How Finch Reached 250 Customers and 50% Growth With a Fully Bootstrapped Team (Interview with Co-Founder and CEO Bjorn Espenes)

Introduction and Company Overview

Nathan Latka

00:01Hello, everyone. My guest today is Bjorn Espenes. He is the co founder and CEO of Finch, a Google award winning marketing tech platform for paid media, one of the fastest growing private companies in The US with expertise in ecommerce, PPC marketing, and SaaS, a passion for innovation and customer success. Has founded three companies, technology companies since 1995. Are you ready to take us to the top?

Bjorn Espenes

00:24>> I am ready. Are you?

What Finch Does and the SaaS Model

Nathan Latka

00:26I am ready. Tell us about Finch. What's the company do? And I really want to dial in on your SaaS model. How's that work?

Bjorn Espenes

00:32>> Sure. So we started Finch nine years ago. And before we had Finch, we had an e commerce platform and we did every channel but paid search. And our pursuit of trying to find a partner that could do paid search for our ecommerce clients did not end up so well. Plenty of agencies out there, plenty of promises, but when it comes to executing an ecommerce paid search or paid media campaign, it takes very strong discipline to be

01:06>> able to spend budget and deliver revenues that are profitable in return. So So that's what we set out to do. We couldn't find a partner, so we decided let's go and build a software platform that can do this.

Nathan Latka

01:21So walk me through how the SaaS piece works. What are people paying per month on average and what do they get for that?

Bjorn Espenes

01:27>> Sure. So if you look at paid media in The US, high 90% of paid media, and shopping is purchased through a combination of manual labor, spreadsheets, scripts, static tools, And

01:46>> where the challenge is, this is how clicks are purchased. When you look at how they're sold, you know, Bing, Google, Amazon, Facebook, you know, they sell clicks in a highly automated fashion. Right? There's not a lot of manual manual labor involved for Google to sell a click. Right? So there's this this gigantic technology gap in the industry, and that's what we set out to close.

Pricing and What Clients Pay

Nathan Latka

02:10So what do people pay per month on average to get access to this, would you say?

Bjorn Espenes

02:15>> I think our average client is about 3,000 to 4,000 a month in And that

Nathan Latka

02:21that's not ad spend. That's what you keep from them, correct?

Bjorn Espenes

02:24>> That's what we keep from them.

Nathan Latka

02:25Okay. And what is that based off? Is is it, you know, the money they put through the platform?

Bjorn Espenes

02:30>> It's based on the ad budget that runs through it and revenues that we bought.

Nathan Latka

02:34Got it. Okay. And you said you launched nine years ago, so 2009?

Bjorn Espenes

02:38>> Absolutely.

Nathan Latka

02:39And what have you scaled?

Bjorn Espenes

02:40>> Yeah. The interesting thing is not much have changed. All the technology in this industry is on the sell side. When it comes to the buy side, most of the technology developed has either been for display or for helping agencies to scale, you know, billing, reporting, those types of things, but not focused on actual advertising performance.

Nathan Latka

02:59So how many customers have you scaled to today?

Customer Count and Sales Motion

Bjorn Espenes

03:02>> We currently run two fifty clients worldwide.

Nathan Latka

03:06Okay. Two fifty folks. And is this I mean, do you kind of employ an inside sales team to land these customers or how does that work?

Bjorn Espenes

03:13>> Yeah. We have an inside sales team, you know, typical pre sales, you know, SaaS model, pre sales account executives. And then we also have partnerships that we formed where you sell to, you know, a larger organization like Rakuten in Japan is using our technology for all their search and shopping.

Nathan Latka

03:31And Bjorn, can I take the two fifty customers times that $3,000 per month average and assume you're doing about $750,000 a month in revenue?

Bjorn Espenes

03:39>> No, I wouldn't make it that easy for you.

Nathan Latka

03:42Well, one of those two numbers that has to be wrong, which one's wrong?

Bjorn Espenes

03:45>> Well, that's the average customer. We have a lot partners that we work with that account in that customer account.

Nathan Latka

03:51In the two fifty?

Bjorn Espenes

03:52>> Yes. So our revenues are higher than you said, but

Nathan Latka

03:55I see. Okay. Good. So it's fair to say minimum $750,000 per month?

Bjorn Espenes

03:58>> That's fair to say.

Nathan Latka

03:59Okay. Very good. And what's growth look like? What were you doing about a year ago?

Bjorn Espenes

04:03>> So we last year we grew, you know, over 50% and we're trailing a little bit behind it this year, but not much.

Nathan Latka

04:11Okay.

Bjorn Espenes

04:12>> So we're on a very nice ramp rate.

Nathan Latka

04:15So what would can I calculate then a minimum then? So October 2017, you would have been doing what? Like, five fifty, something like that if you're growing 40% year over year?

Bjorn Espenes

04:24>> Maybe. Maybe not. I'm not gonna give you revenue numbers.

Nathan Latka

04:28Well, don't want the revenue number, but I'm looking at the minimum. So you just told me minimum was $750,000 right now. So I'm basically saying, to grow 40% year over year, that means you're doing, call it, $550,000 a year ago minimum.

Bjorn Espenes

04:38>> Right. Well, I don't wanna really argue with you about this because the the $750,000 was the minimum. It's substantially higher than that.

Nathan Latka

04:44Yeah. By the way, you're welcome to give updated numbers, but I'm giving I'm working based off what you've given me. So that's what I'm going Yeah. So okay. Very good. And walk me through funding. So have you decided to bootstrap this or have you raised capital?

Bootstrapping and Funding Philosophy

Bjorn Espenes

04:55>> We have not raised any outside capital. It's all internally bootstrapped and sweat, blood, sweat, and tears.

Nathan Latka

05:03I love that. How have you resisted? More people need to learn to resist.

Bjorn Espenes

05:07>> Well, it's not my first rodeo. Right? So we tried the other paths, and we decided to to do without funding this time. Doesn't necessarily mean that there's not a right time and place for companies to get funding, but we've been able to really pull this off. And we we actually had a what we discovered to be a pretty clever way to to make this happen. We had about 40 clients signed up before we write before we

05:35>> wrote any lines of code. Right?

Nathan Latka

05:38Okay. I don't even have to ask the question. Obviously, going to ask, well, tell us how you did it.

Pre-Launch Validation Strategy

Bjorn Espenes

05:42>> Well, so we knew there was a big problem in the industry. And so we went through our network and we talked to about 40 clients and said, we're gonna go build this to solve this problem. And if we build this, will you buy it? And if you buy it, will you pay us this for it? And then we essentially built our first client list based on that. Based on that, we realized validation, and then built a

06:11>> minimum viable product, put one customer on it, kept tweaking it until it worked for that customer, and then just add it to the task we want.

Nathan Latka

06:20Bjorn, there's a lot of people though that will go out and ask people, if I build this, will you pay? And they say yes. And then when they actually build it and put it they don't actually pay. So I I mean, obviously, it's great that there was customer research there, but did how did you actually try and hold them to that to see if they were how do you test their seriousness?

Bjorn Espenes

06:35>> Well, in order to get them to do this, we made them sign an NDA to make it exclusive, and then get their buy in. And as we made progress, I kept them in the loop. And so, yeah, I mean, of course you can't really keep people to the fire, but the hit rate and the commitments we got gave us enough confidence to go do it. And as we started on ramping new clients, there were very few

07:00>> that fell off.

Churn and Moving Upmarket

Nathan Latka

07:01Yep, that's very good. What is churn today?

Bjorn Espenes

07:03>> Churn in

07:07>> our target audience, we're churning about 11% a year.

Nathan Latka

07:11Okay. That's 11% revenue churn per year? Yeah. And you use very specific verbiage there, which was in your target kind of audience. But if you look at your entire paid customer base, is it still about 11%?

Bjorn Espenes

07:22>> No, it's higher than that. And part of that is we're moving very quickly up market. We started out in the micro, the SMB markets, and we're working our way up really fast. And as a result of that, a lot of the you don't take advantage of a platform like this. You need to have a lot of data that flows through it. And one of the smaller clients that we had from the legacy clients, we're letting those

07:47>> fall off, you know, as we're not really putting a lot of effort into keeping those. It's more focused on enterprise level clients.

Nathan Latka

07:53And what does your team look like today and how many of those folks are inside sales?

Team Size and Customer Success Structure

Bjorn Espenes

07:58>> Our sales team here on inside sales about 12 people.

Nathan Latka

08:02And what's total team size?

Bjorn Espenes

08:04>> About 70.

Nathan Latka

08:06Seven zero?

Bjorn Espenes

08:07>> Yes.

Nathan Latka

08:07And do you have who's in charge of driving expansion revenue? The account executive or do have a customer success team?

Bjorn Espenes

08:14>> Have a customer success team.

Nathan Latka

08:16Quota carrying or not?

Bjorn Espenes

08:18>> They have a book of business that they manage, yes.

Nathan Latka

08:21Okay. But so this is a big debate right now. I talked to lot of people doing, you know, a $100,000,000 in ARR. They all have CS teams. When I ask about expansion revenue, some of them actually do put that onus on the CS rep to drive expansion. Some of them do not. So just to be clear, you have quota carrying CS reps?

Bjorn Espenes

08:37>> Yes.

Nathan Latka

08:37Okay. That's great. How do you do you mind me asking? I mean, obviously don't give away anyone's personal salary, but how did you structure that to make sure incentives are aligned across the SDR to the AE to the CS rep?

Company-Wide ARR KPI and Compensation Model

Bjorn Espenes

08:47>> So we have a single KPI across the entire company that is annualized in our revenues, And that's sliced and diced into different functions, different geographic regions, and so forth. And what comes from that is, there's always in a business like this that's transactional ecommerce driven, there's a lot of seasonality. So you gotta bake that into It's difficult to do month over month and year over year is the more effective measure. But essentially there are two main

09:22>> components for these, and it's, you know, how much we grow in the count and it's the churn numbers, right? So, and that's, you know, I think a lot of the challenges, you know, companies like ours have or dentistry have is how do you calculate all these things in a way that's fair, that takes a lot of the noise around the numbers out. And I think that's one of the key factors that we have done is to

09:51>> find a way to have a single KPI that is sliced and diced around the company.

Nathan Latka

09:56So you are and I wanna try and break that down to make sure I understand it. I'm gonna make this up. You're saying, okay, team, here's our ARR target. But you know, from 2017 to the end of twenty eighteen, we wanna be at this. If we hit this metric by the end of 2018, the CS reps you're going to get of this, there's a bonus pool of a million bucks. You're going get 10% of it. Your

10:14AEs, you're going to get 10, engineering, you're going get 20%. I mean, is that kind of how you think about it?

Bjorn Espenes

10:18>> Actually, I think about it more on an individual level. And every employee has a daily report that tells them exactly where they are and how they're tracking towards the goals.

Nathan Latka

10:30Do you use a tool to do that or is it something you built internally?

Bjorn Espenes

10:33>> Built internally.

Nathan Latka

10:34Interesting. Obviously super smart and this is very difficult to incentivize everyone at the same time towards the same goal. Do how do you decide what the bonus is that's paid out? Is there like a this is the pot of winnings and it's distributed? Do you understand what I'm saying?

Bjorn Espenes

10:53>> Yeah. So it's all individual, right?

Nathan Latka

10:56Yeah. Yeah. But what are they So at the end of the year, you hit the company target, what are they splitting?

Bjorn Espenes

11:01>> So we don't do it like that.

Nathan Latka

11:05Okay.

Bjorn Espenes

11:06>> We have it's you know, because when once once you start building a pool like that, it's easy for people to hide. You know, we have all these numbers are sliced and diced so granularly that each individual know exactly where they are and where they're tracking if they're head or behind and bonus or commission payouts. And it's more of commission type payout than a bonus per se.

Nathan Latka

11:31Okay.

Bjorn Espenes

11:31>> And it's paid out, you know, during the year.

Nathan Latka

11:33So how would an engineer who's critical to a company, obviously, commission is not lingo they're familiar with. They're also getting a commission and if so, on what sales?

Bjorn Espenes

11:42>> So they get, it's tied to sales and, but it's a higher level number than their individual performance life. So for example, on engineers, they get paid on incremental revenues over the past twelve months. And there's certain triggers that makes that happen.

Nathan Latka

12:03Really interesting. Are there any books or resources that helped you develop kind of this model?

Bjorn Espenes

12:13>> No. I think we and I was really focused on on when we first started, you know, the first year and a half, it was Eric and me who was my co founder, and we'd come off a company before we started Finch. And we really wanted to

12:30>> make things very simple. And we spent a lot of time figuring out what is the one KPI that we can work with now that's motivating for the two of us as we got started that can scale over time. And we've and as I said, we've built the tool internally, and it's been modified a ton over the years. But I think that's one of the keys to keep everyone focused. And, you know, compensation is an effective way

12:58>> to keep people focused. Right?

Nathan Latka

12:59Yeah. No. No. It's more I'm just more interested in, obviously, compensation makes sense, but it's more about how this model kind of changes and evolves over time, which it sounds like you've done a really interesting job with that. So very good. Well, of the 70 people, where's everyone based?

Bjorn Espenes

13:12>> They're based in Salt Lake City, Dublin, Munich, and Manila.

Nathan Latka

13:17Okay. Dublin. Got it. And remote remote spots. And then last question here on kind of economics. What are you paying to acquire a new customer, typically fully weighted?

CAC and Payback Period

Bjorn Espenes

13:25>> Not that I'm going share that number with you.

Nathan Latka

13:27Okay. What I'm really asking is how aggressive are you comfortable being in terms of payback period? Will you push twelve months or are you trying to stay below six or what?

Bjorn Espenes

13:34>> We are well inside twelve months.

Nathan Latka

13:36Okay. Are you happy with that or are you getting more aggressive and pushing higher?

Bjorn Espenes

13:41>> We have been more aggressive over the years and pushing more. And it's just as the company scales generates more resources, we're getting more aggressive on the sales and marketing side. And that's for a company like ours, limiting factor to growth is the customer acquisition cost.

Nathan Latka

14:02Sure. Yeah. I mean, you said earlier, ARPU was about $3,000 per month. So if you're spending less than twelve months in terms of payback period, you're definitely spending less than $36,000 to get one of those new customers.

Bjorn Espenes

14:11>> Right.

14:12>> Yeah. That's great. Healthy.

Future Funding and M&A Plans

Nathan Latka

14:13Any obviously you haven't raised capital to date. You did say there are right times to do that. Any plans in your future to raise?

Bjorn Espenes

14:19>> Nope.

Nathan Latka

14:20No conversations right now?

Bjorn Espenes

14:21>> No conversations.

Nathan Latka

14:22You selling to anyone right now?

Bjorn Espenes

14:23>> No.

Nathan Latka

14:24Come on man, you said all the straight face, you're good, you've practiced this.

Bjorn Espenes

14:29>> It's like we got a good thing. It's like we're running I think one of the ultimate luxuries in life is you get to choose who you work with. Yeah. And we're solving a really big problem for a lot companies out there and we're just getting started.

Famous Five Rapid Fire

Nathan Latka

14:42I love that. Let's take it home here with the famous five. Number one, what's your favorite business book?

Bjorn Espenes

14:48>> Good to Great, The Natural Concept.

Nathan Latka

14:50Number two, is there a CEO you're following or studying right now?

Bjorn Espenes

14:54>> No.

Nathan Latka

14:55Number three,

15:00what's your favorite online tool for building your business?

Bjorn Espenes

15:03>> LinkedIn.

Nathan Latka

15:04Number four, how many hours of sleep do you get every night?

Bjorn Espenes

15:08>> Five, six ish.

Nathan Latka

15:09Okay. And what's your situation? Married, single, kiddos?

Bjorn Espenes

15:12>> Married with children.

Nathan Latka

15:14How many?

Bjorn Espenes

15:15>> Two.

Nathan Latka

15:15Okay.

Bjorn Espenes

15:16>> Sixteen and fifteen. Married twenty one years.

Nathan Latka

15:18That's amazing. And how old are

Bjorn Espenes

15:21>> 53.

15:21>> 53.

Nathan Latka

15:22Last question. What do you wish your 20 year old self knew?

Bjorn Espenes

15:26>> Don't worry about what anyone else thinks and think bigger.

Nathan Latka

15:31Guys, don't worry about anyone else and think bigger founded Finch back in 2009. Now over 70 people between Salt Lake City, Dublin and other remote locations. They're bootstrapped. They've got about two fifty customers paying three well north of $3,000 per month. They're doing well north of $750,000 per month right now in revenue 11% revenue churn per year. That's obviously on a gross basis, again, less than twelve months in terms of payback period. So healthy economics there

15:57as they look to continue scaling again, all bootstrapped, which I love. Bjorn, thanks for taking us to the top.

Bjorn Espenes

16:02>> Hey, thank you so much.