How Functionize CEO Tamas Cser grew to $17.3M revenue and 36 customers in 2024.

hello everyone my guest today is tomas chair since 2015 he's been building function eyes which has been delivering the first ai powered autonomous cloud-based testing platform to automate the painstaking process of testing web applications so moss you're ready to take us to the top absolutely ready to go all right so i mean should we think of this like kind of rainforest qa or sauce labs or kind of what space are you playing in here this is really the next generation automation platform if you think about rainforest or sauce labs it's traditionally either still really manual or very very script heavy what we're trying to do here is really take big data on computer vision and natural language processing and make testing truly the next generation aiml driven uh very very low human touch required um approach okay so i mean tell me a specific customer that right now has this deployed and how they're using it what cost savings have they had would they switch from absolutely so we see basically a couple of different scenarios where we see customers either dropping existing scripting solutions some that have dropped trained for us that we've taken yeah sorry can you give a really specific example like actually name the customer absolutely for example is a customer that we took they were a customer of rainforest and moved over to function eyes and have been successful ever since and and we're excited to have them as a customer certainly we see greenfield opportunities as well as as uh customers that have tried scripting such as salesforce what did so actually jay was just on the show uh four weeks ago he's obviously leading a nice turnaround there at zenefits but help me understand what they were able to save or get with you they couldn't get from rainforest do they have to have like less developers you know committing code or doing automated reviews or where do they save money or time or energy i think it's primarily speed it's expertise required and the overall effort involved basically to get automation in place okay so are you making testers more efficient or are you replacing them uh we don't necessarily replace testers what we see generally in a deployment is customers generally struggle for expertise so people generally just get more productive there's not enough coverage in place so they get to do more coverage more work more productivity faster time to market i mean most developers who i've interviewed in this space the biggest issue is is actually making sure you write all the tests so you have full coverage on critical pieces of the application and a gap in a test or a test that breaks or things like this this obviously then makes things not work so well so are you essentially plugging those gaps helping make sure those things do not happen absolutely so we plug the gap coverage we got plug the gaps and maintain ability so as testing scales out it's a huge challenge to keep that up today and those are the main key challenges that we help our customers uh you know basically as you were saying plug those gaps okay and now what's your model are you pure play sas or professional services plus sas or something else we're a pure sas model primarily we see some demand certainly around professional services we we have done some of these but we're looking at partners um to to take that burden if you will we're primarily focused on product okay and i mean give me a general sense here i see your pricing you have a lot of different kind of cohorts we don't have time to talk about all of them but on average what's the sweet spot what's the customer going to pay you per month for your tech so we're looking starting at around 5k we're primarily focused mid-market to enterprise and we really are a high value high impact type of product where um we really don't come in and don't start playing unless there's a a serious business problem to solve okay so all customers basically paying five north of five grand a month you know call it sixty thousand dollar acvs right now that is our sweet spot and that's what we're focused on you know i think is as we mature as a company nice product certainly other type of models i think something that we're talking about considering but right now that is absolutely the sweet spot and what we're focused on when you look at your historical pricing experiments though did you did you did you move down market or up mark in other words you know is that 5000 grand a month is that a fair average across your current paying base or a bunch of them on cheaper plans because of early pricing tests to be perfectly honest last year we were starting at 10k so this has been a drop but i think in the previous years we started much much much lower so this is really a question of maturity and as the as the company evolves us finding the right one so we kind of started much lower and then move much higher and kind of are now coming down and and as we find more productivity in our product and we understand our customer base and getting more efficient in deployments we can we can start introducing lower tier pricing and make that successful when did you guys write your first line of code for the mvp oh boy that's probably uh early 2014. okay and how much did you guys you and your co-founder sink into kind of product development uh before your first dollar revenue you know we were probably two to three years in before our first revenue can you quantify that i mean are you talking like a million dollars into the platform before revenue or that's a great question um it's it's slightly difficult to quantify because it was spun out of you know i primarily did a lot of development myself and spun out of a previous company that was successfully running with cash flow positive and that i ran for about you know over 10 years and with the development and it kind of started you know leveraging existing resources there was not really a solid dollar amount assigned to that and it really started as a you know as a pet project to solve our own internal problems if you ignore your sweat equity though imagine maybe you paid some developers uh contractors designers folks like that can you try and quantify what that counts it's millions of dollars for sure sunk in before we saw the initial dollar start returning so you're really rich or you raise capital on day one um cash flow positive company successful previous company that that enabled me to dabble and take the company and bootstrap it to quite far and then we once we had a working product and we saw our early beta customers all you know we charged always charged something sorry charging i think 500 bucks per customer early on and then then we were able to raise friends and family around and then from there things kind of took off organically and how much today have you raised all in uh we just want 60 million all in one six or six zero yep one six one six okay and i mean why did you like i mean you don't raise unless you have to because you get deluded right why did you absolutely have to take that dilution why couldn't you keep bootstrapping this with your own money i think it primarily comes down to you know what the company do you want to build and market conditions so i think that this is a huge market with a huge opportunity and when i was considering the you know razer not race question that i think is is on the mind of a lot of founders it it was very clear to me that the market opportunity and the timing meant that we have to move quickly and what the capital is allowing us to do is just to move and do that you know faster more iterations and and more basically trial and errors that are faster so um i think time to market for us and really the sweet spot solution and land grab i think is worth worth the uh the dilution if you will and i mean you've done this before you had a successful company since like prior to this so you understand cash management when you talk about being aggressive i always like to understand what amount of burn comfortable founders are comfortable sleeping with at night so you've you've brought in 16 you're scaling the company i mean are you cool with like 100 grand burn or a million burn per month where do you kind of trying to optimize that i think like like every other company in silicon valley we're looking at probably uh 18 to 24 months runway where we are very focused and very specific milestone that we want to reach if we reach those milestones we're comfortable increasing the burn and and also going after opportunity so we see a lot of opportunity and that's across the board and for that i think we are a little bit more aggressive than we initially thought and that's across the board i think customers partner opportunities and and again just if you look at the market horizontally so um it's a very difficult question i think what is the right amount of burn and something that you know we're adjusting as we go so just to be clear you're saying when you think about raising based off your historic expertise you like to raise for between 18 and 24 months of runway yeah i think that i think that's something that that works pretty well i think you adjust things do not turn out the way that you imagine i think that conditions change very quickly i i kind of feel like every three months the company is a new company and conditions change and yeah i guess that's what i'm asking though is like again you're trying to be aggressive you raise the series a on march 5th 2019 for for 16 million dollars right if you and your pro formas and your deck are saying this is going to cover 18 months of runway you basically have a forecast that takes you up to almost 800 grand a month and burn i'm just trying to quantify when you say aggressiveness it's a land grab market share these are critical words i'm just curious how aggressive you're willing to push it well i wouldn't say i wouldn't go quite that high i think that we're gonna probably be a little bit more conservative than that but it's something that again i think if you look at the 10 to 12 million dollar raise so we we had some convertible notes convert into our series a obvious and and uh taking up to the total amount of 16 so just the way that i look at it is let's say anywhere between 250 to 500k i think is is a reasonable burn rate for company of our size and opportunity that's helpful to understand yeah so so okay so 2014 you launched the company um you're coding you're coding for a couple years you're bringing you said your first dollar revenue was 2015. no i think it would be 2017. so the first line it was 2014 but it wasn't in the form of uh of like concentrated effort to do anything like i said you know let's try to solve a problem for ourselves internally and started working on it myself and it was interesting and i learned more and i got more curious about the market and the opportunity so it was very organic and very slow early on and you know we founded the company late uh 2015. our first dollar of revenue i think was late 2016 early 27th so since since 2017 so you call it two three years now how many customers are you serving now today so we have about three dozen customers that we're serving today um we're obviously again adjusting and learning more about the market who are the right customers for us so you know some of the early customers that you have i think and we're kind of at that stage you know you kind of go through and look at that and you learn maybe they're not quite the right customers so there's a little bit of of shedding going on and focusing on acquiring the right customers so you've manufactured some churn look i think churn can be healthy sometimes when you look at your revenue turn not logo term but revenue churn historically last 12 months what would you pin it at oh it's really difficult um [Music] i would say that the largest churn that maybe i don't know 10 to 20 percent uh would come from what we call on-prem deployments we kind of played around with that and and ventured into deploying our solution on-prem you mean private cloud or physical servers on location on location and and it's probably the largest dollar churn that we're seeing currently okay so got it so just to be clear if you had so if you had 100 grand a month in revenue a year ago you're saying because of these tests about 20 grand a month would have churned from that yeah i would say that that sounds about right okay fair enough now do you uh i'm not sure where you're at company stage wise right it sounds like this is a muscle you might build in the future do you have a strong expansion muscle right now where you can double and triple contract values year over year or no that's still something you're building what we're really focused on right now is not to push the contract values because we kind of proved that out last year and and on the back of that i think we're much more focused on repeatability and velocity and um and really just getting really efficient at finding identifying the right type of customers and onboarding them and onboarding them successfully and that is the primary focus for for the company right now got it okay so 20 percent gross churn it sounds like no or little expansion so about 80 percent net revenue retention annually no no we do we do we we absolutely do have uh expansion across the board um this is it really means that the the journey is really more of the opportunities that we walk away from certainly like every other company does the expansion fill that churn hole though what is your expansion annually 10 20 yeah so i would say that that uh not counting on-prem then the the expansion easily fails the churn okay on the uh on on just the normal contracts yeah okay fair enough and then talk me through your team today it sounds like this is an engineering heavy tool what's your team size saying how many engineers so we've bought 22 engineers right now and um and certainly uh still looking to expand and get real rock stars on board so what's the total team size though yeah so we have about uh 35 right now in the u.s and then we have we have an office in norway we invest quite a bit in data labeling and and uh and uh gathering data that's that's really uh that the cornerstone of our technology where is that so that's in noida in in delhi india really interesting okay do you have a co-founder from there no i don't but i have i have a super strong technical slash business lead over there okay but i have any relationship from my previous company a super smart kayak or who's who's been uh again with me for you know since the beginning of the journey probably and then overall as a business technical relationship well over 10 years so 35 on the team 22 engineers how many quota carrying sales reps so we have the three quarter carrying sales reps okay so awesome in the scale and are you i mean when you factor in their their commissions and everything else related to your marketing i mean how aggressive will you be on a 5 000 a month customer will you spend the full 60 grand up front to acquire them so cac is really difficult for us to to compute because it's moving quarter by quarter if you look at last year to this year especially as we adjust our our acvs and where we start so um i would say we are comfortable we would be comfortable spending 60k because we need to land an expand model as we get into an enterprise account that has expansion opportunity horizontally in business units as well as as growing an existing business unit i think that's uh that's certainly a number that we're comfortable with what's your payback period today though across all cohorts or like six are you optimizing for six months 12 months 18 months 24 months we were we were about eight months at the beginning of the year um to be honest again we we've moved the model very quickly we need to see a little bit more in terms of you know for that to play out for me to to give you something that's meaningful yeah i'd be more aggressive that's good okay and then look so 36 customers 5 000 on month rpoo that puts you about 180 grand a month right now in revenue is that about right um 180 grand a month for revenue as in yes you mentioned you mentioned earlier your rpoo was about five grand a month and that you had 30 so you said three dozen customers 36 times 5 000 is 180 grand a month yep yeah so i i don't have the exact numbers right here but you're it's close i think okay and then take me back exactly a year ago do you remember where you were then yeah absolutely um we were a third of that maybe left okay so good so so kind of 60 000 a month about a year ago 180 now during that time period you experimented with a higher price point you did some on-prem stuff you're now moving away from that a little bit lower price point and that's how you think you're gonna scale absolutely i think that again it's velocity it's getting the right starting price point for our customers and finding the right customers and repeatability is what we're focused on very good all right let's wrap up here with the famous five number one what's your favorite business book um that's a great one um i i know there's so many there's so many great books out there um i i don't have one if you don't have one to say none it's fine okay yeah all right number two is there a ceo you're following or studying again many great ceos i mean obviously i love what musk is doing i think that just the risk profile just the division the you know just what he takes on i think it's absolutely inspiring so love what he does love love what he's doing we thought you know kind of about number three what's your favorite online tool for building your company oh man i mean we use a lot of slack number number four how many hours i sleep every night i try to be good about that i try to get seven seven eight hours of sleep a night that doesn't always happen but i try to be great about it and how old are you i'm 43 years old 43 and tomos what's your situation married single kiddos i am married with two kids oh well you have your hands full all right last question what do you wish your 20 year old self knew um oh gosh many things i mean she uh how do you pick um so many things um be be aggressive be aggressive you know be more aggressive early on um i don't know i was pretty aggressive but yeah i don't know just go for it just uh don't worry about things try learn and uh and do your best guys functionize.com helping dev teams write better tests more efficient tests and scale their deployments faster 36 enterprise customers are now paying about five grand a month 180 grand right a month right now in revenue up from 60 grand a month just a year ago first line of code in 2014 first customer 2017 call it a couple million in the mvp now scaling 16 million raised comfortable with call it 250 000 to 500 000 a month and burn as they look to scale their team of 35 people currently 22 engineers three quota carrying sales reps and a data team in delhi 20 churn expansion fills that gap caught 100 net revenue retention with the eight month payback period right now on most their new customers uh happy to push that up a little bit higher as they look to scale tomas thank you for taking us to the top i really appreciate it