How Formstack Reached 16,000 Paying Customers and 30 to 40% Annual Growth with About $1M Raised (Interview with CEO Chris Byers)

Introduction and What Formstack Does

Nathan Latka

00:00Hello, My guest today is Chris Byers. He's the CEO of a company called Formstack, a versatile online form solution that streamlines processes for capturing and managing information. His mission is to empower business professionals through simple and elegant tools that remove complexity from everyday business processes. Formstack is committed to pursuing that via sustainable growth. He works with a leadership team to advance the company's initiatives, including its culture code and vision, which focus on relationships, results and the

00:25community. Chris, are you ready to take us to the top?

Chris Byers

00:27Absolutely.

Competing with Google Forms

Nathan Latka

00:28So I've always wondered a tool like you, right? When Google releases Google Forms, tools like you still grow and people still use them and people still, you know, don't churn and expansion revenues there. How have you... Kick us off and kinda tell us what you do and then tell specifically how you've competed with kind of the Google Forms threat.

Chris Byers

00:45Yeah. So I think the, you know, if you go back to the early days, back in 2006, it would... You, excuse me, needed a developer to build a web form and get it on your website. And so if you weren't a developer and you wanted to collect a lead, we kinda made it easy to get that done. Roll forward a few years, that's kinda baked into every software that you've got, CRM, email, etcetera. And so it

01:06kind of transitioned to collect data and then get it into what is now one of 50 kind of native integrations. Because, really, you wanna get it into those back end systems that are really important to you to send an email or start your, you know, kind of relationship with the customer, process payment, something like that. And as we've kind of gone forward, we've really started to think about and built out this kind of collaborative moment around

01:29data collection. So we are all living in these much more collaborative environments. And so you can imagine a time where you need multiple people to kind of input along a form kinda to get the right data. And so imagine something as simple as a reimbursement form. You go travel somewhere. You need to fill that out. Your manager needs to actually see that data via... They get in an email or something, pull up the form, they see

01:53what you filled out, and then they say, oh, yeah. I I need to add to that. I need to code it to this project, and then it passes on to the AP department who says, okay. I paid this, paid it on this date. It notifies you. Realistically, that's just one big form, but you need to kind of assign parts to different people. And so if you think about what Google has done, they've served the audience really

02:12well of just basic data collection, get it into a Google Sheet at the end of the day. And they do that cleanly. It's easy to use. It's free. But it sticks with that use case. It's just I need to... An an internal use case often where you don't care about brand as much. You don't care about styling it as much. And so we we definitely have... I'm sure we lose business to them, but we don't hear

02:35it much because people are really starting to automate a process when they're thinking about Formstack versus just quick data collection and quick form collection.

Nathan Latka

02:43So in 2006, you said it was year one. Is that right?

Chris Byers

02:46Yep. That's right.

Nathan Latka

02:46And then and then walk me through... I wanna hear kinda where your head was at in 2006. But first, like, when a customer signs up for Formstack, on average, what are they paying per month, would you say?

Pricing and Average Revenue Per Account

Chris Byers

02:55On average, $60, $70, $80 a month.

Nathan Latka

02:58Okay. And is that per seat or that's kind of the logo? The brand is paying $60, $70. Right?

Chris Byers

03:02The brand is paying, and and often you'll start to add users, And so that's what's gonna drive your price up. You can start as low as $18 a month. But, you know, often people will start with about five users because they wanna have multiple people be able to get in and see the data or, maybe, again, use approvals or workflow or something like that.

Nathan Latka

03:20Got it. So three, four, five users, that's where you get your $60, $70, $80 ARPU on average. Okay. Interesting. So taking back to 2006, where was your head at that point? Did you just, you know, you know, quit your corporate job because you're frustrated, back against the wall, no money, had to make this work? What were you thinking?

Chris Byers Joins Formstack in 2009

Chris Byers

03:35Yeah. So I'm in an interesting scenario where an old business partner of mine and I, we had a software company, what is nearly twenty years ago now, and he actually started Formstack and then started a second business in 2009. And I had helped him raise money and was an early product user. And so I said, hey, I'll... In 2009, I said, come in and run the business for six months and find somebody to run it long

03:56term. And then I never left. So in the early days, it was all about how do we just empower other people. I mean, here's the thing, you're an entrepreneur, you know how to solve most of the problems that you're trying to solve. You just don't always have the technical capability to get it done. And so where we can give you software to get that done, because you don't really need to go pay a custom... You know,

04:21for custom development or something like that, where we can kinda give you those assets in in your hands. All of a sudden, you've got a power that you didn't have beforehand and, you know, can can I get the job done? So it from day one was about making people's lives easier in some way.

Nathan Latka

04:21I know I understand the product.

04:36I wanna dive more kind of into the growth and how you've gotten to where you've gotten. So just to be clear though, in terms of looking at the company, if I looked at the cap table, would it be very clear you're a co founder or were you added for like, you know, one or 2% equity as a CEO in charge in o nine?

Chris Byers

04:50Yeah. I mean, I... I've kind of both had been an early investor and then kind of have grown equity over time. And so

Nathan Latka

04:50Okay.

Chris Byers

04:50Our our founder was, you know, really controlling investor for a long time. But from day one, he he gave me complete autonomy to go build the business that I felt like I needed to build, which which which is amazing. And so, yeah, that's kinda roughly how that

Customer Count and Active Users

Nathan Latka

05:15That's great. And what have we scaled to today in terms of total customers using you?

Chris Byers

05:19So we're about 16,000 customers.

Nathan Latka

05:21That's good. And those aren't like free and paid. Those are the actual paying customers.

Chris Byers

05:25Yep. That's exactly right. So we get, you know, probably 4,000 people coming to try the product every month and then, you know, some few 100 of those sign up. But, yeah, I've grown this kinda 16,000, and there were about a 100,000 active users sitting on top of those paid accounts.

Nathan Latka

05:39Got it. So 16,000 logos, a 100,000 kind of people inside of each of the... Those logos together.

Chris Byers

05:44Yep. That's right.

Nathan Latka

05:44And can I, I mean, can I multiply that times the $70 ARPU, and you guys are north of 1,000,000 a month at this point? Is that accurate?

Chris Byers

05:50Yeah. That's a good, good way to think about it.

Nathan Latka

05:52Okay. And I mean, what is this kind of space look like in terms of how have you guys guys been growing year over year? So if you're at north of a million today, twelve months ago, were you at 500? Where were you?

Annual Growth Rate and Product Expansion

Chris Byers

06:01Yeah. I mean, we've we've kinda been in the 30 to 40% growth range probably for the past few years. And

Nathan Latka

06:01Okay.

Chris Byers

06:01As you grow, you know, as you grow business, one of the things that gets obviously more challenging is... I mean, realistically, the core initial market forms, let's say, is just... It's not gonna grow to a $100,000,000 business.

Nathan Latka

06:01Sure.

Chris Byers

06:01And so we had to add elements like workflow and beginning to automate process so that we can

06:27start to think about, oh, it makes sense for me to add 10 users or a thousand users or 10,000 users because I need them to be a part of this process. Whereas in the beginning, I said, oh, I... Like, my one marketing person needs to have access to Formstack to collect leads. And so, and then we also have done an acquisition. We did an acquisition late last year with a product called FastForms where they were really

06:51deeply embedded into the Salesforce AppExchange, and we're doing a really amazing job of collecting data in that kind of ecosystem. But you start to see where you have to add other elements to the business to keep growth rate going.

Nathan Latka

07:03Yep. Now it's a really smart product decision obviously to drive expansion revenue. Give us a sense of that. I mean, how... It sounds like if your price point starts at $19 and your average is 70, you've done a great job growing seats and adding additional features, etcetera. But can you quantify that for us? Like, maybe in terms of, you know, net revenue retention annually?

Net Revenue Retention and Churn Improvement

Chris Byers

07:20Yeah. So... I mean, I guess the best way I'd say it is if you rolled back three, four years, we were probably three, you know, 3% gross churn on a on a monthly basis, but then even net churn was not much better than maybe

Nathan Latka

07:20You're

07:34talking logos or revenue?

Chris Byers

07:36Revenue churn. They probably look The same. Yeah. Yeah. And one of the things as we've really gotten better at going up market and expanding with customers, we've driven that kind of... We're we're not at a regular negative kind of churn rate, but we are pretty flat. And so that means when we do go at least acquire customers and bring them on, we're being much more efficient about keeping them around long term. But, yeah, that's a hard

08:03problem to solve.

Nathan Latka

08:04Well, especially your price point to SMBs are notorious for churn, but let me just rearticulate what I think I just heard you say, which is your expansion revenue annually about equals revenue you lose. So you're about flat, which is actually... It sounds weird saying flat because usually if you don't wanna hear flat, that means bad. But in this case, flat is actually good.

Chris Byers

08:20Yeah, absolutely. Yeah. Yeah, that's exactly.

Nathan Latka

08:23That's great. And so give me more... I mean, the 16,000 customers, obviously a lot of customers. Walk me through when you joined in 'nine. How many customers existed when you joined and how did you drive the next thousand after you joined?

Growth Phases: Virality, Sales, and Product Management

Chris Byers

08:35Yeah, we were probably in the few thousand range at that time. And I'd say I'd look at three probably different phases. The first phase was just we got to get inbound presence, We built a great brand, and people would come try the product or use it free, and you had some natural virality there. And that grew us those first, say, 5,000, maybe even six, seven, 8,000 customers. Over And time, we realize there's actually a group of

09:02people out there who they can get the job done, but they need a little bit of hand holding. And so we we actually put... It was the beginning of sales for us. We had not talked to a customer really ever until... In kind of a sales oriented way until about four or five years ago. And so we started to interact with them and we saw, you you've actually got a lot of larger brands who come in

09:25and use the product, and they need a lot more handholding or they need a contract or something like that. And so we would just begin to think about what does it take to serve that customer. And so we built something that for us at the time was kind of ugly. We didn't want to deal with SSO, something very enterprise y. We didn't like the word enterprise. We still don't love it. But started to entertain those conversations.

09:46And that's where we really started to see ARPU grow and go from say $20 a month to $40, $50 bucks a month because we were getting some big deals.

Nathan Latka

09:56So Chris, just to be clear, sorry. So you use kind of powered by Formstack, right? So you kind of natural viral coefficient stuff going to six, seven, 8,000 users. You then said let's hire some salespeople to go land... Well, you've already landed to expand on these accounts that are already using us. Is that accurate?

Chris Byers

10:10Yeah. I'd say that. And then we married together with that product. We had never had a product manager, and we started to introduce product management into the organization.

Nathan Latka

10:10I see.

Chris Byers

10:10So started to... You know, forever it was me just saying, I like that. And I heard a customer say it, so let's go build that feature. And eventually, it's like, no. We need to go really understand customer problems and be built toward those.

Nathan Latka

10:34And what's team size today?

Team Size and Sales Headcount

Chris Byers

10:36We are about a 115.

Nathan Latka

10:37And how many of those are salespeople or onboarding?

Chris Byers

10:41Yeah. Sales is about 20, and that grew dramatically last year. So we had had an inbound sales team who deal with the kind of 4,000 trials a month for, like I said, four or five years. And last year, we really started to see some traction in upmarket, specifically healthcare. We got our product HIPAA compliant, which kind of became this gate that helped us really have very different conversations with customers. So we actually started to hire some

11:10more upmarket salespeople, and that's where we've grown a lot lately and are seeing some really good success.

Nathan Latka

11:15And so now that you have an inside sales team, plus I assume you probably do some paid spend test, what is your fully weighted CAC and what do like to optimize your payback period for?

CAC, Payback Period, and LTV

Chris Byers

11:23CAC is probably, I'd call it a thousand bucks per kind of acquisition. We love to run in the under twelve months range. We've always run a fairly conservative organization in terms of spend. So we took some capital back in 2008 and 2009 and then did not take capital again after that. We just

Nathan Latka

11:23How much have you raised so far total?

Chris Byers

11:23I mean, was like a million bucks or a little bit less than that back in o eight

11:51or nine.

Nathan Latka

11:51So, I mean, you can argue relative to your... I mean, fact that you've raised, there's a one to one ratio between your MRR and how much you've raised, it's pretty healthy. Most people don't have one to one ratio in terms of ARR to what they've raised. Great. Okay, good. So thousand dollar CAC, 70 ARPU or $80 ARPU again, pay back there, know, aiming for twelve months. And then this is a tricky question. And I'm always curious

12:12how CEOs use this number. So how do you use lifetime value? And secondly, what do you think it is right now at a minimum?

Chris Byers

12:21Yeah. That's a good question. For a long time, we tried the LTV to CAC ratio. And, I mean, I guess we think about lifetime value as using current churn rate to calculate it. And so you're always stating, obviously, as you're assuming a bunch of people are gonna stay around. We

12:41we actually went back to the twelve month payback because it, a, is simpler for people to understand. It's actually a little bit more conservative because you can get pretty crazy in terms of keeping a, say, three LTV to CAC ratio. You you could be spending a lot of money. And especially, you know, if we go close, let's say, a $100,000 a year deal, all of a sudden you're kind of making these leaps about, oh, I could

13:05spend a $100,000 to acquire a customer, which those people come in from time to time, but it's not like we actually know how to turn that around and spend that kind of money to acquire one customer. So we... We've probably avoided actually use... We... We've reported on it every month. We don't actually use it to make many decisions these days.

Nathan Latka

13:24That's that's usually what I hear. So what do you typically report? Like, are we talking like a 4,000, $5,000 LTV typically?

Chris Byers

13:30Yeah. Probably in the 4,000 range.

Nathan Latka

13:32Yeah. Yeah. It's always interesting. Like, people want that number because they want the LTV to CAC ratio, but you're exactly right. It just seems like for CEOs, payback period is so much more instrument... Kind of instructional and useful.

Chris Byers

13:43Yeah. Absolutely. And it just keeps you more grounded in in terms of making smart decisions and and using your own cash to run the business versus needing to always raise money.

Nathan Latka

13:53That's right. Last few questions here. Team, where are you guys all based?

Remote Team and Indianapolis Headquarters

Chris Byers

13:57So we're actually a pretty remote team. We started in the office years ago, but we opened the door to remote in 2012. And at this point, on a Monday in Indianapolis where our headquarters is, you might only see three, four people in the office. And even though we've got say 20 people in the city, but we're spread from as far West as California, as far East as Poland, Canada down to Argentina. So we've got people all

14:21over.

Nathan Latka

14:22A lot of very exciting companies in Indy. You got DemandJump doing very well. Their growth rate was incredible in 2017. A lot other folks there. There's something in the water,

Chris Byers

14:30Absolutely. Yeah. The the ExactTarget story helped push a lot of things forward in

14:35the

Nathan Latka

14:35Were you part of his accelerator? Did you guys go through that?

Chris Byers

14:39We didn't. We we did actually kind of raise capital from a local kinda angel fund that was going in those days, but nothing nothing formal. It was just them, you know, putting some capital in the business.

Cash Flow and No Plans to Raise

Nathan Latka

14:52Yeah. But I assume since your last raise was o eight, o nine, you're now running kind of a breakeven or cash flow positive?

Chris Byers

14:59Yeah. That's exactly right.

Nathan Latka

15:01Yep. Any plans to raise capital in near... In the, you know, the next year?

Chris Byers

15:06No plans right now. I think we're we're we're in good shape right now and and looking to kinda just keep growing the business as is and look for potential acquisitions where where it makes sense and where we've got the cash to fund it.

Nathan Latka

15:18I was gonna say alternatively, Google came to you and offered you a call it 4x ARR, so somewhere now $40,000,000, $50,000,000, $60,000,000, do you sell the company? I mean, how do make that decision?

Vision: Path to $100M in Revenue

Chris Byers

15:27Yeah. I think at this point, we're still trying to grow a really large enterprise, and I think we're trying to figure out how do we get to a $100,000,000 in revenue. And so, of course, we're always gonna be entertaining, you know, an offer or something like that. But realistically, we wanna see if we can build something pretty big and long lasting.

Famous Five: Books, Tools, and Advice

Nathan Latka

15:46Makes good sense. Chris, let's wrap up here with the famous five. Number one, what's your favorite business book?

Chris Byers

15:53Know, Good to Great is is an easy win there.

Nathan Latka

15:55Good. Number two, is there a CEO you're following or studying right now?

Chris Byers

15:59I have been reading a book called Outsiders. It's about... Warren Buffett would be one of many stories but about thinking about asset allocation and building a big business.

Nathan Latka

16:10I just finished that book. It's basically the top eight public CEOs in history in terms of stock returns. Capital Cities is in there. A lot of these great companies are in there. Yep. Teal, white, and black cover. Good one. Number number three, is there a favorite online tool you have for building your business?

Chris Byers

16:27I mean, we... Just for paying attention to the business, we use a tool called RJMetrics for dashboards and things like that. But that's just making sure we know what's going on and how to make smart decisions.

Nathan Latka

16:37Number four, how many hours of sleep do you get every night?

Chris Byers

16:40Oh, I get a solid eight hours.

Nathan Latka

16:41That's good. And what's situation? Married, single, you have kids?

Chris Byers

16:45Married with kind of teenagers. So

Nathan Latka

16:45How many?

Chris Byers

16:45Two kids.

Nathan Latka

16:49Two. That's good. And how old are you?

Chris Byers

16:51I am 40.

Nathan Latka

16:5340. Okay, Chris. Last question. What do you wish your 20 year old self knew?

Chris Byers

16:5820 year old self, I think... Know, take more opportunity to build your own vision for your life and not let someone else build it, not let not look to somebody else and say, I wanna be like them. There's something inside of you that, you know, in my worldview that, you know, God made us to to be. And so there's a purpose in there. Go find out what that is and go drive for it.

Nathan Latka

17:21Guys, there we have him, Chris. Own your own vision. Joined Formstack back in 2009 after one of his friends who created it in 2006 started seeing some traction. He joined a six month kind of part time role to find a new CEO, ended up never leaving. The company now has 16,000 customers paying on average $70, $80 bucks a month, so north of a million bucks per month in revenue. 0% net revenue churn annually, so expansion equals obviously

17:44lost revenue growing 30 to 40% year over year, only a million bucks raised. So love that, obviously. Great ratio there. A team of 115 people based in many, many remote locations from Indy all the way to the West Coast, the way back into Northeast as well. Super healthy economics as well. Thousand dollar CAC twelve month payback period. Chris, we're rooting for you. Thank you for taking us to the top.

Chris Byers

18:04Thanks so much.