How Funnel CEO Fredrik Skantze grew Funnel to $50M revenue and 1.2K customers in 2024.

hello everyone my guest is frederick escanza he is the ceo and co-founder of funnel which aggregates marketing data for some of the world's leading advertisers before funnel he led the team that developed a qual is it qualia facebook advertising tool and co-founder of the online e-commerce retailer otto quake frederick are ready to take us to the top yup qua what what kind of name is kwaya that is a hell of a name to try and remember how to spell oh yeah yeah yeah yeah funnel is much better by the way i think funnel.io is much easier yeah all right what's funnel do so we are a marketing data platform and we basically help companies aggregate and bring in all their marketing data put it all together so that they can then analyze it and report on it so they really understand you know what's going on and then update us update us kind of last time you came on you shared kind of average acvs i think you had mentioned that you were trying to go up market have you increased kind of the the average amount each customer is paying since 12 months ago yeah yeah absolutely so um average customer value on a monthly basis was around 450 dollars then and and now it's about it's more than twice that okay so close so it's fair to say kind of average customer paying more than 900 a month at this point yeah yeah around a thousand dollars and how did you so how did you drive that change again it's a significant change you had to churn probably a lot of logos that were you know smb ish how did you manage that yeah not so much churning but just focusing on when we were bringing in newer customers and and actually it was partly driven by us and partly also driven by the market so more as we became more established in the company in the industry as our product was more capable larger and larger companies found us and and wanted to do business with us um and then also having the capability of serving them which has more requirements as you kind of move up markets now you were at about 340 customers back in november 2017 when you and i last spoke what have you scaled to today how many customers are you serving 700 700 okay yeah that's good growth now where have you had to change your kind of sales flywheel since then and if so how um a little bit so you know we have we have substantially more sales people so we have specialized sales roles a little bit some some uh are focusing on smaller customers some teams are focusing on larger customers um we've grown our our u.s presence quite a lot you know we're a european company um we've also built out a pretty large office in boston so about 30 people in boston how many total people on the team just north of 100 okay and how many are quote carrying of those um so about uh 15 sales people in general okay and how many engineers have a hundred uh about 40 to 45. okay so how did you i mean one of the things that as you know as people go from kind of where you're at where you were two years ago to where you're at today getting kind of the sales person pro forma right is something that's always being edited so literally what should quote a target be you know what should earnings you know their full earnings be at ot relative to the quota the new booking ar bookings they're bringing in how did you kind of take a stab at that initially and modify it over the past 18 to 24 months um well i guess you experiment and see where you get at and then you try to improve it and it also depends on you know whether i guess we are sort of mid-market-ish or or even at the lower end of mid-market and at that time we think sort of five thousand dollars in new mrr per sales person is pretty good whereas if you are yeah per month um and if you are in in the real enterprise that gives us sort of a payback time of 12 months but if you if you are in the real you know enterprise base you probably want more but you'll have a lot fewer deals and a lot of misses as well if a sales person is adding five thousand dollars per month uh in new mrr why is that a 12 month payback well so you you basically have you know you see how much they bring on in on the year uh and then you add the lead costs um that you might be paying to generate that you have an str team you might do uh you know advertising and so on so if you if you fully load the full uh the full costs then that's what it works out the cost of the sales person or the cost of the customers they're bringing on no the yeah well the fully loaded cost of bringing in the customer i got it got it yeah yeah that makes sense so 12 months it's not just what you pay the sales person but you might have lead gen costs you might have sdr team all the things around it yeah no i underst i understand that um so so a 12-month payback at a thousand bucks a month in terms of acv that you're saying you're happy to spend 12 grand to get a new customer yeah and when you split down where you spend that when you split up where you spend that 12 grand you obviously have sales person commission where else are you investing to drive that growth in lead generation we do a lot of hourly generation online um you know basically what eating our our dog food and and uh spending it on digital advertising um and that helps us drive leads which channel does the best for you all the big all the big channels it's it's not just one you gotta try pick one so we can go deep so obvious one is search marketing okay so search marketing so in the search marketing channel i mean are we talking like you're spending 100 grand a month in that channel something like that yeah okay and how do you kind of back into your metrics so just from that channel how many leads would you expect to get from that channel um well you yes you gotta kind of you gotta say okay well if i wanna close 40 customers how many do i have to speak to well you probably have to speak to 400 customers in a in a month you mean you mean 400 trials to get 40 new customers yeah well maybe not trials but at least dialogues with customs you've got to speak to 400 people if you're going to close 40 40 customers if you have a conversion rate of 10 which is pretty normal yeah is is that what you're at right now about 10 approximately yeah from the initial discussion that's good now that's obviously just your search marketing channel but if you look at like your total new discussions or your new demos or your new trials however you quantified every month a total across the company how many new of those about each month are you bringing in we have about a dialogue with about a thousand prospects every month um but you know it's high and low some are are or just want to talk they're not good fit so you got to kind of sift this through and and it's only you know say a hundred that really is high value but those are really high value yeah well you said it at 10 conversion that would be about 100 new customers each month from the thousand dialogues right yeah that's good and how do you break down how your sdrs or your aes kind of attach themselves to those those thousand conversations per month is it geography based or something else yeah for us geography absolutely plays some it makes a place in you know we have a boston team that handles the us and and south america uh and then we have a european team that handles europe and the middle east we don't have a big presence in asia at the moment um and uh so geography that's the biggest play and then also the size of the lead uh measured by what uh typically by revenue or number of employees okay i see so you have different motions different teams sdrs depending on the team size of the lead yeah if it's a small lead you want you want fewer people touching it you want to be more automated and more fast but if it's a larger deal then you want a whole team on that lead you know from an str from an account executive maybe a product specialist uh and really kind of stuff up to be able to serve them your annual gross churn revenue churn back in 2017 you shared was about 35 what's it today uh it's between uh one and a half and two percent a month okay so 24 would be max about half of what what we had done yeah let's let's assume it is the full two percent per month or 24 in annual gross revenue churn does your expansion on the same cohort more than make up for the 24 loss yeah yeah we have negative nature now how negative a little bit negative it's just it's just turned negative so maybe half a percent negative okay so this is the same okay per month so this is the same as saying if it's per month point five times twelve obviously it's six percent or negative six percent right the inverse of this would be to say that your net revenue retention is about 106 correct yeah yep uh that's great that's obviously good how do you get that i mean at your acv i mean 106 is good but i'd say world class or best in class is like 130 135-ish how do you get your net revenue retention up to that range yeah i think you do it primarily by having a much higher annual contract value so dealing with larger customers than you have then you have typically have much higher net retention alternatively you have a model where for example like crm you sell proceed you start by selling you know five seats and then you just add ad ad we don't really have that you know we have a model where we sell the platform the way it is and then there are some expansions you might you know buy some more feature set or or buy more usage but not to the same level usage based off what uh based on the amount of data that we handle or the amount of marketing activity you do measured by dollars of like marketing activity yeah it might be ad spend or or or data quantity or number of data sources things like that okay interesting so you feel like you've not exhausted the pricing axes you can upsell against do you feel like you can make improvements there i i i think so yeah we can probably get better at it yeah it hasn't been our our main focus to try to maximize how much money we make yeah you'd well obviously when you say it that way of course but you could also just counter hey if you were adding more value to customers right based on these pricing axes more upgrades would be happening naturally yeah yeah that's that's fair you'd raise 13 back in november of 2017 13 million have you raised any more to date or still at the 13 um we raised some money at the back end of last year so about eight million dollars okay so totaling the company today is about 21 million yeah why did you need the 8 million and was it pure equity or debt uh it was equity okay and why did you need that extra capital mainly because we invest a lot in product sale so we you know we have about 40 45 engineers uh and that team is growing quite a lot and so we're kind of investing ahead of the market a bit there you've done this before right when you go out and raise eight million and you have your plans in terms of hiring for engineers and things like that i mean how comfortable or how many months of burn are you usually raising for 18 months to 24 months okay and and is that just uh i mean you mean so if we take eight million obviously divided by that amount of time you can basically say that hey this guy wants he's okay with four hundred thousand dollars a month and burn yeah yeah that's a good way to put it down and what is your goal at the end of 18 months is it to get back back to break even or start raising your next round you know 12 months from now we will probably erase another round um that's yeah i think we see a opportunity to build a really large company and we we want to we that's what we want to go for when do you think that raise might happen um well we'll have to see we we're we haven't quite decided yet yeah but um why if you did raise additional capital would you definitely go the equity route or would you consider using debt so that you don't have to take more dilution i think both are good both are good yeah that is for sas companies when they get to scale that is good yeah it's uh you know sales companies tend to be valued as a as a multiple on revenue so you know it's actually the the calculation around it taking depth in is is a pretty good one yeah debt works if burn isn't like too crazy it sounds like you're burning right now net about 400 000 a month is that right something like that yeah but you haven't done any debt deals but it is something to be open till yeah yeah interesting guys there you have it all you debt providers listening as long as your terms are good you got to give them amazing terms otherwise i'm gonna beat the hell out of you okay no covenants no warrants no personal guarantees give frederick a good deal all right frederick good stuff um last question here 700 customers at 900 a month kind of average rpu puts you at 630 000 a month in terms of mrr is that about right yeah a little bit more so 670 000 so we're just just eight million dollars in annualized revenue that's great i mean and what is that in terms of grow i mean hold on i have the numbers so last time you came on which is a little over a year ago you were doing only about 2.2 million so it looks like about 4x year over year growth does that sound about right yeah from from that time yeah absolutely that's good good growth all right let's wrap up here with the famous five number one what's your favorite business book you know the one i'm reading right now is i really like school management 3.0 which is really about taking agile software methodologies to generate more business practices um it's pretty dense but it's a really insightful book number two is there a ceo you're following or studying uh you know i like the team from from hubspot brian halligan and darmash i think they've built a great company they've you know managed to pivot into crm and expand their market they've built a good culture i i think they're good good team they're in boston like we are um if brian comes to you and says listen i like you guys i want to i want to buy the company for 80 million bucks all cash up front do you sell no oh come on freddie that's a 10x multiple all cash no you wouldn't interesting what's the price um i i don't think there's a price right now but it would but it would be much higher than that all right number three what's your favorite online tool for building your company besides hubspot you know we like a company called uh israeli company called gong um they do sales sell softwares for recording sales conversation and then transcripting them a really insightful team a very well executed product um you'd think you kind of get that from zoom but you know no they just do it so so well number four how many hours you'll sleep to get every night about eight hours okay and what's your situation married single kids uh married with two kids oh wow and how old are you i'm 40 just turning 48. 48 last question what do you wish your 20 year old self knew i think uh you know getting out of corporate and and doing something smaller where what you do really really matters and and sort of becomes more real a bit earlier that's probably what i would advise myself guys funnel dot io just hit about an 8 million run rate up from caught 3 million uh just about a year ago so healthy growth 700 customers paying on average call it 950 a thousand dollars per month uh they are spending in a lot of different channels but one of the ones is uh search marketing right they're spending 100 grand there per month getting caught 400 trials 40 new customers from those trials so 10 conversion rate as they look to get you to scale burning about 400 000 per month with 21 million raised team size 100 people 45 engineers 15 quota carrying sales reps caught 24 gross revenue churn annually but 30 expansion puts net revenue retention at 106 and frederick's optimizing cac right now to be right there around the 12 13 month mark as they look to continue to scale frederick thank you for taking us to the top thanks nathan