How Foglogic Inc CEO Ashok Santhanam grew to $1,000K revenue and 10 customers in 2019.

hello everyone my guest today is ashak santanum he is the co-founder and ceo of fog logic before this company he served as ceo of bristol cone and senior vp of worldwide field operations at epiphany earlier he was founder and ceo and chairman at invented technologies he has a bs from iit madras and an mba from harvard business school a shock are you ready to take us to the top sure all right what is fog logic and how do you guys generate revenue what's your business model uh well we're a sas company and we started three years ago with a vision to transform the way it operations particularly managing enterprise applications happens by leveraging the power of ai and machine learning okay so 2015 was launch date uh 2016 was no launch date was actually end of 2017. no of the company when did you create the company ah well the official start of the company was actually in early 2016 okay uh although we incorporated earlier than that okay great and then kind of try and break down the tech for us what does the fog logic do yes so it's a cloud-based application that uh today talk well we target enterprise applications and our initial use case is the sap application landscape in enterprises and what we essentially do is pull operational data you know log messages uh you know operational metrics you know things of that nature from these sap applications and the related uh uh infrastructure stacks so the databases that sap runs on and the infrastructure that sap runs on we pull all of that send it to send it up into the cloud where we analyze the data continuously using our ai algorithm so the basic idea is that you know in most complex enterprise applications they don't run incident free there's invariably times when systems go down and you know people are all hands on deck trying to react to these things and of course when the system is not available it means business doesn't get done and so the idea here is that rather than waiting for something to go down and then having a bunch of people uh trying to figure out what went wrong by making looking at all of this data and analyzing it manually we do that on the fly in real time okay but is it predictive or is a lagging indicator it tells you why something happened after the fact or prevents it from happening well it doesn't yet prevent it from happening that's where we're going uh actually where we're going is ultimately to automatically fix problems that happen before they occur right okay and give me an example of an application or company that uses this currently uh well variant medical would be would be an example of a company that uses it today and uh so they're a two and a half three billion dollar a year company making cancer medical equipment okay and what's something that you're monitoring for them where if they break it's something you have to do a report on to make sure it doesn't happen again uh well it's you you actually don't have to do a report on it so so it's uh they use sap to run their whole business right and so all their manufacturing plants all their finance systems all all of those systems run on sap and so if something were to go wrong in any one of these sap applications they have a team of people whose job it is to keep these things running they all have to sort of get involved and figure out what happened what why did it happen what went wrong does the cto lead this group of shock uh the cio to see okay so you're selling directly into the cio the cio's organization typically in large companies the reporting to the cio will be a group called the it infrastructure or the iit operations group headed by a vp those are the people that would use what we okay and give me a sense here on average what's the company like this medical company going to pay you per year for access to your technology well it's uh obviously we can't disclose what they specifically pay us i did ask it i didn't ask them i said on average in general a company that's uh well let's just say that uh the annual subscription revenue that we get can range from sort of you know the tens of thousands of dollars at the low end to the hundreds of thousands of dollars per year at the high end okay again just because we don't have time to go to every cohort that's why i'm asking for an average so is it is it fair to say maybe an average might be 100 grand per year between 100 and 150k per year okay okay very good and can you give me a sense of the size of what that that company paying that average might look like you know how many how many apps are they running isolated to a size of company it really depends on the complexity of their sap landscape but it's measured by what uh measured by the number of uh production systems the number of application servers okay so how many do they typically have if they're paying you 100 grand a year depends on depends on their business right because a manufacturing company might have a different setup than a financial service yeah a shock my question is someone paying you 100 per year whatever your pricing metric i don't care what it is it sounds like its number of sap apps so whatever it is if they're paying 100 grand a year about how many apps are they running they would typically be running somewhere in the sort of 20 to 25 production systems roughly okay and is there anything else you're pricing against between number of production systems it's uh it's a it's a formula that's uh that involves the number of production systems the total number of application servers that they that they run on and the number of sap licensed users that they have right so each of these is a proxy for the complexity of the sap system landscape i wish it was as simple as saying it's based on the customer's revenue but unfortunately it's not well no i mean by the way what you just articulated is is very straightforward and simple you have three pricing axes one around number production systems one around number of application servers and one around number of sap license users that's right so help help me understand what your inside sales teams look like because i'm understand how they're driving expansion revenue so what's your team size today total uh we have a team of four people in sales your total team size total team size what is your total what is the total team size of the whole company yeah it's about 32 people okay 32 and four of them are some form of sales marketing or onboarding uh four of them are in sales and then we have a couple of people in marketing as well okay very cool and where's our one we have a customer success team of uh three to four people okay where's everyone based uh about uh well every everyone in sales marketing customer success uh is based here in sunnyvale we have about half the development team in sunnyvale and the other half of the development team is in uh eastern europe okay um quick question this is a big debate right now amongst enterprise applications selling again 100 000 plus acvs are your customer success reps incentivized via quota on the expansion revenue they drive uh no not today they're not okay even as a group they're not there's no bonus pool as a group not not for customer success well you know so so i mean everyone's obviously incentivized by equity in our company and so to the extent that our customers chuck that's nice of you by the way you give everybody equity huh yes we do all right i think you're gonna have a bunch of job apple a bunch of job applications silicon valley isn't it uh no you'd be shocked i know some founders that don't need to use equity to keep talent they have other creative ways to to keep it but by the way i like what you're doing i think it's great to get equity out yeah so um it's too early in the game for us to get into you know sort of uh bonus type incentive programs because we don't know what we do what we what we know and what we don't know yet we're still discovering that as we go along as as things sort of settle down and uh we have some history to learn from then it becomes easier to start putting those how have you capitalized the business bootstrapped or have you raised no we uh re-raised we uh we did a small seed round to get started and then we did a series a in 2017. okay so how much raised to date seven million seven okay and all that was priced equity or any convertible notes or debt the the original seed was convertible note which converted at the time of the series a and the series a was priced yeah and how aggressive are you being today with that capital i mean are you burning capital today or are you at break even or profitable well we yes we are burning capital but uh i wouldn't i wouldn't say we're aggressive you know this is uh uh i've done this a couple of times before as has my co-founder and so we know that uh there are there are you know rapids uh that that we can't see up in front of us and so we were careful about spending cash how do you um what is a smart way to manage runway so right now if you're burning x amount you have y left in the bank how much bigger is y than x uh well i mean that changes from month to month obviously because you have uh uh we we'd like to keep a minimum of uh sort of six to nine months of runway available yep you're talking of net of net of net burn not gross burn yes yeah yeah very good okay good um and when was that last you said the last round was raised what month april of 2017. okay okay interesting so you're raising capital now or you're selling to your biggest competitor which one is it [Laughter] we hope to be raising capital a little bit later in the year okay very good and what are you waiting for is there a certain metric you're waiting to hit uh well we'd like to uh have some examples of uh customers who've increased their adoption rate of fog logic you know they typically start with a smaller footprint of sap systems and we'd like to see that grow we'd obviously like to to add a few more accounts there's some channel type relationships we're working on we'd like to have a couple of those in place so yeah you know it's a mix of things and there's no one right answer but you know when it feels right we'll uh we'll start having it in a shock how many folks are you supporting today how many customers to date uh it's uh less than a dozen today okay got it so this is this is very much high touch enterprise selling it's high touch enterprise selling and it's uh still very much in the early track yeah yeah so if i take let's say less than a dozen let's say 10 customers at that kind of 100 000 kind of acv price point you said earlier i mean you guys are what are you flirting with a million bucks in ar right now uh we'll be uh yeah we plus or minus we're we're not too far off i mean do you think you'll hit it like in january it'll be february or march somewhere in q1 or no it's further down the line unfortunately nathan i can't share uh share those kinds of details but uh let's just say that uh we we will end this year at less than five in arr and uh uh somewhere along the way we'll reach a point where we think it's uh kind of well yeah and you gotta get past one first yeah yeah so so yeah so but but you know and it's an open question what constitutes series b you know because people look at a number of different things arr is one of them but quality of customers and uh you know head room for group account growth you know a variety of different things so whether you can do a series b in the one to two million ar range or you need to be up in the three or four million arranged some of those things are variable we don't know no no i agree with you and then help me understand growth today so last 12 months would you grow at what percentage [Music] we only started landing our first customers during the last year so oh so you were zero a year ago we were a year ago close to zero yeah oh wow okay okay good so basically going from a million sorry zero to kind of flirting with the million bucks in arr in under 12 months is pretty good yeah that's great okay and then um uh where do you think most your future growth is going to come from to get up to 5 million bucks in ar expansion revenue or new customer ads oh we have to do both uh yeah but the majority yeah um i i think it'll probably be about uh maybe 60 to seven maybe let's call it two-thirds new and a third in expansion revenue okay you know a lot of it depends on the pace at which these accounts expand and uh so some of them have substantial headroom and they whether it's a step function they go from their sort of initial purchase to covering all of their sap applications in one jump or do they take three or four jumps over a period of uh you know several quarters is uh remains to be seen so in a shock this isn't this isn't your first this isn't your first rodeo so you know how to like dial up aggressiveness or dial back aggressiveness how aggressive are you being right now in terms of fully weighted cac are you happy with the 12 month payback period uh you you 12 month payback uh in terms of what for the customer you're talking about the to land it to land a new hundred thousand dollar acv account are you willing to spend a hundred grand to get that customer yeah yeah i would say so okay so your payback period right now is around that 12-month mark yeah probably probably okay we're not looking too closely at the at the cac metrics right now because uh as i said we're still learning about uh uh the length of these uh enterprise sales cycles and uh what are all the different hoops that we have to jump through and so on and so forth so so right now our our goal really is to sort of understand enough about all of these things to set us up for scaling yeah once we get to that point then we'll start tracking all of these metrics much more closely and start worrying about the cost of customer acquisition that makes sense how did you hustle your way to the first two customers what did you do oh the first uh couple were essentially from my network okay can you tell the story of one of them uh well i can give give you the example of variant medical which okay it was one of our early one of our early ones and uh you know they were people first of all they're local but i happened to know the former cio and i spoke to her about uh how did you know her i got introduced to her just through people i know here in silicon valley okay at a prior company or or once you no just just sort of local network okay and it was there like a local like coffee meet up you go to every month where that happened or it was just a random introduction this particular case it was an introduction yeah okay did you target her you knew that you want to sell the cios and you asked someone for the introduction no i knew i wanted to sell the cios i was reaching out to several cios that i knew in my network i was talking to somebody else and who offered saying hey i know a couple of cios would you like to get introduced i said yes he made the introduction you know she liked what we were what we were doing she thought it had applicability to variant so she brought us in introduced us to uh other people on her team we started to work with them uh went through a poc and uh and then and then signed them as a as a customer and they were early so when we when they did a poc we hadn't even launched yet so they were almost like a beta uh uh customer so we got a lot of feedback they actually gave us some excellent uh uh early uh product input which was that's great and they're probably they're probably paying an old grandfather price i bet you wish you could 3x the price point huh you're getting a very good deal yeah all right a shock very good let's uh let's wrap up with the famous five number one what's your favorite business book oh my goodness uh i i guess uh i would have to say crossing the chasm yep jeffrey moore it's a good one number two is there a ceo you're following or studying uh i'm uh jeff bezos and satya nadella i would say number three what billing tool do you guys use billing yeah billing uh right now well we use we use quickbooks for our accounting so okay number four how many hours of sleep to get every night oh i try to get about uh six and a half to seven and what's your situation married single kids uh uh married kids uh who are uh both out of college so two so two two and how old are you a shock uh well i'm i'm up there well i asked that question because then i i want you to go back to when you were 20 years old what do you wish he knew oh my goodness i mean i that at that age i didn't know any i graduated from college pretty early so i graduated when i was 20. and if i think back i look at my kids who have graduated from college and what they know compared to what i knew at the time uh i think uh you know i i i i'd have to say i knew nothing what's something you wish you knew when you were 20 i wish i knew how to uh uh run a star start a company and run it and raise money and all of those kinds of things guys there you have it i wish i had understood that picture better you know when in fact when i started my first company i was in my early 30s and even then i did really didn't didn't understand that all that well guys understand how to launch a business he wishes he knew that earlier on but he's doing pretty well today now we're launching fog logic servicing folks that are really using sap applications to make sure things don't break down or when they do identify the air so they don't happen again currently serving call it 10 customers paying 100 000 bucks a year so flirting with a million bucks in arr that's up from nothing about a year ago they just launched uh so again nice growth in year one they raised seven million bucks they're burning capital right now 32 people in california and eastern europe it's too early to talk about unit economics but generally speaking he's happy with a 12-month payback period a shock thank you for taking us to the top thanks nathan