Frank Revenue, Valuation & Funding (2019)

hello everyone my guest today is harry konastic he is a serial entrepreneur with a passion for building experienced development teams who create intelligent technologies as a partner and ceo at michaela's labs and co-founder of frank.ai he has years of experience building sas businesses in europe and the us harry are you ready to take us to the top yes of course nice to have you yeah thanks for coming on i appreciate it so we're going to focus on frank.ai today which is your sas platform tell us what it does and what's your revenue model how do you make money yeah so basically uh frank talk ai is a sales platform that's connected to major ads uh platforms like google facebook and others and what it does is uh it allows people to set up campaigns really easily it optimizes campaigns on behalf of the clients and reports back then the results so it's going to like automate that online advertising agency and our revenue a model is to we take a small cut of your budget depending how much you spend so it can be from 5 to 20 of your budget okay very interesting and and when people pay for this are you talking enterprise deals or smbs what's the average customer paying per month yeah we have mostly smaller clients um so we've been we're still in like a product development phase as well so we mostly work with smaller medium-sized clients um so there's many solutions out there for enterprise uh users so we decided to go for the smaller smaller people okay so again what do people pay on average per month for this um like uh campaign budgets could be anywhere between 1 000 to 10 20 000 per month so this is kind of our sweet spot okay that's a big range though are most people paying like your average would be around a grand a month um yeah like less than grand it's i would say like too small of a budget to use the platform but anywhere over one grand a month would be just frank sorry sorry just to be clear um i'm not talking about what the campaign budget is in terms of the ad volume they're gonna put through you i'm talking about what they're paying you harry so on a monthly basis what are people paying you to to manage their ad budget oh yeah okay sorry it's uh you know the smallest clients pay anywhere between few hundred to a thousand uh so some clients pay more than okay so would you say a fair average though is maybe what 300 400 yeah something like this i would say and uh put this on a timeline for me when you launch the company yeah so we start that um actually the idea has been floating for many years and co-founders uh heads so but in 2017 we raised money and we moved to united states we took part of accelerator program and then in 2018 we were mostly focusing on on product developments and getting clients um and then yeah it's 2019 it's getting started so hopefully it's going to be exciting here for us so harry just to be clear launch year was 2016 or 2017. 2017 was uh when we launched okay okay 2017 and then how much capital have you raised to date uh half a million was released okay and did you do that on a convertible note or did you do equity yeah half was like interesting why do a why do a round that's only 250 grand that is a priced equity round that seems really really small you could have just done on the convertible note why did you split it yeah like some money we raised from europe and some money we raised from the united states uh i think in united states convertible note is the way to go so back in this time we this round we raised from united states so we did convertible note in europe it's more like equity investment so and in europe also 200 000 is much bigger investment than um you know 200 000 united states for example yep absolutely very good all right and then um walk me through today how many customers have you scaled to yeah like we have had like uh hundreds of clients um something like harry what does that mean are we talking like 150 or 700 or 900 200 300 clients okay 300 points enough times uh obviously some clients have left well how many how harry how many you've listened to the shows you know how this goes how many are active today yeah like i think we have maybe 10 20 like more active clients okay some clients have been just doing one campaign and you know they don't need to use the platform anymore okay so you have about 10 clients that are paying they put budget through you and they're paying you about 300 bucks a month each to process that budget so you're doing what about three grand a month right now um i think we're doing more because there's those lots of clients who just use the platform for some certain campaign but they don't keep using it on ongoing basis we i only care about sas revenue though not one-time agency deals or one-time campaign deals yeah uh like what did you do last month uh like i think we do about 20 30 gain uh in sales a month okay got it but what you're saying is a small portion of that 20 or 30 000 is true recurring revenue there's a lot of kind of one-time campaign stuff in there yeah and some clients also they do they spend more you know we have some bigger clients as well we spend a little bit more money than our average clients so it sounds like churn is extremely high because this is campaign-driven business um why do you walk me through the billing model so so if i'm going to put 10 000 a month through you um how much am i going to pay you on that is it as a percentage fee or what yeah exactly it's uh 5 to 20 depends how much you spend uh churn is really high but there's i think in the online advertising space churn is generally high because lots of people you know they want to get sales or they want to get sign ups or some sort of business results and after you know advertising for a month or two months they they don't get the result and then they just you know stop advertising but yeah but the thing is though a lot of the things that those aren't like a lot of those companies that facilitate that are not sas companies right like their revenue model is actually based off like a retainer and like and they're that retainer is is what they get paid to manage the creative for the ad spending they go find tools like yours to use to manage the ad spend the difference is you're trying to build a sas company with a with a utility value that is by nature you know one time and campaign driven which is very difficult yeah i agree it's a difficult business to be in um so but uh it's we see uh there's huge need on the market for a solution that would automate the optimization process for for a smaller clients uh it's just like lots of smaller clients like you know somebody in shop if i said once that you know like 99 of their clients don't ever sell any product so it's uh it's kind of the same in the online advertising space like most clients never sell a product if their goal is to sell yeah but the difference is on shopify they don't churn because shopify let them drag and drop together their ecommerce site and they're paying to essentially have the e-commerce site live even if no sales are coming you're you have really high churns so how do you how do you i mean your background is agency you have an agency that basically helps people build sas applications so you're all you have that agency mindset i mean how do you move further away from that and actually try and find a product niche that is true sas that's really sticky yeah like we you know we experiment a lot uh you know we we ask feedback from the churn clients uh we try to improve the product and that's but end of the day what we see is that in this space clients really are focused on the return they get so and they directly relate you know the platform into the results they're getting so it's it's um and unfortunately it's like most most people don't succeed online you know it's just either the product is not the right or the audience is not the right or or so there's technology can help uh can help increase the results but if you start with xero then you know it's really hard to improve from there yeah by the way i agree with you all on that the the decision i'm challenging on is if that's true why align your business model and your livelihood and your revenue stream on something that volatile that's the point that i'm making is like how do you try and find something that no matter if they're making sales or spending money or not spending money they're still paying you right for for some value add and i'm trying to figure out how you go about and what your process for trying to discover what that value add is yeah it's it's a really good question like if you have an answer i would be happy to hear that but right now it's you know really we're really uh in that sense our mindset is that we try we fail and then we improve based on that what are you trying next what's the next test um i think we're uh doing like a more deeper interviews with clients i think that's that's something uh we uh we're doing also we're bringing in some more people into the team who has more experience with actually getting this you know the niche market market fit so um basically yeah but like you know every week we learn something new so it's it's uh it's uh it's a problem we don't have an answer yet so that's one answer walk me through growth so today if you're doing 20 or 30 grand a month what what were you doing last year in terms of monthly revenue yes total revenue last year was close to half a million okay so it's um it's uh like beginning of last year was really good we were growing really fast um we did all like hundred thousand a month and then we then we were also then we started to go down again was that from one customer uh we had few bigger clients here who were using it so this gave our growth and then but we had some product uh failures and some issues so we're gonna we in summer it was really tough um end of the year we got it under control again so and now we're facing a new year and we're really really hopeful that this will be a a great break breakthrough here for us yeah and so what do you think you'll do in terms of revenue this year in 2019 um like we want to kind of work over the 1 million mark i feel like this is cool but i think the most important is satisfied clients get the churn down find clients are a good fit for the platform because right now we've been on boarding clients from different industries so we want to kind of focus on some specific industry um so revenue is important but at the same time getting this good product market fit is the most most important goal for us this year yeah what's your team today how many people um we have uh about like four or five core people uh and then we have all kinds like we have a freelance sales team uh you know marketing so we use lots of freelancers and then we have a development team of about five five people and is everyone remote um mostly remotes we have a small office uh here in tallinn we also had a small office in boston but uh because we moved back to europe then we didn't decided not to have a small office there anymore so right now yeah like some people are in the office but mostly remotes and harry are you guys profitable today um i think we are not profitable yet but we are gonna like not spending too much money too so our costs are really low right now so how how much how much are you burning every month though how much is your bank account going down every month um like i think our burn is 20 000 or something like this that's gross or net uh that's uh that's what's the difference and so so net net burn is basically the amount your bank is going down every month right so uh gross would mean your your total expenses are about 20 grand a month you haven't added back in your revenue that month yet so if you have 20 grand in revenue and 20 grand expenses your net burn is zero okay and it's uh yeah net burn so what's your net burn 20k yeah something like this okay so that would mean your total money can be different i mean your total expenses are like 40 000 a month you have 20 000 ish in revenue and so you lose about 20 grand at the end each month yeah something like this okay got it and and so how do you when did you do the 500 000 raise was it recent uh no we raised in 2017 uh 250 and then other 250 so after that we haven't raised money uh so and right now we try to keep our costs low try to get into the place where we start scaling again and then hopefully we don't have to raise more money but i have a feeling that we do so well you're burning up you're burning a lot i mean you're burning you're burning 20 grand a month and you're doing 20 or 30 grand a month in revenue that's all i mean how much runway do you have left in the bank uh like we have enough money in the bank so it's uh to cover how many months of expenses um like we have uh i think we have i don't know exact amount of number like uh but uh uh i think next six months we are good yeah but we need to grow the sales that's i think what's our strategy is here amen harry sales cures a lot of stuff uh let's wrap up with the famous five number one what's your favorite business book um it's a good question uh like i i really like the the mum test uh by rob fitzpatrick sorry what's it called the momfist spell it uh d-h-e-m-o-m-e-e-s [Music] it explains really well like what you should do before you start the startup got it number number two is there an under the radar ceo you're following or studying yeah like it's i think elon musk is somebody i've been following for a long time but you know donald trump is somebody i i see from tv all the time so i i must say i follow him as well number three what's your favorite online tool for building the company um i have to say slack and number four how many hours of sleep to get every night um i get like six to eight hours during the week and then on a weekend i usually sleep like 12 or 14 hours catch up yeah all right how old are you harry i'm 32 years old and what's your situation married single kids um i have a good friend okay not married no kids and uh last question what do you wish your 20 year old self knew um i think uh i i wish i would uh think bigger when i was 20. um i was really thinking locally so but i should have thought more globally back then yep guys think bigger coming from harry launched frank.ai back in 2017 today of about 10 customers paying 300 bucks a month so it is a core of kind of sas revenue there it's a little sticky but really what's driving his business in cash flows they signed much bigger campaign-driven deals that'll last three or four months uh he's burning 20 grand a month right now that's net burn he's got about six months of runway left in the bank five hundred thousand dollars raised four people core people that are mainly remote uh as they look to build the company and try and drive churn down and build a stickier product with customer interviews harry thanks for taking us to the top yeah thank you nice to meet you