How Honestly Reached $1.6M Revenue with 10% Profit Margin Serving 100 Enterprise Customers (Interview with CEO Mateo Freudenthal)

Introduction and Company Overview

Nathan Latka

00:00Hey folks, my guest today is Mateo Freudenthal. He's the CEO of honestly, a Cologne based HR technology company who helps organizations to understand employees' needs and motivations. Using honestly increases retention and decreases sickness rates. 100 companies with 60,000 licenses use honestly by the day. Mateo, you ready to take us to the top?

Mateo Freudenthal

00:19>> Yeah, of course.

Named Customers and Seat Count

Nathan Latka

00:20So these are a 100 companies that are using you. Can you name one or two of them?

Mateo Freudenthal

00:24>> Yeah, of course. One of them is for example, Sunrise Technologies, which is like a mobile technology company or Spick insurances users. Helvetia would be like one example.

Nathan Latka

00:37And so there's a 100 of these companies using you to manage, it sounds like about 60,000 employees. What are they using you?

Mateo Freudenthal

00:43>> 70,000 now.

Nathan Latka

00:4570,000. So tell me how they're using you. What are they using you for to help with their employee relationships?

How Customers Use Honestly

Mateo Freudenthal

00:52>> Yeah, so basically we help them to understand what needs to be done in HR. So we have like an employee survey module. We have prepared surveys and they sent out these surveys and they have their internal communication through Honestly. So we give basically the leadership of these companies

01:10>> a closer way to reach their employees and have a closer relationship with them. So they understand what makes people leave the company, what makes people stay at the company, and they also use it to drive internal projects. So if they have a change project, they make sure it is successful and they measure the progress.

Nathan Latka

01:32And what do you charge these customers on average per month?

Pricing and Average Contract Size

Mateo Freudenthal

01:36>> A license would be like $1 to $2.

Nathan Latka

01:40Per user?

Mateo Freudenthal

01:41>> Per user per month, yeah.

Nathan Latka

01:42Okay. And if you have 70,000 sort of seats today across 100 customers, the team size average is about 700 per team?

Mateo Freudenthal

01:50>> Yes. That's correct. Yes.

Nathan Latka

01:52Alright. And and at $2 a seat for 700 seats, that means the average customer pays something like 1,500 a month or about, you know, 20,000 a year?

Mateo Freudenthal

02:00>> I think it's I think it's 1,200, 1,300. Yeah.

Nathan Latka

02:041,300 a month?

Mateo Freudenthal

02:06>> Yeah.

Nathan Latka

02:06Okay. That's great. So that sort of con And that would be about 15 to 20,000 a year as the average sort of ACV, right? With that Go con

02:18ahead.

Mateo Freudenthal

02:19>> No, sorry, sorry. Yeah, it's more or less right. Yeah.

Nathan Latka

02:22With that context, give us more of the backstory here. What year did you launch the business?

Company History and Pivots

Mateo Freudenthal

02:26>> We launched it way back, but we had to do two pivots until we finally landed on our business model. And this model we're executing for the fourth year now. So we are three years completed and now it's the fourth year of this business model.

Nathan Latka

02:41But we don't want to just skip to the success, we want to understand the early failures too. So when did you actually launch the original company?

Mateo Freudenthal

02:47>> So the original company in 2012 will be ten years old next month.

Nathan Latka

02:502012. Congratulations. So what was the So first

Mateo Freudenthal

02:54>> first we wanted to like just make surveys online and we would say to everyone, hey, we have the easiest way to do customer feedback. We gained many, many customers with that, but none of the customers were actually working. So it did like people wouldn't give feedback back then over mobile phone and restaurant or at like a travel agency. But we had one product which actually worked very well and it was a tablet that would be placed

03:19>> in supermarkets and we scaled that up. It was actually like a hardware software thing and we had thousands of supermarkets across Germany, all the kit before tablet solutions, obviously terminals. So we were like the number one provider for supermarkets, grocery stores, and that business model simply turned up to not be profitable. So we weren't able to make it profitable, but we're making a lot of revenue, but we had to spend all the revenue.

Nathan Latka

03:51What was a lot of revenue? How much?

Mateo Freudenthal

03:53>> Like, let's say $2,000,000 per year.

Nathan Latka

03:59Oh, what's going on there, YouTube? Good to see you guys. Now imagine this. You love watching these interviews with SaaS founders, but imagine if we took all of the valuation data out from over 2,807 interviews I've done manually. Saves you a lot of time. Well, we've done this. We've built it into the beautiful interface inside of Founderpath. Check this out. I'll show you how you can access this in a second. But you log in, you connect

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Current Revenue and Year-Over-Year Growth

Nathan Latka

06:24Okay. What year did you kill that business?

Mateo Freudenthal

06:27>> The same year we launched a new one. So when we pivoted, we said, okay, we will no longer focus any businesses. We will get the cash, but we cannot we were not able to grow it. That's why we built the the revenues.

Nathan Latka

06:38So you killed that business in 2018?

Mateo Freudenthal

06:40>> Yes.

Nathan Latka

06:41Okay. And then how did you get the idea for honestly?

Mateo Freudenthal

06:44>> Oh, actually customers came to us or potential customers came to us and said, hey, we really like what you do for customer feedback, but we need this for employees. And they explained to us the problem. And since they were different customers with the same problem, we were like, Okay, let's ask them if a solution like that would work. So we built up a mock up and we sent it to them. Would you buy this if we

07:07>> would have this? And they all said yes. So we started building it and we actually signed contracts with all three of them. So we had like three companies with, I don't know, 15,000 licenses or something, three bigger companies using the product right from the start. And yeah, that helped us like actually like customers had the idea and we just said, oh, it's so much better than our business model that we have now, that we had back

07:30>> then that we decided to pivot.

Nathan Latka

07:32And Matteo, fast forward now today, 100 customers paying $1,300 per month, you're doing about what, 130,000 a month in revenue?

Mateo Freudenthal

07:41>> Around that, yes.

Nathan Latka

07:42Around that? And if that's today's revenue, where were you exactly a year ago so we can calculate growth?

Mateo Freudenthal

07:47>> It was like 50% less, 55% less.

Nathan Latka

07:50Okay. So something like 65,000 a month in revenue. And where did most of that growth over the past year come from? Adding seats to current customers or adding new customers altogether?

Growth Sources and Net Dollar Retention

Mateo Freudenthal

07:59>> Like 20% to 30% came from up sales and the rest came from new customers.

Nathan Latka

08:06Okay, So 20 with 20% to 30%?

Mateo Freudenthal

08:10>> Percent of the growth, yeah.

Nathan Latka

08:12When you look at your net dollar retention, right? The amount you grew customers subtracted by the amount of the same customer shrunk, what is your net dollar retention today?

Mateo Freudenthal

08:20>> It's I think it's 6% plus, something like that.

Nathan Latka

08:25So churn is 6% annually?

Mateo Freudenthal

08:27>> No, no, minus 6%.

Nathan Latka

08:29So, yeah, that's so you have net what you just gave me is net negative churn of 6%. What I was asking was so net dollar retention, is is it a 106?

Mateo Freudenthal

08:39>> Yes. Like, based on the on the on the dollars, not on the number of customers. It's like 6%. Yeah.

Nathan Latka

08:46Yeah. You're giving me a churn number and I'm asking for a retention number. They're usually just inverse. So I just wanna be clear. Your net dollar retention, not churn, net dollar retention is a 106%. Correct? So you're expanding Yes. Yes. Okay. And then do you have meaningful churn? But, like, what is your gross churn before expansion?

Mateo Freudenthal

09:05>> Oh, I I don't know that number. I don't have it like in front of me. It's yeah. It's mostly, let's say, like the smaller companies at the moment. It's not like the bigger accounts. Maybe we focus too much on bigger accounts, but Mhmm. I don't have that number in head.

Funding History and Seed Round

Nathan Latka

09:18And have you built all this bootstrapped or did you decide to raise?

Mateo Freudenthal

09:22>> We mainly bootstrapped. It's it's What do mainly bootstrapped?

Nathan Latka

09:27You've either raised a dollar or you haven't raised a dollar?

Mateo Freudenthal

09:29>> We raised for the other model. We raised for the other model. So we do have like shareholders, but we didn't raise for this model.

Nathan Latka

09:36What year did you raise in and how much?

Mateo Freudenthal

09:39>> 3,000,000 seed capital five years ago.

Nathan Latka

09:42So what was that? '20 2017?

Mateo Freudenthal

09:45>> Yeah, when the other business was like going good.

Nathan Latka

09:49Well, I mean, you shut that business down in 2018, so if you raised a 3,000,000 seed one year before you shut it down, something changed very fast.

Mateo Freudenthal

09:57>> 3,000,000 seed and

10:00>> we raised basically on the other model. Let's say we raised 3,000,000. That's basically the easiest part. Let's say we raised seed capital of 3,000,000, but we had to invest a lot in like we invested to grow a business that we were not able to grow, so we decided to pivot.

Nathan Latka

10:16Yeah, but I mean, you basically shut the business down less than a year after you raised $3,000,000. What changed so quickly?

Mateo Freudenthal

10:25>> It was more like one and a half, two year situation and investing a lot in investing what we raised, in growing what we wanted to grow, and that didn't turn out. So we had to pivot because we were not growing. So we raised on growth, but we didn't do So we basically like it was not our business model. And then we did the pivot that was like more or less.

Nathan Latka

10:47Understood. When you raised the 3,000,000 seed, what valuation did you raise at? Do you remember? 11. 11 post?

Mateo Freudenthal

10:56>> Pre.

Nathan Latka

10:57Pre? 11. Okay. So you sold what? You sold about 15% of the 20 of the business, something like that?

Mateo Freudenthal

11:03>> A little bit more, I think. But yeah, like a little more than 20.

Nathan Latka

11:07Yeah. Okay. Okay. More than 20. And then no capital raise since then.

Mateo Freudenthal

11:11>> Right? No.

Nathan Latka

11:13Are you looking at raising right now?

Mateo Freudenthal

11:15>> No. Not at all. No.

Nathan Latka

11:16Are you guys profitable today?

Mateo Freudenthal

11:18>> Yes. Yes.

Nathan Latka

11:19Oh, that's great. Okay. How profitable?

Mateo Freudenthal

11:21>> Like 10% more or less.

Nathan Latka

11:24That's pretty good. How many folks are on the team?

Mateo Freudenthal

11:27>> I think we're 12.

Nathan Latka

11:29What

11:30do mean you think you're 12? You've forgotten about No, no, no.

Mateo Freudenthal

11:33>> Let's say 12 is the correct number of 13. We just hired three folks and I just know when they start, if they start July or August, but let's say 12.

Nathan Latka

11:44Okay, so you're 12 people today. That's pretty impressive. I mean, you're doing, again, you're doing about 1,560,000 in revenue with a team of 12. That's high revenue per employee. What's enabled you to scale without having to hire dozens and dozens of people?

Team Size and Revenue Per Employee

Mateo Freudenthal

12:02>> We originally, like with the other business model, we had like this 25 people, and we were not doing more money than now, especially not pay employees. And we realized that we have to say no to a lot of projects and just do the projects that really will have the impact and by not doing like, I don't know, for example, we don't do partnerships at the moment. Everyone will say, oh, why don't you don't do it? Yeah,

12:23>> because it would like just block resources for really important stuff. So I think that saying no to projects that don't have any impact on your company, think that's the main part of if you want to have, like, a higher rev per employee.

Nathan Latka

12:34And how many engineers are on the team at twelve today? Five.

Mateo Freudenthal

12:37>> Five.

12:38>> Five.

Nathan Latka

12:39Okay. Are you an engineer?

Mateo Freudenthal

12:40>> No.

Nathan Latka

12:41Do you have a co founder?

Co-Founder Equity Split

Mateo Freudenthal

12:42>> I have two.

Nathan Latka

12:44Ah, did you guys split 30% each at the beginning?

12:47Evenly?

Mateo Freudenthal

12:49>> Yeah. Two of them are engineers.

Nathan Latka

12:51Was that a mistake to split equity evenly at the beginning?

Mateo Freudenthal

12:54>> I don't think so. I think it's the only way to go. Like, you should look for people who are, like, better than you at least, and then everyone should pick that and then splitting it evenly makes a good deal for everyone.

Nathan Latka

13:04But if you think they're better than you, wouldn't you want to give them more equity?

Mateo Freudenthal

13:07>> No. No, because they think that too, because I'm like better at what I do and they're better than what they do, So I don't think so. I think it's actually good to not have like a co founder who thinks that he or she is like much better than you and resource much more equity. So I don't think so. I actually believe in this equal share model, at least for co founders, because you need to make decisions

13:32>> together and then one has more equity, so she should take more decisions than you. So how happy will you be and for how much time? Okay, when things are good, I believe you will be happy, but if things are bad and then you start blaming this person.

Nathan Latka

13:46Sure, flip side is there's no clear accountable leader. It's a three pronged leader. So you move everything slower.

Mateo Freudenthal

13:54>> That's correct, Nathan. That's that's that's very much correct. Yes. Mhmm. If I

Nathan Latka

13:57were to What was the last thing you guys what was the last thing you guys disagreed on?

Mateo Freudenthal

14:02>> I I think do do you know the lean startup where you Mhmm. Have, like, this approach that you test a lot of things. I mean, it's good for many projects, but there's like some projects where you just have to have like a lightning strike through the organisation where you cannot test it, you just do it. And we disagree mostly

14:22>> in projects where we're not sure which of the two approaches we need to replicate. And because I'm more like the lightning strike kind of guy, let's just do it.

Nathan Latka

14:31Yeah, I have conviction on this project. Let's freaking do it. We don't need to run a million tests. Let's go.

Mateo Freudenthal

14:37>> Something you can't test, so you're not it will take you too much time, then the opportunity is over again.

Nathan Latka

14:42Yeah. How much of the company or how do employees own, if any? Do you have an ESOP pool?

Mateo Freudenthal

14:46>> We 10% ESOP.

Nathan Latka

14:4810% ESOP. So right now the cap table is 10% ESOP pool, 20% investors, and then each of you guys own like 23%, the founders.

ESOP Pool and Cap Table

Mateo Freudenthal

14:56>> That's more or less correct, yes.

Nathan Latka

14:58Yeah, yeah, yeah. Interesting. Okay, very cool. Team of five, what's coming up? What's coming down the product pipeline? What are you guys building?

Product Roadmap

Mateo Freudenthal

15:05>> Oh, like a lot of integrations, so we have some product works best when it's integrated into a human capital solution like Workday or SAP SuccessFactors, so integration to that. The second is predictive analytics so that you could predict how employee churn or sickness rates will develop based on all employee surveys. The third one is we have a partnership with an academic institute of the Free University of Berlin where we will implement all scientifically validated surveys with

15:34>> benchmarks into our solutions to make it even easier for our customers to implement those.

Famous Five Rapid Fire

Nathan Latka

15:39Very cool. Mateo, on that note, let's wrap up here with the famous five. Number one, what's your favorite business book?

Mateo Freudenthal

15:46>> How to Be a Capitalist Without Any Capital by Nathan Latka, of course.

Nathan Latka

15:49Have you? You've read it?

Mateo Freudenthal

15:51>> I've read it. I've read it, actually. I would

Nathan Latka

15:55What's your honest feedback after reading it?

Mateo Freudenthal

15:59>> It helped me a lot because it unlocked my brain to think outside of my organization, because before that, you have this thing where you describe how you had an exit opportunity, you missed it, and that took you much longer to be free in capital terms. It unlocked my brain in many ways, so it made me feel like I'm a teenager again. When you're a teenager and you do business, you feel very free and everything. When you're

16:24>> a founder and you're an organisation, you want to dedicate 150% of your time and your thoughts into this organisation. And it freed up my brain and that helped me to make very wise investments and very wise decisions. So I actually made over 100 ks, like, let's say since then of this personal investment.

Nathan Latka

16:43That's amazing. Congrats. Number two, is there a CEO you're following or studying right now?

Mateo Freudenthal

16:50>> Marc Benioff is of course the one that I always follow and I admire. I think Marc Benioff is

16:58>> yeah. Study him.

Nathan Latka

16:59And number three, is there a CEO that you're sorry, not a CEO. I just asked you. Is there what's your favorite online tool for building the business?

Mateo Freudenthal

17:06>> Notion, I think, yeah, Notion because of the knowledge management, you know, like all processes in Notion.

Nathan Latka

17:14Number four, how many hours of sleep do you get every day?

Mateo Freudenthal

17:18>> Seven. Seven.

Nathan Latka

17:19Okay. And what's your situation? Married? Single? Kids?

Mateo Freudenthal

17:23>> I have a fiance.

17:25>> Fiance.

Nathan Latka

17:26Okay. Very good. And any And how old are you?

Mateo Freudenthal

17:29>> I'm 34.

Nathan Latka

17:3134. Any kid No kids, right? No. No kids. Alright. Last question. Something you wish you knew when you were 20, Mateo.

Closing Advice and Wrap-Up

Mateo Freudenthal

17:40>> Time is more valuable than money.

Nathan Latka

17:44Honestly launched in 2012. They built a business through 2018. Did 3,000,000 in revenue, but ultimately just never took off and was unprofitable. Pivoted into honestly.com, which now helps over a 100 enterprises manage their 70,000 employees with surveys, employee feedback. Each customer pays on average $1,300 per month. Doing $130,000 a month in revenue, 100% year over year growth up from $65,000 a month just a year ago. Now at, again, about a $1,500,000 run

18:08rate. Three co founders split evenly at the beginning, Employees own 10%, investors own 20%, they raised $3,000,000, but now they're profitable, which we love, which means Mateo can do anything he wants. He has full flexibility and freedom. We'll see what he does next. Mateo, thanks for taking us to the top.

Mateo Freudenthal

18:23>> Thank you, Nathan.

Nathan Latka

18:26One more thing before you go. We have a brand new show every Thursday at 1PM Central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every Thursday 1PM

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