Flowster Revenue & Valuation (2020)

Introduction hello everyone my guest today is trent dearsmith he's a serial entrepreneur husband and father in addition to hosting the bright ideas e-commerce podcast he's the founder of flowster.app a business workflow management application used by thousands of e-commerce businesses around the globe in 2019 is ecommerce business ranked 254th on the inc 5000. all right trying to ready to take it to the top you betcha let's go for it so just be clear are you also running an ecommerce business and you use flowster to grow it correct the e-commerce business was the one that was created first and then there's a story of how one led to the other but the short version is the one did lead to the other and flowster was created and released to the public in fall of 2018 and the e-commerce business was created in the summer of 16. okay so let's start with summer of 16 what was the e-commerce business so it's a business that is an amazon reseller nothing particularly unique about it other than the way that we went about it and the way that i went about it was to take a very process oriented approach to growth so we began by documenting every single one of our processes and then we made extensive use of virtual assistants overseas that resulted us in us being able to basically out hustle our competitors and that's what led to the company being on the inc 5000 okay so let's start with the headline and then work backwards to the documentation of the va's what was revenue when you guys reported to inc uh 3.1 million i think it was and what year was that revenue uh that was 20 well that was we we got the award in 2019 so whatever i think that was the three year number okay and what were you reselling mainly what was your best-selling product that year supplements supplements interesting okay now let's work backwards you out executed with documentation and cheaper overseas va talent why were you so good at documentation for someone listening right now that wants to get good at documentation for hiring va's what would you recommend so not my first rodeo i built and sold a company before and very early on in my in my first journey i read michael gerber's book the e-myth and i was immediately intoxicated with the idea of documenting processes and delegating because my primary driver nathan is i don't live to work i work to live i'm an entrepreneur first and foremost to design a lifestyle that i want and that lifestyle means that i don't want to be bogged down in minutia every single day day after day to run my company so how to literally walk me through a process you documented and how you document it are you using google docs and then copying that out into a va system like get us into the weed a little bit here sure so in the beginning it was very simple we used we started with google docs i would simply take my 27 inch monitor and i would take a browser on the left and a browser on the right and in the left hand browser i would do the thing that i didn't ever want to do again the process and then i would just screenshot the hell out of everything that i was doing and i'd write detailed instructions so instead of if that thing was going to take me 10 minutes creating the process might take me three hours but then i don't ever have to do it again and in our case one of the things that we started with was well how do we identify competitors on amazon how do we research products on amazon and so there's a very sequential process to doing that to finding these product products that made economic sense for us to carry it's very laborious and and so that was the first thing that i delegated and how did you know that it would be a competitive advantage to document that process and have a va to do it and the economics associated with paying that va versus a smart developer coming along and a competitor to you and writing you know a macro or something to do the same thing so i suppose a developer could have run a macro and i'm not a developer so i can't speak to that specifically but i know that in the amazon reseller space the vast majority of the competitors are not particularly tech savvy so i didn't have a bar that high to climb to what i realized is it's basic b2b sales the more appointments that i could get with prospective brand partners the more opportunities i would have to give my pitch and the more times that i would get somebody to say yes so that's just really basic stuff and i thought well i just need to send a lot of emails i need to i need to identify a lot of products i need to run them through a set of mathematical filters to create a short list then i need to get all the contact information for the correct person at each one of those companies so that i can send them an email with the right message and i need to do that hundreds and hundreds and hundreds of times a week and as you might imagine that's a fairly laborious process and i didn't want to do it because it's really really mind-numbingly boring work so i decided i would document every last little minutiae detail of that and then hire a little army of virtual assistants to do it for me and as the ink plaque on the wall behind me would attest it actually have two of them now it worked pretty well how did how long was the document that one process well i what i just described was actually multiple processes so the first step is finding competitors and that was really only like a six or seven step process and then we have a process for called product extractions and i'm going from memory i don't have it on the screen in front of me right now but that was probably a 35 or 40 step process and then there's another process after that which is finding the contact well actually we put then we put all the data into a spreadsheet and the spreadsheet had these macros or pre-made formulas in it so it would automatically do all the math and then for the products which were one row for each product everyone that passed muster then there was another process given to a yet another va to go and find the company find the executive on linkedin find their email address validate the email address and then we would have a another then they would all be imported into our hubspot crm and then we used yet another application to send the email messages out in bulk to those people and that was repeated week after week interesting i love this okay uh so that's helpful to understand at some point you did get tech savvy though because you built a sas tool called flowstrap when was the first line of code for that written we started coding in uh middle of 2017. okay and how did you get your oh sorry go ahead i was gonna say it happened because i was so as a result of the first year success we had with the reseller business i was invited to speak at a conference with approximately 500 other amazon resellers in the audience and i took an hour and i explained what i've explained to you but obviously in more detail and i said hey everybody i don't have anything for sale i'm literally just going to fire hose with information so good luck and i had no plans to start a software company i never thought that people would want to buy copies of these procedures well much to my surprise my assumptions were incorrect i was inundated with requests after that talk of would i sell copies of all of these procedures that i developed and so we thought well sure we'll try it out and see how it goes well we sold 412 thousand dollars of them in the first seven days it was at that moment that i had the light bulb go on and i thought well that's going to be a thing and we want to do more of that so i immediately called a good buddy of mine who had built and sold his software company he was the technical guy and i said this is what happened i want to build a software company and he said i'm in and you already have the specs because the specs for the process correct interesting okay so so i think we have an idea but what does flowster our app do for e-commerce amazon sellers today so it is twofold one you have the application itself which is a process management application so in theory anybody in any industry could go into the app and they could document their processes for all the things that are known in advance and highly repeatable and then they can assign them to people on their team and give them due dates and all the things that you would expect the second layer is the content and this is the layer that's really critical to our success in e-commerce and to our desire to to build to get more traction in the e-commerce industry as you might imagine creating processes from scratch it's a lot of work so we had the benefit of already having having created i think at the time there was about 70 or so of them because we we were in that business we needed them for ourselves that took a year to create that first bit of content before it was ever even publicly available so the big benefit of flowster for e-commerce now is that you can go and sign up and you can immediately tap into our amazon seller playbook and you can get all of these proven processes and you can add other users from your team and you can literally just say okay so this process here is going to be assigned to dave and it's going to be due on thursday and dave will get a notification from the software he'll look at the process it's so incredibly detailed that there's no additional training provided you literally just start doing the things check check check check and working your way through the checklist i'm in the flow strap right now i open up one of the templates the workflow there's also a marketplace but i go into templates i click on finding competitors on amazon and there's a sort of a split screen the left side is the check boxes the right side are the screen shots this is look almost looks like coded versions of your early google docs when you were building your supplement reseller business those steps say things like number one find prime sellers number two analyze the sellers and then step three says check if seller has not been previously extracted if your system works so well and everyone signs up for it doesn't it get to a point where the systems don't work because everyone's running the same process in other words everyone's already been extracted in theory you could make a case for that but the numbers are so so huge that there's not enough everyone's to do it so if you think about the amazon marketplace there's a half billion products and there's always new products and there's always new brands every single year and there are last count that i've heard six million odd amazon resellers but only four percent of those amazon resellers nathan ever exceed a hundred thousand dollars a year in revenue so we're talking about yeah there's lots of competition but and and i only have you know and i only have so much reach because we're not we're not running crazy amounts of ads for this most of the promotion of the product that we're talking about is done via one affiliate so there's literally only a couple thousand people a year who even know that it exists now that happens to generate millions in sales for us uh which is great from cash flow and funding the growth of flowstar and so on but historically speaking it hasn't it hasn't made our business any harder uh there are other factors to do with the amazon marketplace just competition in general which on their own make our business harder but i did not see any negative impact to our business at all once the that collection we call it webs it stands for wholesale ecommerce business systems it's just a collection of content that a reseller would need to run and scale their business and we didn't experience any negative impact as a result of there's been about a thousand people now that bought it in trent or this is it all sas models you have about a thousand customers paying monthly for it so at the time no it was this was sold on a one-time fee okay yeah that's at 412 early on because i didn't have a sas when i sold it initially um and so we continued did we didn't it wasn't broke we didn't want to fix it so we continued into this day for that customer segment for that product they still pay a one-time fee and then they get flowster basically included for free for a year now going forward we're launching a derivative of that product to an entirely different market segment and that's the brand owners themselves so instead of like the first market is the resellers this you know small company that wants to partner up with brand owners who own all the products that are Currently serving 5000 customers sold on amazon but there's a trend in the amazon marketplace and that trend is this the manufacturers of these goods brand owners more of them are wanting more control over the amazon channel so that means that they're going to start opening their own amazon seller central accounts and we see there and being an opportunity for us because they don't know how to do it they don't know how to run amazon it's a complex sales channel so we're creating another version of this product specifically for them and that is sold exclusively on subscription okay got it so just to be clear right now you have an info product on steroids i would say top one percent sort of steroids there there's no option right now there's no one paying your occurring fee for flowster no we do flowster does have recurring revenue because uh two things one when you pay for the content one time included in the first year is the annual subscription fee but in year two you've got to fork it out and pay for it so so how many have done that that's what i'm trying to get at how many are paying you money okay so we have we have about 5 000 users on the platform we run currently a freemium model about 500 or 600 of those users are in an active subscription at this point in time 500 okay so 5000 have paid the one time to get the set of documents that's the first test you ran from stage when you presented and people asked can i buy this one time okay 1 000 people have paid the one time fee yeah how where did the other 4 000 come from um my podcast seo people just find flowster and they go sign up for it on flowster correct they didn't they're not necessarily an amazon reseller they're not they don't even maybe know what webs is they literally just found floster they looked at the home page it resonated with them and they thought i'm going to give this thing a try i see and of those five thousand ten percent have converted to paid they're actually paying you an annual subscription yes i see okay what are they paying on average per month or per year currently the average mrr is 20 bucks 20 bucks okay that is that is about to change how so so when we first came out with pricing we really didn't know what to do so we looked at some competitors and we just price matched um but as we have iterated our product and our go to market strategy in our target audience we've identified ways to differentiate ourselves i have two million dollars worth of sales to kind of give me some idea of what this would be worth to a brand because as as you might understand i mean with our amazon reseller business i've talked to many many many brands over the last four years so going forward this product will be available for 99 per month and that is so we call it the amazon seller playbook it's specifically designed for brands that want to run their own amazon seller central account and that's going to be what we're aggressively marketing for the next x number of months i would think a long time because that's at 99 a month versus the legacy pricing of just i think 15 bucks a month per user our average mrr is going to go up significantly got it so on just that recurring business the 500 Monthly recurring revenue paying 240 per year on average i mean that's what 120 000 a year business Bootstrapped today uh yeah right in that neighborhood 10 000 a month yeah that's great with plans change obviously over time as you introduce this new model correct heavy boost sorry have you bootstrapped this love love that love that and so how many folks are on the team now today so we have the co-founder who's the cto we have myself we just hired a full-time vp of marketing uh so and then there's my wife who's also involved and then we have i don't know the number of developers in india that would be the cto but i'm gonna go with three or four or five something like that so all told were and some other va's doing some content generation assistance so somewhere around 15 people 15 people do you or your wife own more equity my wife and i own equal the co-founder and i mean so my wife and i own half of the co-founders i see i see it let's say happy cap table happy marriage that's how it works that's how it works okay so 15 people and i assume you're since you've bootstrapped you're running this profitably or right at breakeven uh it was at break even for the longest time until we hired the vp of marketing and i gave her a marketing budget and now we're going to be burning through a fairly decent amount of cash but thanks to the historical sales of my webs product i have a reasonably decent war chest of cash and can fund it for long enough to get our unit economics on the new target audience figured out so that we can either determine what's going to be our bootstrap growth rate or do i need to go raise yeah that makes a lot of sense and so how much burn are you comfortable stomaching per month right now as you reinvest in this marketing and growth we're talking 10 grand a month in net burn or more 20 talking about 20. okay so not horrible yeah sounds like an interesting investment um and do you have sort of the economics panned out on what your cac looks like to get a new Customer acquisition cost 500 subscriber sorry sorry another sorry a new 240 a year subscriber so that cac i know uh that cacks about 115 dollars great economics because yeah i mean if if i was to just continue to pursue more of my historical customer the economics are compelling however the market size isn't large enough and that's why we're still going to keep selling that stuff to those folks because it generates so much cash for us but in order to really make the sas business and get the mrr or arr really going up and to the right we need to have a much bigger target market and that's brands there are there are tens of thousands if not hundreds of thousands of brands just in north america alone many of whom are already on the amazon sales channel in one way shape or form and many of whom are thinking i want more control how do i eliminate these amazon related problems i know how i do it i get rid of all the third-party sellers i open my own seller central account i stop selling to amazon and then i achieve control understanding churn economics is critical in selling any sas company when you look at your again annual recurring folks what does annual churn look like so i'm taking the numbers here from a dashboard we use something called chart mogul and according to chart mogul we have gross m i have with our historical set of customers a gross mrr turn of 9.48 as of september with net mrr churn of 2.67 as of september got it so net mrr churn of 2.5 is the equivalent of net revenue retention being about 98 which is not bad at this price point what that what that means to bit their trend is if you're churning nine point something annually it means you're expanding by about five or six percent to get you net revenue retention of about 98 what are you expanding how are you upselling customers two ways so in our new pricing table which is not yet published there are two factors that cause expansion the first one is number of templates number of workflow templates allowed in an account and the second one is number of users we went through um and i forget who published it now um i wish i could give credit but there was an exhaustive study on value-based pricing in the stat sas space you might have even read it maybe you know probably profit well patrick usually does those studies i think so it was like 150 pages long and i spent a good amount of time reading through what he wrote in that and that's how he came up with that pricing makes a lot of sense trent let's wrap up here with the famous five number one what's your favorite business book so my favorite right now and i'm in the middle of reading it is multipliers probably my favorite of all time would be the e-myth for obvious reasons it had a big impact on my thinking but multipliers is one i'm particularly enjoying right now number two is there a ceo you're following or studying not one in particular but i do as the benefit as the host of a podcast as you might understand obviously you get interact with a lot of people and i try and pull as many gold nuggets as i can from those conversations what is your show by the way what's the title of it and are you publishing weekly daily uh we publish weekly so i have the bright ideas e-commerce podcast and we are soon launching the flowstr podcast very good and which general sense i mean what's an episode get in terms of downloads in the first couple weeks it's live um i know that my show the bright ideas show right now is getting according i moved to a new host okay um according to their stats i'm getting about 170 000 starts per month of the of all of the episodes pretty good yeah pretty cool that could be better i you know i always think like same with my show right it's it we're niche specific we don't want to be serial and have a hundred million dollars with joe rogan but if we can just reach the 5 000 for in your case biggest sort of amazon brands that is a massive win for you 100 million business on the back of that audience yeah so all right number four number three what's your favorite online tool for building flowster my favorite well my favorite online tool is flowster well besides your own besides my own well so right now i'm on a mission to become proficient in seo and build an seo team and really get our seo and content marketing going and i've uh just formed a little partnership with sem rush and i'm really enjoying the help that they're giving me and the tool that they've provided number four how many hours of sleep do you get every night eight and situation married single we know you're married how many kids any kids yep one daughter she's six oh great and how old are you i am 50. 50. last question trent what's something you wish you knew when you were 20 i wish i better understood the value of focus and patience i was particularly impatient and you'd be amazed how fast the years go by and and you hop around too much and i tried to do too many things and try to do too many things at once would have loved to have had the mindset i have these days guys in 2019 he built his own e-commerce brand to 3.1 million sales started documenting all this process to help other amazon sellers sort of do the same thing and said you know what i'm going to build an app for this it's called flowster this is after give a presentation where i sold 412 000 worth of his documentation you know documented processes to the audience has now codified that five thousand free years have tried it 500 pay per month they pay an average 20 bucks per month so called 120 000 bucks in ar he's now about to launch more enterprise focused pricing as they start to move upstream all bootstrapped uh profitable until recently when they started making bigger investments in marketing trent we're rooting for you and thanks for taking us to the top nathan it's been a pleasure thank you for having me on the show one more thing before you go we have a brand new show every thursday at 1 pm central it's called shark tank for sas we call it deal or bust one founder comes on three hungry buyers they try and do a deal live and the founder shares back end dashboards their expenses their revenue arpu cac ltv you name it they share it and the buyers try and make a deal live it is fun to watch every thursday 1 pm central additionally remember these recorded founder interviews go live we release them here on youtube every day at 2 p.m central to make sure you don't miss any of that make sure you click the subscribe button below here on youtube the big red button and then click the little bell notification to make sure you get notifications when we do go live i wouldn't want you to miss breaking news in the sas world whether it's an acquisition a big fundraise a big sale a big profitability statement or something else i don't want you to miss it additionally if you want to take this conversation deeper and further we have by far the largest private slack community for b2b sas founders you want to get in there we've probably talked about your tool if you're running a company or your firm if you're investing you can go in there and quickly search and see what people are saying sign up for that at nathan lacka dot com forward slash slack in the meantime i'm hanging out with you here on youtube i'll be in the comments for the next 30 minutes feel free to let me know what you thought about this episode if you enjoyed it click the thumbs up we get a lot of haters that are mad at how aggressive i am on these shows but i do it so that we can all learn we have to counter those people we got to push them away click the thumbs up below to counter them and know that i appreciate your guys support all right i'll be in the comments see ya