How Elastic grew to $2M revenue and 500 customers in 2023.

hello everyone my guest today is were not Zhu biro of he is the founder and CEO of a company called elastic dot IO we'll jump into it here they're helping connect they're helping businesses connect applications in the cloud or not are you ready to take it to the top yes I'm ready all right you of course tell us more about elastic what's your business model what do you do and how do you make money we at elastic that IO are providing an integration platform as a service so this is a piece of middleware which is delivered out to the cloud and we have our customers and our partners connect different applications being at the cloud business applications together or on-premise applications like this applications to the new generation of cloud software service applications okay and how is this different from like a peer or or a segment the zapier is what's called integration software as a service so they're more focused on predefined ready-to-use simple scenarios where integration platform as a service we are working with more comprehensive use cases a highway we use cases which is in the same time more complex model more complex bringing more value but also require a professional approach so we're talking to our professional integration people last you know that they're like and users okay and give me a general sense of what customers pay per month that way we can understand if you're kind of mid market is small or enterprise where we're talking more about at least like four regions numbers or three-digit numbers starting in plans so we're monster return revenue okay so we are on like 10k plus ARR for an average contract and they all saw the competition and less like the competitive landscape on this market it's really we're talking about medium-sized to watch those companies so it's not unusual to see is 60 today our numbers in this area kinda but generally average price point maybe across your entire base you're talking you know a grand per month or about 10 grand E or something like that okay and give me more the back story when did you launch the company um actually we launched the company in 2013 basically me and my one of our co-founders so we were three co-founders initially two of us was working in this integration area so we were working for a large companies here in Germany who were doing a lot of integration and Enterprise Service past products and before elastic I was working for a company called Talent which is one of the world biggest open source data and application integration vendors the IP old recently which is a really huge success and this is really a very interesting company but at the same time we saw how complicated is it for a traditional vendor to move into the cloud how much different is it technologically but also for the business perspective to sell the service and not like you know a piece of software which is strong with the fence and then never see the customer again yeah interesting and guys if you want to hear more about talons story I just had Mike on actually a couple days ago and fascinating story about how they IPO and where they're at today so you left that company you launched elastic in in 2013 did you see something when you were inside of talent and your city know it I've got to just go build this and they wouldn't let you build it inside of town so you said okay I have to go quit and do it myself you know this cloud didn't software service transformation it's just like it's like London's once-in-a-lifetime chance you know I recently spoke to the people who were really grew as a company on the vein of moving from mainframes to pcs you know I don't know it's like really really far away but sometimes it was like a large computer and then they split it into like tens of small computers and it wasn't an amazing business opportunity at a time and major companies were made there and this is what we see now exactly the same story but at the cloud yeah where's the on-premise software moving into the server space now have you bootstrapped or did you race we bootstrap actually you know in Germany we have a very good social system and we basically survived from our savings and this social support for a year after that we found we actually got the first round of investments through business angel investments I should say Germany the investments are works a bit differently the landscape is completely different it's significantly different from from the states people were pretty much more risk-averse but we found a very good business central who supported us his name was Fabian from tunheim is used to be so he's an entrepreneur himself he started a company grew it from 0 to 7 million revenue and then later on solid so Abnett and he supported us on the way to this to the next stage which happened in March this year so not how much total have you raised um we do not really disclose this number but it's it's a it's just 70 you cut out there did you say it's a 7 digit number that you raised yes okay got it now you are you still operating privately as my research team said you need to ask him about being acquired by mmm vice it AG are you part of that company or no so we as of March as of March this year we are part of a larger organization which is my say gee this is a publicly traded company here in Germany also it's a really publicly traded company which like also grows on the similar pace as we grow like a 100 percent a year which is really like a success story what we see and they own a seventy five point one percent of our stock right now got it okay so they bought a big chunk of it interesting tell me more let's switch back to kind of your customers how they think about the product what have you scaled to over the past four years in terms of total customers using the platform we have thus in people's in the system basically it was started you know vision software as a service during that fire but after a time yummy I think there's like slides I can hear you yeah so how many customers are you serving today okay so right now we're having around about like 200 customers which is a company's business customers but during the history of elastica we were having like grow more like more than 1000 since one and also of customers but it was really like small teeny customers and then would be wanted towards the mall platform like approach and less software service yeah well in look you've probably driven up your minimum price so you've moved up market and you articulated earlier your minimum price is around a $10,000 a CV or about a grand a month I mean so take multiply that times 200 you guys are north of 200 grand in monthly recurring revenue right ran out of direct and indirect customers you know so it's not majority of our customers is to build as indirect customers I see as we are pretty much focus now on white labeled and all um partnerships I see okay so maybe a little less than 200 Ram but right around there and talk to me about growth rate you said a hundred percent year-over-year so if I go back thirteen months to December 2016 you were doing about a hundred grand a month then [Music] speed up a little bit in the 16 so the 16 we grew almost like 700 percent between 2015 and 2016 2016 to 17 and 17 to 18 percent was 17 to 18 were still in right like we still have 11 months left or in in 2018 right no I mean the grew and we grew from this January 17 to January to December 17 around 100% and January 16 to December 16 around 1,700 percent that because of the pivot we actually have to kind of reinvest in the product a lot we have to like scrap a lot of stuff you did also on the business side and then relaunch it and reboot it and find customers yes so that essentially led to the very fast-growing 16 and then continues as hundred percent girls year-to-year in seventeen in the SAS space obviously churn is something you have to manage very tightly um it sounds like you had intentional logo turned because you want to get some of these smaller paying customers out however your revenue turn should have stayed healthy if you kept the higher paying customers which of those turn metrics do you care more about and what are you at today in terms of total churn we're definitely caring more about revenue churn and what we had to also noticed you know when the small customer space it sure they're significantly different from the enterprise and a large customer space right so the people are in enterprise it will truly change there's a middle way every day nothing in every year maybe like every five years yes the chart is nearly nearly or very small so what is this model we're not like are you like below twenty percent or ten percent per year what is it would you say maybe five percent of the year I've gotta be okay and actually the churns we see the church due to the changes in the organizational structure but very very little ones there's no turn you to product replacements and how are you getting these customers what are you willing to spend to acquire them oh this is a actually right now we we do have a very strong in bond which we built over the years and this inbound channel actually works pretty well for us the very interesting channels which to sound through for example Cora Google's one of the very obviously a good channel the number of websites which are working very well and the rest of this doesn't really work but apart from that we actually have really partner and channel cells here where we go over the to the markets through better partners and channels so the channel this channel when you're standing is really prevailing and I believe for this year will they also mostly focus on partner okay so what's the kickback that you give a partner when they when they drive a sale is a 10% 20% 30% it's in debates its individual negotiations yeah okay but generally speaking I'm trying to get to your CAC number you you you generally in terms of CAC you pass it on to a partner and they just pay you you know they keep a cut you keep a cut so your payback period is almost instant right for us it's actually pretty high because obviously like in this calculation what do you see as a customer because for us the customers like is it an end customer for partner or partner itself right the partner itself also takes some times to acquire it takes sometimes to really nurture and and also support and especially in the area where we work with the partners where the partners are buying not like a solution for this it can be immediately resolved to the pro to the end customer they buy a tool where they build the solution on top and then resell and this building a solution could take several months what is your cap would you say then just let's do for the agency partner I would suggest we actually no didn't have like yet clear number on the partner acquisition costs right but my gut feeling would tell it's like something like maybe 10k poor Parker okay and how quickly are you able to recover that capital is it three months how quickly to get that money back after you after you land the customer that's a good question to be honest I literally couldn't you tell your toes okay it must be something you track there obviously because can payback period is obviously critical to a SAS company meaning is it generally fairly rapid less than six months or does it take a while like more than 12 months I believe that somewhere I'm somewhere between six and 12 months okay got it and what's your team size today we're on the ball 20 people currently and where is everybody based we are based in two countries actually here in Germany and in Ukraine you claim very good alright let's wrap up here or not with the famous five one-word answers here number one with your favorite business book I think it'll be the lean startup from when Christ number two is their CEO you're following or studying right now I was I'm reading a book about Amazon's first days about the thistles okay good number three besides your own what's your favorite online tool Google Docs ah all right number number four how many hours of sleep to get every night seven hours that's pretty good what's your situation married single you have kids three kids okay my small daughter is currently a bit sick so I'm sorry to hear that so this is three kiddos and you're married and how old are you my my age is circa so 37 okay last question what do you wish your 20 year old self knew it always takes longer than you think that's good it always takes longer than you expect you guys heard it here from or not was that talent which was on obviously a rocket ship then left in 2013 to build elastic excuse me dot IO they raised a small amount of capital from a few investors then obviously sold about 75% of the company to a larger company they're now working with obviously still building the company there are 20 people based in Germany focused on basically I'm gonna describe it as a more sophisticated version of zapier right so so more power users is probably appropriate way to say it that's reflected in their price point at about $1,000 a month minimum 200 customers so they're making about 200 grand a month a little south about 200 grand a month up a hundred percent year over year from December 2016 when they were doing about a hundred grand per month healthy growth or not thank you for taking us to the top thinking of Amy