Founder Interview
How Help Scout Reached 9,000 Customers and 60% Year-Over-Year Growth (Interview with Co-Founder and CEO Nick Francis)
- Interview Date
- July 24, 2018
- Interviewee
- Nick FrancisCo-Founder and CEO
Company Metrics at Interview Time
Paying Customers (2018)
9,000
Year-Over-Year Growth (2018)
60%
Avg Revenue per Customer (2018)
About $140 per month
Gross Churn (2018)
Less than 1% per month
Team Size (2018)
80
Historical Snapshot
These numbers were reported by Nick Francis during the interview recorded in July 2018 and are a historical snapshot, not current figures. See Help Scout’s current numbers.
Key Takeaways
- 01Help Scout had just over 9,000 paying customers in 140 countries as of July 2018
- 02The company grew at approximately 60% year over year over the prior three years
- 03The average customer had about seven seats and paid about $140 a month
- 04Gross logo and revenue churn were both less than 1% per month
- 05CAC payback period was anywhere from eight to twelve months depending on the channel
- 06The company had a fully remote team of more than 80 people in 60 different cities around the world
- 07Help Scout raised about $12 million in total funding, with the last tranche in 2015
- 08The business was operating at pretty much breakeven at the time of the interview
- 09The company had four inside sales reps and planned to grow that to eight by end of 2018
- 10About half of the growth came from new customers and half from existing accounts adding seats as their support teams grew
Company Metrics at Time of Interview
| Metric | Value | Source |
|---|---|---|
| Paying Customers (2018) | 9,000 | Founder interview, July 2018 |
| Year-Over-Year Growth (2018) | 60% | Founder interview, July 2018 |
| Avg Revenue per Customer (2018) | About $140 per month | Founder interview, July 2018 |
| Avg Seats per Customer (2018) | 7 | Founder interview, July 2018 |
| Gross Churn (Logo and Revenue) (2018) | Less than 1% per month | Founder interview, July 2018 |
| CAC Payback Period (2018) | 8 to 12 months | Founder interview, July 2018 |
| LTV Cap (Internal Policy) (2018) | Three years | Founder interview, July 2018 |
| Team Size (2018) | 80 | Founder interview, July 2018 |
| Inside Sales Reps (2018) | 4 | Founder interview, July 2018 |
| Total Funding Raised | About $12M | Founder interview, July 2018 |
| Cash Flow (2018) | Pretty much breakeven | Founder interview, July 2018 |
| Self-Service (2018) | About 92% | Founder interview, July 2018 |
| Countries Served (2018) | 140 | Founder interview, July 2018 |
| Cities Where the Team Works (2018) | 60 | Founder interview, July 2018 |
Growth Breakdown
Customers
Help Scout had just over 9,000 paying customers in 140 countries at the time of the interview. It worked mostly with small business customers, from three people up to about 500, and its average customer had about seven users on a relatively small support team.
Growth Rate
The company grew at approximately 60% year over year over the prior three years. Nick Francis described this pace as sustainable and intentional, reflecting a desire to build a profitable long-term business rather than grow at any cost.
Team
Help Scout had a fully remote team of more than 80 people in 60 different cities around the world. After six years in Boston, Nick Francis moved to Boulder with one of his co-founders, saying he wanted to stretch the company's remote culture a bit.
Profitability and Funding
Help Scout raised about $12 million in total, with the last tranche in 2015. By July 2018 the business was operating at pretty much breakeven, and Nick Francis stated there were no plans to raise additional capital.
Growth Strategy
Seat-Based Expansion Revenue
Help Scout priced per seat (per user), so as a customer's support team grew, its MRR with Help Scout grew too. Nick Francis said expansion was built into the business model and happened naturally pretty much from day one, and that growth came about half from expansion and half from new customers.
Self-Service Funnel with Targeted Sales Assist
Help Scout was 100% self-service until the second half of 2017 and was about 92% self-service at the time of the interview. A small sales team of four people, which Nick Francis planned to grow to eight by the end of the year, guided teams of 11 users or more through the buying process, where he said self-service is tricky.
Disciplined CAC Payback Management
Help Scout's CAC payback ran anywhere from eight to twelve months depending on the channel, and the company tried to stay below that twelve-month barrier. Nick Francis called that a really healthy number for a business he wanted to be profitable and sustainable in the long term.
Product Quality as Retention Driver
Nick Francis said low churn came from years of refining the product: if a product works really well for a support team, churn is typically really low. The other side, he said, is that switching costs are quite high in the help desk market, so getting people to switch to Help Scout from another product usually takes quite a bit of effort.
LTV to CAC as Channel Investment Signal
Nick Francis called LTV to CAC one of the most important numbers to watch when ramping up a new growth channel. Help Scout capped lifetime value at three years to stay a little more conservative, and because churn was low, he said the time it took to get capital back mattered more than the LTV to CAC multiple.
Best Quotes
“Our average customer is probably seven users. So relatively small support team. Could be a a larger overall team. But typically, we're we're we're working with mostly small business customers anywhere from three people all the way up to 500 people or so.”
“So just over the last three years, we've grown at about a 60% year over year clip, and that feels right for us. That feels sustainable for us. We certainly wanna operate this business as a sustainable and profitable business long term. And so never never was a desire to grow too fast, but 60% feels right.”
“Month month over month, it's less than 1%. And we've we've worked really hard on refining the product over the years and achieving that. So and I think it's sort of built in. If you've got a product that works really well for a support team, then typically churn is gonna be really low.”
“We do, but we own... We never did until kinda second half of last year. So Help Scout was a 100% self-service business. Today, we're about 92% self-service, but we are getting into some larger accounts. And so it's a very different approach that we take, But we do have a small sales team, four people, and we'll be eight by the end of the year.”
“LTV over CAC is one of the most important economic numbers that you wanna look at when you're talking about how sustainable is this channel that I'm investing heavily in. So as you ramp up new growth channels, you wanna keep a really close eye on LTV to CAC so that you know that you're spending your money well, and that that money is gonna return to you with some form of multiple in a in a reasonable amount of time.”
“It was about so it was in 2015, late two thousand fifteen. So we're we're able to operate the business pretty much at breakeven these days. So we're just trying to take the cash that we do have and invest as aggressively as possible into growth, but at the same time, make it so that we don't have to raise any more money.”
“So we we don't allow... So our formula is quite complicated, but we don't allow lifetime value to go more than three years. Although our numbers and the formula would justify that it go longer than three, we cap it at three just to be a little bit more conservative.”
“Believe it or not, it's kinda built into the business model. As teams grow, as support teams grow, then their user count with Help Scout grows... Expansion happens naturally pretty much from day one.”
What Happened Next
At the time of this interview in July 2018, Help Scout had just over 9,000 paying customers, a fully remote team of more than 80 people, and was operating at pretty much breakeven with no plans to raise more money. Nick Francis said growth of about 60% a year felt right and sustainable, and that the aim was to run Help Scout as a sustainable and profitable business over the long term. This page captures Help Scout as it stood at that moment. Visit the Help Scout company profile for current figures.
View Help Scout’s current profile and metricsFull Transcript
Chapters
- 0:01Introduction and Company Overview
- 0:23Differentiation in a Crowded Market
- 0:58Business Model and Average Customer Profile
- 1:30Techstars and Early Company History
- 2:24Remote Team, Funding and 9,000 Customers
- 3:53Growth Rate and Revenue Expansion
- 4:41Seat-Based Pricing and Expansion Revenue
- 6:04Churn and Retention
- 6:58Inside Sales Team and Moving Upmarket
- 8:19CAC and Payback Period
- 9:01Lifetime Value Philosophy and LTV to CAC
- 10:54Last Funding Round and Capital Strategy
- 11:44Famous Five Rapid Fire Questions
Introduction and Company Overview
Nathan Latka
00:01Hello everybody. My guest today is Nick Francis. He's the co founder and CEO of a company called Help Scout where he's on a mission to make every customer service interaction a more human one. His two passions, technology and entrepreneurship, led him to start a web consultancy soon after college where he learned how to craft user experiences with his partner. In 2010, the trio founded the company Help Scout. We're gonna dive in today. Nick, you ready to
00:22take us to the top?
Differentiation in a Crowded Market
Nick Francis
00:23Let's do it.
Nathan Latka
00:23Alright. Very good. So first off, super crowded space. How are you differentiating?
Nick Francis
00:29Well, I think it's really important to approach all problems from the customer and work your way backwards. And when we learned a lot about the help desk space, the customer service space Long time ago, we found that the help desks were sort of born in the enterprise, and the customer experience was really terrible. And so we just wondered what it might be like if we created something with a great customer experience, work our way backwards, and
00:54it ended up being a really different product. And so that's where we end up.
Business Model and Average Customer Profile
Nathan Latka
00:58And it's pure play SaaS business model?
Nick Francis
01:00Yes. Yeah. Pure SaaS.
Nathan Latka
01:02That's great. Give me a general sense, average customer. What are they paying per month?
Nick Francis
01:06Our average customer is probably seven users. So relatively small support team. Could be a a larger overall team. But typically, we're we're we're working with mostly small business customers anywhere from three people all the way up to 500 people or so.
Nathan Latka
01:22Okay. And you said an average there was seven, but but what do they actually pay for those seven seats on average?
Nick Francis
01:27Yeah. So on average, I guess that would be about a $140.
Techstars and Early Company History
Nathan Latka
01:30Okay. Very good. Alright. So you launched... Now was 2010 official launch year?
Nick Francis
01:35'2... 2011.
Nathan Latka
01:362011.
Nick Francis
01:37Two seven years.
Nathan Latka
01:38Okay. That's great. Now now you gave some context in the bio there in terms of where you guys were at. It sounds like you went through Techstars as well. Why did you decide to do that?
Nick Francis
01:45Well, at the time, it was really a... The the founding team knew a lot about making products, but we had no idea how to make a SaaS business. You know? I mean, there's a... We didn't know what lifetime value was. We didn't know what customer acquisition costs were. And so Techstars was really a process through which we were able to understand what it took to build a really successful software business aside from the product.
Nathan Latka
02:08Mhmm. And what year was that?
Nick Francis
02:10That was 2011.
Nathan Latka
02:11Oh, that was when... Okay. That that that was a catalyst that you got got you guys all together. Now did you go to Boulder?
Nick Francis
02:16Had worked on the product for about six months before Techstars, but launched it during the program.
Nathan Latka
02:20And you did the Boulder program?
Nick Francis
02:22We actually did the Boston program.
Remote Team, Funding and 9,000 Customers
Nathan Latka
02:24Okay. And then you said what? We gotta wanna move to Boulder?
Nick Francis
02:27Yeah. Well, we have a fully remote team of more than 80 people all around the world in 60 different cities. And so we spent six years in Boston, but I decided to move out to Boulder with one of my other co founders. So we're kind of all over the place. I wanted to stretch our remote culture a bit.
Nathan Latka
02:42That's great. I like that. Now, obviously, you're an accelerator, which means that it sounds like you've raised capital, how much have you raised to date?
Nick Francis
02:47About $12,000,000.
Nathan Latka
02:49Okay. Great. And I wanna come back to that in a second in terms of how you think about spending that to drive growth. So 2011 was year one. What have you scaled to now in terms of total teams using you? How many customers?
Nick Francis
02:59Just over 9,000 paying customers all over the world, 140 different countries.
Nathan Latka
03:05That's great. And where did you... So so was this the original idea on Techstars or did you guys pivot inside of Techstars into this?
Nick Francis
03:11It was the original idea because we had experienced this problem ourselves, building products. And we had tried a lot of the different products in the market. They didn't really work for for at least what we wanted from from the business. And so we we knew the problem really well. We talked to a lot of people in the space, and so we didn't really have to pivot.
Nathan Latka
03:29That's great. Now 9,000 customers at a $140 price point. You and I can both do math. That's about 1,200,000 a month. Is that accurate?
Nick Francis
03:36We'll see. I don't know. Do your math.
Nathan Latka
03:38Well well, mean, you tell me I'm just take... I'm taking two year numbers and multiplying. Right? So is that... I wanna make sure I get this stuff right. Is that 1,200,000
Nick Francis
03:45Yeah. Dollars We're the same range. Yeah.
Nathan Latka
03:46Okay. Good. We won't pin you down there, but generally that range is healthy. And and what does growth look like year over year? Where were we at a year ago?
Growth Rate and Revenue Expansion
Nick Francis
03:53So just over the last three years, we've grown at about a 60% year over year clip, and that feels right for us. That feels sustainable for us. We certainly wanna operate this business as a sustainable and profitable business long term. And so never never was a desire to grow too fast, but 60% feels right.
Nathan Latka
04:11That's great. Yeah. So 60% year over year growth. If you're at 1.2 today, that means you're at about, call it, 900 ish about a year ago. Where is most of that growth coming from? Is it expansion revenue across the same teams or adding new logos entirely?
Nick Francis
04:24I'd say it's about half and half. A lot of our business comes down to expansion on a month to month basis. And so that's really important to us.
Nathan Latka
04:33And what levers do you pull to drive that expansion? You know, a lot of people have usage based metrics. Some that's feature based. HubSpot has four or five different axes. Which axes do you use?
Seat-Based Pricing and Expansion Revenue
Nick Francis
04:41Believe it or not, it's kinda built into the business model. As teams grow, as support teams grow, then their user count with Help Scout grows. And so it's it's really kind of a beautiful Expansion happens naturally pretty much from day one. So there there are small things that we do to try to incentivize that, but generally we just try to a great product and the rest takes care of itself.
Nathan Latka
05:01But you're tying specifically though. I wanna understand what you're tying to specifically. Is it number of tickets solved? Is it number of seats? Is it some other feature set?
Nick Francis
05:08It's number of seats.
Nathan Latka
05:09It's it's purely number of seats.
Nick Francis
05:11Per user. Yeah. So as a team grows, then their MRR with us grows.
Nathan Latka
05:14So let me ask you a question. If your software does like a great, great job, someone could argue, you know what? We need a smaller support team because we can do more with less, But they don't pay you more for all that extra value, right, versus maybe tying to like support tickets answered. Why did you decide to tie the seats?
Nick Francis
05:29So that was a tough one. There are only... When you go into a crowded space, I think you learn really quickly that there are only so many vectors that on which you wanna reinvent the wheel. And in order to be comparable to other products in the market, I think it was important. And also, charging per seat is really predictable. It's it's easy for a company to say, oh, okay. I would spend $200 a month. Got it.
05:53If you did it based on something like ticket volume or something like that, it's really a guessing game. And it's really challenging for customers to convert when there's a metric that they're not really certain of going in.
Churn and Retention
Nathan Latka
06:04Yep. Churn in this kind of space, especially this price point is critical. What's your churn today and how do you manage that?
Nick Francis
06:11Month month over month, it's less than 1%. And we've we've worked really hard on refining the product over the years and achieving that. So and I think it's sort of built in. If you've got a product that works really well for a support team, then typically churn is gonna be really low. But the other side of that is that switching costs are quite high in our market. So getting people to switch from another product to Help
06:31Scout usually takes quite a bit of effort.
Nathan Latka
06:34And that's less than 1% logo churn per month on a gross basis or net?
Nick Francis
06:38So it's logo and revenue churn were less than 1% every month.
Nathan Latka
06:41Oh, so they're about the same? Yeah. And again, is that a gross number or a net number?
Nick Francis
06:47That is a gross number.
Nathan Latka
06:48Gross number. Okay. That's great. Now are you... Your team, you said it's 80 folks. Do you have an inside... This price point seems a little low to have an inside sales team at scale. Do you have an inside sales team?
Inside Sales Team and Moving Upmarket
Nick Francis
06:58We do, but we own... We never did until kinda second half of last year. So Help Scout was a 100% self-service business. Today, we're about 92% self-service, but we are getting into some larger accounts. And so it's a very different approach that we take, But we do have a small sales team, four people, and we'll be eight by the end of the year.
Nathan Latka
07:21Why get into larger accounts?
Nick Francis
07:23Well, larger is relative. Right? We're still not getting into the enterprise, and that's not our intention. But we are moving slightly up market only because that's what our customers told us they they they wanted. I mean, a lot of the expansion comes from what we we deem 11 plus. That's the cohort that we kinda look at as being sales enabled. 11 users or more. 11 users or more. Typically, that's a a more sales enabled cell. And
07:50really, it's about being helpful. In a team of 11 people or more that needs to switch their customer service offering, there's a lot of people involved in that decision. So we try to to be really careful about that and guide them through the the buying process and just become more helpful. At that level, self-service is tricky.
Nathan Latka
08:08Yep. You raised some capital, which means, you know, I imagine how to deploy it. Otherwise, you wouldn't have taken the dilution. What is your CAC and what do you like to optimize payback period for on these new accounts?
CAC and Payback Period
Nick Francis
08:19Yeah. So CAC is about... It depends on the channel, but it's anywhere from eight to twelve months. And we make sure to to not really exceed that twelve month barrier. That's where we try to stay below. Again, we're trying to build a business that's profitable and sustainable in the long term. And so that's a really healthy number for us overall.
Nathan Latka
08:39So if one of these 9,000 customers is signing up for your average of about a $140 a month, you're saying you're willing to spend up to twelve months of that or about $1,600 to acquire them?
Nick Francis
08:48Yes.
Nathan Latka
08:48Worst case.
Nick Francis
08:49Yeah. And above that above that, it gets a little bit tricky for sure.
Nathan Latka
08:53Yeah. How valuable to you and your internal team at strategy meetings is lifetime value? Do you use those metrics as an indicator for anything or strategic decisions?
Lifetime Value Philosophy and LTV to CAC
Nick Francis
09:01Lifetime value is really critical because everybody defines it differently. If you go with the typical like one over churn, it's far too optimistic. Yeah. So the real challenge with LTV is that with everybody defining it differently, and typically more optimistically than they should, then you end up with different numbers. But it's a critical number for us because we wanna be profitable.
Nathan Latka
09:21Yep. So what do you assume that your lifetime value is in months?
Nick Francis
09:26Gosh. So we we don't allow... So our formula is quite complicated, but we don't allow lifetime value to go more than three years. Although our numbers and the formula would justify that it go longer than three, we cap it at three just to be a little bit more conservative.
Nathan Latka
09:40Yeah. Mean, if you if you take the typical approach and do one divided by your churn rate, I mean, gives you a hundred month LTV times your $140 that you can start to lie to yourself pretty easily.
Nick Francis
09:49Right. Yeah, you could see how that becomes really silly really fast.
Nathan Latka
09:53Yeah. Well, but you also then kind of set an arbitrage of three years, right? So people would argue, that's also arbitrary as well. Why set three years? And and what... I guess I think what's more important is how do you actually use these two numbers to drive business decisions?
Nick Francis
10:06Well, LTV over CAC is one of the most important economic numbers that you wanna look at when you're talking about how sustainable is this channel that I'm investing heavily in. So as you ramp up new growth channels, you wanna keep a really close eye on LTV to CAC so that you know that you're spending your money well, and that that money is gonna return to you with some form of multiple in a in a reasonable amount
10:28of time.
Nathan Latka
10:29Isn't the time component though more important? Isn't it more important to see your payback period versus LTV to CAC ratio? Especially if your churn is really low?
Nick Francis
10:37Yeah. So generally, like, that's why, yes, in our case, for sure. The time period we get that capital back is more important because the churn is low. If we did have a higher churn, then then it would probably be a bigger factor, the multiple would be.
Nathan Latka
10:50Yeah. Really interesting. When was the last round of capital you raised?
Last Funding Round and Capital Strategy
Nick Francis
10:54It was about so it was in 2015, late two thousand fifteen. So we're we're able to operate the business pretty much at breakeven these days. So we're just trying to take the cash that we do have and invest as aggressively as possible into growth, but at the same time, make it so that we don't have to raise any more money.
Nathan Latka
11:12You mentioned you're kind of going after a little bit larger accounts. That's typically an indicator sometimes that people will raise money to facilitate the growth of the team to get the larger accounts. Are you raising right now?
Nick Francis
11:22No. Not raising any money right now. Don't have any plans to.
Nathan Latka
11:25Any acquisition talks with larger companies?
Nick Francis
11:28Not not that are interesting. No.
Nathan Latka
11:31You like you like your... The remote lifestyle?
Nick Francis
11:33Yeah. Really love it. And and although not everyone has the same appreciation and enthusiasm for it as we do, it doesn't really matter. I think it works well for us.
Famous Five Rapid Fire Questions
Nathan Latka
11:44That's great. Alright, Nick. Let's wrap up with the famous five. Number one, what's your favorite business book?
Nick Francis
11:50Maverick.
Nathan Latka
11:51Two. I think Ricardo's similar.
11:53Yeah. It's good one. Number two, is there a CEO you're following or studying?
Nick Francis
11:57Lots of them. I like Samir at SendGrid. He's great.
Nathan Latka
12:02Yep.
12:03Number three, what's your favorite online tool for building your business?
Nick Francis
12:07Trello.
Nathan Latka
12:08Number four, how many hours of sleep do you get every night?
Nick Francis
12:10Eight.
Nathan Latka
12:11That's good, Nick. And what's your situation? Married, single, kids?
Nick Francis
12:14I'm married.
Nathan Latka
12:15Any kid?
Nick Francis
12:15For twelve years, happily.
Nathan Latka
12:17That's great. That's a million dollars raised for every year married. That's a good ratio, right?
Nick Francis
12:23Not a bad ratio.
Nathan Latka
12:24How many kids, Nick? Any?
Nick Francis
12:26No kids.
Nathan Latka
12:26No kids. And how old are you?
Nick Francis
12:28I'm 35.
Nathan Latka
12:2935.
12:30Last question. What do you wish your 20 year old self knew?
Nick Francis
12:33How hard this was gonna be.
Nathan Latka
12:35And it sounds like you said you've been married for twelve years. That means you guys hooked up there at about 23 years old. She's been with you the whole way,
12:42It's a keeper.
Nick Francis
12:42Think the key is to treat them like a co founder, treat your partner that way.
Nathan Latka
12:48If you went home tonight said, hey, we just turned down what you're doing a million two month. Let's say someone offered you $200,000,000 to sell the company, you have to go home and tell your wife that you said no. Does she kill you for turning that down?
Nick Francis
13:01She would, I would probably be sleeping on the couch.
Nathan Latka
13:04She'd get over it though, right?
Nick Francis
13:06Right.
Nathan Latka
13:06All right. Right, Nick. Good stuff. Guys, again, remember process is tough. Stick to it again. Launched Help Scout back many years ago in 2011, jumping into Techstars. Now a team of 80 people, totally remote serving over 9,000 help and support teams paying on average $140 a month. So about 1,200,000 per month in revenue. That's up about 60% year over year doing about $900,000 per month last July. They raised $12,000,000. Last tranche was in 2015. They're operating
13:31now at about breakeven. Less than 1% logo churn per month optimizing for about an eight to twelve month payback period on these accounts. And assuming a conservative lifetime, I have about thirty six months or about $5,000 in LTV Again, supporting these support teams. Nick, thank you so much for taking us to the top.
Nick Francis
13:46My pleasure.