How Ecrs CEO Pete Catoe grew to $95.2M revenue and 4K customers in 2024.

hello everyone my guest today is pete cato he's an entrepreneur by nature and an executive in practice he founded ecrs in his early 20s in 1989 to be exact with a simple vision that the microprocessor and software a world would transform retail allowing local and regional retailers to not only compete but win against their national competitors he believes great companies are built on one idea one customer and one employee at a time like a great oak tree it takes time to build a company that lasts with deep roots and consistent driving purpose and he's dedicated his career to building that kind of company all right pete are you ready to take us to the top absolutely all right so what's the company you do specifically and what's your revenue model how do you make money we are a we make software for um for healthy storage grocery stores food cooperatives pharmacies we do everything from single store operators to regional uh regional chains uh use our products but we specialize in complex retail environments high volume complex retail environments so we do point of sale back end edi supplier integration um you know the automatic reorder we do the entire the entire stack and and what's your business model how do you make money we make money through we sell licenses and we sell sas services at uh kind of like an ecosystem so our core product is a license and then we have all types of sas products that connect into it um for instance we have a loyalty system called loyalty bot and that's a sas product just be clear though these are these are ones that you own or these are affiliate partners that you market yeah we own our entire stack um most of our products based on open source um not all that most of it is and um in terms of of the tools that we use to build our system so it's a it's it's we own our own stack and it's you know it's a it's a uh it's not really behold the one one um one of the major players out there so give me a sample before we kind of learn more about your background an average customer using you what are they paying per month or per year you know uh it's all over the place i mean we have small uh we do a lot of we also do uh vending uh employee break rooms all over the country and you know so those units those systems are uh where you'll they'll buy the kiosk and they'll pay a hundred bucks a month uh for the services for the software and and services um we have you know a couple thousand of those we have um you know retail grocers who buy licenses from us and pay us yearly support upgrades as well as they sign up for a lot of our services that we offer um so in our company we have around 4 000 customers we generated around 30 million a year um and we're growing you know right now we're starting to really we're sitting ready to have an explosive year coming up so we're on our way i know 100 million that's great and sorry you cut out right when you said it how many customers you currently serve four thousand four thousand and we do about 30 million a year right now and yep i got that i got that part the the the 30 million you're currently doing is that all pure play sas revenue is there any hardware sales or professional services built in yeah there's special services in there there's hardware sales in there but most about 90 of it is um software and software licenses and uh and services okay services yep yeah that's great um so i want to put this on a timeline real quick so founded in 1998 what was the first product 89 sorry 1989 what was the first product out the door obviously cloud wasn't big back then no no it was a dos product and we integrated cash registers to uh back room systems we wrote the back room systems so that's where we came from and so we were the company was bootstrapped i think we started with like seven thousand dollars uh and we just we just never stopped still bootstrapped completely bootstrapped love that pete that's good stuff where are you guys based we're in a really neat place boom north carolina which is becoming a tech a tech center i mean it's a it's right next to appalachian state university which has a world-class computer computer science uh uh school and great analytics school great design school so you know so we're based out of boone north carolina and um which is very unique place it's a college town tourist town and how what's your team size today and how many of them are based in in headquarters there we have about 150 we have 150 employees 150 plus employees probably we're adding someone every week it seems now um and i would say 80 percent of them are based in in boone then we have the rest spread all over the country uh also in canada any particular function in canada that is the reason you have them up there no i just have i actually have one person in canada okay you just want to throw canada some credit yeah i have a lot of canadian customers all right there you go there you go customers okay so so 1989 150 folks today doing about you know on track for about a 30 million run rate about 90 of that is pure sas what's growth look like so about a year ago what was your run rate you know our growth right now we kind of stagnated uh kind of like it was a bill last two years have been a building been building for us and um we're getting ready to bust out because we're we're kind of we're adding a lot more regional players larger and larger players uh are coming to our our product stack so uh you know it's been it's been it's been flat for us last two years kind of like building years for us okay so so you're doing about you're doing about 30 million in in terms of run rate about a year ago as well uh i think we're up this year we're up like 10 percent okay so maybe call it 20 28 million something like that yeah we kind of do that over the years we just we'll we'll flatten out for a few years and then we jump up thirty percent and flatten out again and jump up talk to this teacher talk to me about churn that you know obviously a lot of small businesses go out of business what's your churn today and how do you manage it well my favorite scene i think my favorite business saying i've ever heard was when michael dale said he requires he acquires one customer he acquires his competitors one customer at a time and that's kind of what we do we really really work hard to keep our customers our you know we don't really have a noticeable attrition rate um it's not you know because we're not a pure sas player it's there's more involved when you put a system like ours in it's more of a commitment it's more of a community of customers and uh so we just don't have a high turn rate what what is it i mean how low is it so in a year how what percentage points off revenue might you lose well we won't lose the customer we might not resign for the support agreement they'll probably continue to use the product so if we would probably lose two two percent maybe three percent not revenue two percent of customers i don't know what the revenue number is it's insignificant well i thought you said that they don't that they don't typically can't they just cancel the service room but they keep using the products so you keep the customer come and then they'll come they'll turn it back on you know someone might be having hard times or whatever it might be but it's very rare for us to lose a customer yeah so in that in that case that's three percent's not customer churn you still have the logo what you're saying is you lose the service agreement maybe for a year so that's revenue churn yeah yeah the revenue like i said it's so small it's um on the dollar wise it's very small um i don't know i should know that but i don't know that's okay i i mean i was just i was just curious it's just like not even on the radar so so since mean a lot of people use churn to then back into lifetime value which then helps them like decide how aggressive they can be to acquire new customers so since your churn is so low how aggressive are you being to acquire a new customer what do you pay to acquire them we're we're very picky on customers we bring on um because our product takes a commitment and you're you're kind of joining a community of other other customers and um and so are we how much does it cost to bring a customer on um it really depends on how big a deal it is um so to sign someone up you know if you have 30 million in run rate today with 4 000 customers each one on average pays 500 or 600 bucks a month so to onboard that kind of customer what would you pay to get that revenue what would i pay for that revenue we're probably our i think our sales calls are probably running around 25 percent you know to sign a customer up 25 percent of what first year the initial investment yeah it's probably costing us about 25 and pete just be clear initial investment meaning what they pay you in the first year yeah setting up getting set up and and and buying the licenses and things like that yeah it's probably around 25 percent okay so someone if they're paying you 500 600 bucks a month their first year kind of acv is about six or seven grand what you're saying is you're willing to spend about a quarter of that or 25 of that to acquire them absolutely okay got it that'd be about 1700 bucks and that puts your you know your bootstrap so you have to have a tight payback period it sounds like you get paid back on whatever you spend and what about three months i mean our company's so capital efficient we've been doing this for so long that um you know we we are bootstrap but now we're we're past we're way past the period where we uh we have to look at each and every customer and what it's going to cost to bring on board sure but i mean just if you have a 12 month payback right and you s and you scale really fast you can end up in a big cash gap as a bootstrap company absolutely right so i mean you're flat so you haven't had to think about that but as you scale i mean you might have to think about that uh yeah uh well i mean the companies say it's when you say 25 percent 25 percent of our uh it's costing us a board and that's a typical smaller customer a larger customer would be much smaller to board uh cost wise so you know it's it's all over the board you know you can be dealing with a single store operator or you could be dealing with a massive you know a massive chain of stores yeah i get that i mean just to paint this picture clearly you said you're about to explode with growth of this new regional strategy i mean if you add i'm gonna make this up if you add a thousand new customers fairly quickly and you're paying a grand or two grand to acquire them that's like 1.7 almost two million in cash out of your door that you don't get back until three or four months so that's what i'm saying is where growth can be like sometimes it can hurt your cash significantly yeah and as i would there that that those numbers don't affect us at all that's nothing to us that's not an issue for us at all um or more than we can easily uh yeah sorry i'm not what i'm saying though at some level of growth you have to figure out to bring cash forward because you're bootstrapped that's all i'm saying i'm sure you have a ton of cash in the bank but i could just multiply instead of a thousand new customers let's say you add ten thousand new customers and it's 17 million in cash out the door on day one yeah we're not going to add that many customers yeah that's not gonna we don't have to add that mean to get to 100 million yeah so so what what walk me through the growth plan you say pretty confidently we're going to hit 100 million when do you think you're going to hit it and why are you so confident i think it's going to be it's going to take us over the next five years we will hit 100 million i think it's just it's we're just on that path to the the customers that are coming on board the momentum we have yeah but pete where are you seeing that in the data you said your flat year over year so what's going to change well when we a lot of the deals that we have coming we already have we're just building up to we're building up to the requirements to do a roll out and so it's just the nature of our business that um you know as you as a lot of the business you you book now but you're not gonna start rolling into the in the next two years does that make sense sure so you what you're saying is you you have commitments you're saying you have commitments they roll out does that make sense yeah i just want to understand it though you're saying you have commitments right now almost like a purchase order in typical retail you essentially have purchase orders for your product that you haven't collected cash for yet that you know are going to roll out over the next year yes starting in 2019 we already we're already booking a lot of a lot of deals that start rolling out in 2019. that's great any any plans to raise capital or no no we are we're we have no plans and actu actually we're gonna we're planning to convert to an esop we are definitely a contradiction in the industry i mean we plan to convert to a what esop an employee shareholder program uh we're basically we'll we'll basically um you know form an aesop to for the ownership of the company right now i own the company 100 of it and but we're going to be shifting to an esop over the next 24 months why well i just feel like it's going to give the company the long-term uh legs and needs to pretend and commitment to our customer base uh that's going to give us the extra push we need to even get more business one of the big problems we have in our industry is the constant churn of these service providers and software providers and a lot of the retailers just want a you know they want a company they can count on because these are massive investments and they pay off over many years so they need partners they can count and they're going to be there so we're trying to build a company that's going to be sustainable and over the long haul so yes so that's our next big move in terms of ownership that will happen over the next 24 months you get way less rich because of that though correct well you know i mean uh to me i've never been motivated by money i'm i'm i'm wealthy that's and i'm i'm more than happy i'm not sure that's true though uh then i'll be way less rich i'm not sure that's true because i plan on participating well how does it i'm saying that to you to give you an opportunity to explain how it works you currently have a hundred percent what will you have after uh i think that first we'll move we'll probably move to a 30 ownership where they'll have 30 percent and so the the the esop will own 30 percent of ecrs and all the employees will as we grow the value of the company together of course their their shares will grow as well um so it'll start at 30 but it'll go further in the end how does each employee know what percent they own of the 30 it's a great a great um question it's done by a third party so esop is really it's a government that's a government supporter it's a government uh plan basically for employees to benefit when the company uh increases in value so as you meet the requirements of the self as an employee you'll gain so many shares of that of that foundation and when your time comes to cash out whatever the rules are a third party values the company and the company must buy those shares back does that make sense so it's again it's almost like a secondary retirement plan our secondary savings plan uh but you know the more the employees invest in the company in terms of effort and time and you know efficiency and effectiveness the more their their shares are going to be worth but it's all basically equal i mean many people would value developers more than i'm making is a customer service rep and your world it'll all be equal no it'll be valued on on your salaries so basically your salary levels uh so everything kind of equals out you know in that regard so everybody benefits uh particularly the younger folks that benefit in a big big way um you know if we take ecrs from 30 million to 100 million they're gonna obviously uh they're gonna they're gonna definitely benefit it makes sense to me while you're why you're running with the 100 million line that is your that is your motivation stick that is the way to see that is the rallying cry that'll be the rallying cry and we're in a position to do it we we just got we just got an incredible team and uh great customers and so yeah it's uh and it's just an opportunity so i i think it's gonna it's gonna be a win-win for everyone good people let's let's wrap up here with the famous five quick one-word answers if you can number one what's your uh last book you read last book out read was um um certain to win certain to win number two is there a ceo you're following or studying [Music] a ceo i really like right now is jack stack he wrote a book uh called uh open open books open book so he used though he came up with the open book management strategy basically really fascinating guy number three what's your favorite online tool for building the business right now one of my favorite tools is bamboo hr i love that product we just started we just deployed it it's good number number four how many hours of sleep to get every night uh i get around eight hours of sleep that's pretty good and what's your situation pete married single kids i have two kids and i'm married been married for 30 years wow congrats and how old are you i am 53 53. last question what do you wish your 20 year old self knew i wish i wouldn't have placed any kind of uh limitations on myself when i was 23. yep no limitations there you guys have it founded in 1989 uh back in the day now 150 people really working with small even large brick and mortar locations with many different locations 4 000 customers they serve today ranging from kind of point of sale systems to vending machines to you name it they're there doing about 30 million bucks run rate today that's up from about 28 million a year ago it's about 10 percent year over year growth hoping to really grow that over the next couple years as it goes and really advise for a 100 million dollar run rate spending you know quarter of first year acv to bring on these customers so call it 1700 bucks or so and a three month payback with a team of 150 people between north carolina one in canada and other remote locations pete thanks for taking us to the top thank you have a good one