and i was like who's this nathan like a guy i'm so sorry i didn't know about you already but i got it i'm gonna tune in a lot they were really cool so yeah i listened to a couple of casts about an hour before we had this call so i thought i'd make a couple of notes see if i can uh try and keep up with you you're doing you're doing great man we're actually here about to wrap up i can grab something worth by the way any u.s expansion plans or no yeah i hope so we've got about 60 odd companies using e-days in the u.s do you have a subsidy right here already no we don't but we've developed functionality to deal with the with the pto situation that you have out there in the us um because it's a very different all the countries in the world have different ways of managing what we do in in our application and so we had to go to the drawing board and sort of invent the system to deal with quite a lot of the different local localization requirements and the pto side and the us side um is kind of in the system now so we want to try and see if we can get over the water there a bit more aggressively yeah very interesting would you um would you consider using something or raising something like venture debt and under the venture to drive growth or no not at this stage yeah you just use it based off your cash flow yeah yeah very good all right let's wrap up with our famous five number one what's your favorite business book uh i read recently um measure what matters um which is the john der book i really enjoyed i also read um aaron ross is impossible to inevitable i think it's called a couple of recent ones that i've read that i thought were great in the early days i used to read up a lot of the stuff from bessemer partners that they publish i guess not a business book but a lot of good material that i read on there um and now i i watch quite a lot of the blogs you know there's the sastra stash the stuff the open view partners um blogs they find really useful good number two is there a ceo you're following or studying right now uh not really no i i tend to just read books and look at blogs that's good number three what's your favorite online tool for building the company there's no doubt at all that salesforce crm has has been super efficient for us in growing this company getting the data that we needed to scale good number four how many hours of sleep do you get every night i'm pretty good at sleep actually probably about six and a half seven hours i've got a little two-year-old so um he sort of messes around with that a little bit but so married with a two-year-old we're engaged uh we're getting married getting thank you getting married in june out in uh one of the greek islands that's exciting okay uh one kid oh and how old are you i'm 40. just turned and uh one kid oh two years old you're not getting married at lindsay lohan's beach club are you um i i don't know i don't think so i didn't know she had a beach club but um now come along i'm totally kidding you wouldn't want to get married there i don't think all right last question what do you wish your 20 year old self knew i think um my dad passed on some great advice to me which always kept me really um on top of things and and made me a very positive person it was really just to believe in yourself trust your instincts believe in you believe that you can do what you need to do keep reading keep investing in yourself and your own learning um and keep enthusiastic and try and bring that enthusiasm to other people if you can do that you won't go far wrong guys e days believe in yourself spun out or actually launched inside a bigger company 2007 spun out in 2016. now 1400 customers paying 200 bucks a month so doing about 290 000 per month in revenue up from 230 000 bucks a month just about a year ago so 30 year-over-year growth rate they're very profitable 45 percent ebitda taking about 130 grand per month to the bottom line they did have to raise about 10 million bucks about a year and a half two years ago to buy out a founder and another guy that owned about 80 percent of the company but now just uh steve and his and his team from the company 30 people in england just put on a cro eight percent logo turn annually uh doing net revenue retention about 105 each year spending two grand to get a new 200 per month customer so eight and a half month payback period assuming uh you know they assume about a five year ltv of about 12 grand as well steve thanks for taking us to the top thank you very much lovely to meet you