How Host Analytics CEO Dave Kellogg grew to $45M revenue and 700 customers in 2017.

had a lot of success joined host analytics in 2014 right when they were doing you know much less than they're doing now they're now serving over 70 customers eighty-five million dollars or raised Skol between a forty and fifty million dollar run rate so far ASP around 70 grand they're studying 100 ran to get those customers again they're really focused on bringing the the really financial departments of these companies to the cloud and online right now only 5% of really folks have done that so he is in a time machine they are doing a very very well boat team of a team of about 300 folks scattered between India and the United States his secret to growth I love even the stickers this is the top where I interview entrepreneurs who are number one or number two in their industry in terms of revenue or customer base you'll learn how much revenue they're making what their marketing funnel looks like and how many customers they have your host Nathan many of you listening right now don't have time to listen to every b2b SAS CEO that I've interviewed if you want to get access to the database I've created with your your growth rates customer counts margins and many many other data metrics and data points you can go to g ET la TK a.com here's the thing though and this is that database I keep it to myself it's so freakin valuable and to preserve the quality of the data and make sure that the people that have access to it have a true advantage I'm only letting 10 companies on each month so we're full this month but you go to get black accom to get on the waiting list for next month and look there's the big people on the waiting list I mean the biggest PCs you've ever heard of you've probably heard of them they're big private equity billions and billions under management so it's an impressive waiting let's go get on now it gets black accom this is episode 778 coming up tomorrow morning I talked to the CEO of Foursquare you've heard of them and I broke down I said Jeff break down the transition from hot consumer social network to enterprise b2b SATs data company this will surprise you but you've actually used Foursquare in the past 24 hours even if you didn't realize it and know everybody my guest today is Dave Kellogg he has more than 20 years of leadership experience at high-growth companies his experience includes being CEO of MarkLogic CMO of Business Objects and member of the ask data board of directors he's also served in advisory roles to MongoDB developer 10gen had apt and tableau software prior to joining host analytics as CEO that's what he does obviously today he served as senior vice president and general manager for service cloud at salesforce.com overseeing one of the company's fastest growing businesses previously he spends six years a CEO of MarkLogic growing that company from zero and revenues to an 80 million dollar annual run rate before that again who is that marketing and business objects for nearly a decade as the company grew from 250 to 4,500 people and from 30 million to over 1 billion in annual revenues buckle up folks it's gonna be a good one Dave are you ready to take it to the top all right so you kind of quite a background here I could focus on a lot of different things but kick us off with your current your current challenge you're going after what is host analytics and how do you make money sure host next is a SAS company that is disrupting the space for enterprise performance management in plain English that means we sell software to corporate finance departments to help with financial planning and analysis you name a few other companies that you would say are kind of in this space just to get more context sure the the primary vendor back in the day was Hyperion software that got acquired by Oracle so they ruled in the on-premises era and then if you look at other cloud vendors you might find people like anta plan or I assume you're probably not doing any on Prem stuff are you strictly a SAS model basically means literally Davis known as overall is hiking out to the location setting up a little this little little server controlled climate-controlled room and installing these things manually Dave's not doing any of that right Perley SAS model and what are the levers Dave that you're using to determine kind of what pricing category customers fall into is it like you know API calls number of ledger entries per month with one of those unit economics yeah it's a tricky space for that because corporate finance departments don't actually scale that much with the size of a company and the number of users of our kind of software actually varies much more with the corporation's centralization philosophy and some big companies are super centralized and only four or five people make the plan and some little companies will empower it 200 people with budgets and they all need to use the software so our pricing model is based on a fixed base fee plus a per user fee to join interesting okay what's the fixed base fee [Music] number employees etc okay got it and then sorry I was thinking about the fixed base and forgot the second part you said so then then the monthly recurring is per user user yeah they're actually both recurring and there's a base fee plus a per user fee and that will vary as a type of user you are you know are you the VP of financial planning in which case you're using just about every function and the product or you the VP of Marketing is just entering a budget see you said is recurring I assume that 25 to 50 K is that a monthly recurring our annual what is the per user fee on average annually for a light user might vary from couple hundred bucks to give us a big range there so call it a hundred up to a couple thousand and then who are the so no we could have more that back story take us back to kind of your story you've seen a lot I mean you are a sales force during the gross guild days you know those kind of days why decide like when did you exit that world and jump into host analytics sure so I joined host a little more than four years ago and for me it was jumping back to the startup world so I'd run MarkLogic as a startup really from zero revenue up to an 80 billion dollar run rate what happens to try to be a general manager marklogic when I left the company right now still private it's still doing very well the unicorn round a few years ago so I basically passed the reins off to somebody who then passed the reins to a guy named Gary blue they raised that Unicorn round valuation that's great so how do you how did you for somebody right now in that position we have a lot of sophisticated I listen to this they're in a company they've helped it grow significantly their options are already vested how did you exit that without having to worry about like call back on your options or any kind of crazy stuff like that and this is a function of your capital and when you join the company but it's an argument for joining startups early where you have a very low strike price if you could do like an 83 be reversed exercise then even if the stock appreciates a lot if the business conditions are correct for you to leave you can leave without the complexity of having to deal with alternative minimum tax or needing to sell shares and the second area kind of almost definitionally opaque secondary market so the strategy that I'd recommend and I generally follow is to try and you know in tranches 83-b exercise your options we need when you do that that does shelter for like well I'm trying to get a sense of when you take the tax it on the Delta between your struck you know your exercise price in the strike price right and if you do this 83 be reverse exercise you minimize that for example then the degenerate case is on day one you exercise 100% of your options so the so the basically the FMV equals the market value right the fair market value equals the strike price because you don't know if those are actually gonna be valuable over time which is why people don't do that you have lost the optionality right so if you join a company where it's 4 bucks a share well that's a hard nut to crack which we can join a company very early phase where it's a Nikolas share 10 cents a share it's an argument for things early phase okay I cut you off because I wanted to hear what happened with Mark logic how you got out of that so continue the story there what happened after Mark logic I wanted to find another startup to Ron I looked at you 104 different opportunities over the course of 10 months I met with two to five people a day for 10 months just networking good idea to do that but I actually just did it on my own just kind of tracing through my network meetings for entrepreneurs founder stretch of capitalist angels I was actually somewhat amazed that I was able to keep doing I think I could have done for another year frankly without running out of network it was really amazing it was a great time for me but in the end I had some buddies at Salesforce was like hey come be a general manager we got this great product to service cloud so it's our second biggest product at the time and I thought what the heck one of the things you know I have 10 years of CMO experience I have ten years now CEO experience I've never actually been a GM at a big company so I thank you that a try I enjoyed it I love Salesforce I mean Salesforce does some of the best people I've ever worked with so so I had a great time at Salesforce I learned a lot about sass and Salesforce learned many many things there so it was a great experience but in the end for me my heart's really in the smaller company so the other thing I learned is that you know for me I much prefer to be running a small business analytics founders how did you get into that company in 2014 sure so the way I've found them was actually through as often in Silicon Valley was through a common friend who had worked with the Business Objects back in the day and he had joined the board of directors who hosts several years earlier he's the VC and he mentioned to me that they were in the market he's actually the independent director he's an operating guy like me and he mentioned hey they were contemplating a CEO search they're starting out a search and he told me you know all the good things about the company so I came and interviewed and I mean what was the revenue run right at that point or whatever your key metrics were and to me that's an important criteria because you know you can get to 1 million with a bad idea it's hard it's kind of a rite of passage to say there's a lot of risks taken out of it if you can you know get to order about 210 million and there are there's a lot of risk off the table so that was a key criteria to me another key criteria was happy customers I did a lot of customer diligence saying another criteria key criteria was a board of directors who who I got along with very important when you're the CEO another criteria to me was a SAS model I really wanted to run a SAS company and do it kind of SAS don't play if you're comfortable you can give a Ranger plus or minus though it was 10 million plus or minus AR 2014 what do you guys that today how much have you grown it is over the timeframes - 40 million in air are here you know current day mid 2017 has the company raised capital they're totally blue strapped no no capital the company actually has a prehistory was founded early in 2001 as a consulting firm and for seven years they actually built the product by bootstrapping and then in 2008 they raised we see and I joined whoever was after that so there's a phase one lifetime where they grew the company to a certain size and they range total today today we've raised plus 85 million bucks and how do you so I want to get more kind of into the kind of the growth metrics around this thing so first question I have for you because of your background you have all the 10 years are these different roles especially at Salesforce is there kind of a unique weird thing that you've done to acquire customer so don't say inbound marketing don't say paid spend don't say inside sales there any like really you're like I can't believe this thing worked [Music] we amazing comes up to you and talks to you and we've one business literally for the cost of a 75 cent sticker I met a CFO of a public company in a restaurant one of my guys met CFO of a public company and a bar people just come up and start talking to you and can you actually credit one of your like close customers back to the bin saying hi to restaurant cuz that sticker is it close by or no 75 cents to make oh but the sticker are the freakin nerds that are gonna be your customers right you have to be a little weird to love eBay talk to me in terms of customers how many customers are you serving today 8020 kind of protist principle in this and in other words 80% these customers never sorry 20% these customers make up 80 percent of your revenue you know we have an inside sales team that sells to smaller businesses and we have an enterprise sales team it sells to enterprise businesses so we kind of have you know kind of two closets for juicing but you'd say they're pretty equal you kind of run the messed up for two different cohorts yeah we're gonna miss two different cohorts different sales forces and yeah they're roughly about half the business each to be honest about half is gonna cross something interesting you said again we're obviously plus or minus you were talking in ranges in terms of numbers but you said earlier you know you're somewhere called between 40 and 50 million bucks in ARR if I divide it by 12 years somewhere around 3.7 million bucks in mor with 700 customers each one's paying you somewhere on what five grand per month is that about accurate right so if I take that you know 53 bucks in in mor multiplied times that twelve that gets much much closer cause actually about 64 grand na SP so close to that 70 grand you just articulated interesting so do you require that folks are paying up front that's how you make sure you know how many cash tap issues it varies you know I think one of the trickier issues in sass is payment terms some people that we sail for started out monthly back in the day some people do quarterly we do annual and we will take you to a one year prepay we'll also take a longer term prepay if the customer wants to do it and there's some math in there that I think and basically if you're giving a discount smaller than your churn rate for a multi-year prepay everybody wins that's really smart what is your turn currently monthly or annual company your size usually company doing the kind of revenue you're doing has really mastered driving expansion our pues over time in which case turn customer to logo turn is usually much much higher than actually revenue sharing yours is equal I require new customers [Music] 50 for a dollar of new air are okay depending on the kind of see you I'm talking to obviously this is a very mature company they'll give answers Dave in different things like I knew about cuz that's very traditional at companies your size but other people go a buck fifty for a new $5,000 per month customer what is Dave smokin per customer so if 7ek okay so okay yes you're spending about 70 grand for a new customer what is your what your people breakdown looks like what's your team size and how many of them are inside sales works engineering sure so we have 300 people about plus or minus again [Music] so the company was actually co-founded in the US and in India so we have a big employees these are these are not outsourced people these are post analytics employees with stock options yada yada so how do people in India two hundred people that you ask I'd say to say I'm gonna probably not gonna put the numbers out correctly but I'd say the sales forces and all those in the states California and then what are you talking about this is a very this is way more art than science but what do you soon the lifetime value is on one of these customers sure so our lifetime value is about it's about 6 X 6 to 7 X right so I do everything in ratios so on average I'm keeping somebody knocks 1/7 each other like that whatever interesting ok 500 grand so you're keeping your number 1 it sounds like you're spending about a hundred grand to acquire a customer or they're doing 70 grand a you keep your payback period pretty healthy around 15 months and LTV the CAC ratio is 5 to 1 that's also super healthy 3 in my opinion what did you spend just last month on paid ads I'm just curious to get a sense of volume you're getting leads there from actually be way higher so where are you getting most your leads from now we get a lot of leads off in there sure right this is uh this is one of the more interesting topics to me is that what we do there's a life cycle for one you do it right so we'll often bump into somebody and say hey if you looked at cloud EPM systems and they're like now I'm not in pain right now or I'm doing a big ERP implementation so finding people is not that hard finding people at the right time it's actually quite difficult so the other way to look at it is if you look at the cloud penetration of this market it's around five percent still and this tells you something about the finance bar and 95% of all EPM software is still crazy that's many more yeah it's like a time machine right like the finance department is like 10 to 15 years behind sales in adoption if you take the two end points or in sales was the first department to go to cloud and Finance is really the last department to go cloud so finding customers is not that hard finding customers who are ready to move to the cloud and replace their existing system is hard so what it means is you need to get really good nurture right cuz cuz nine point five out of ten people you meet are gonna say not now hey I'm interested sounds cool not now so so we put a lot of thought into nurture with the famous five do you have any weird above the line expenses that throws your gross margin off of SAS industry average called 85 to 90 percent no you're writing that right in that margin then yeah Johnson for this operator snot is their question should be asking their that I missed we have a slightly larger services business than most SAS companies so if you look at the blended gross margin it'll be a little lower our software is it's it's a high consideration purchased people put a lot of energy into it you know Zak Nelson always said that ERP is a heart transplant right PM is an e transplant right it's it's it's not a heart transplant but there's still some surgery involved so in order to make sure our customers are successful we run with a I'd say average services business just to make sure we've turned down the line also creates current cash flow but it does it looks more like an agency model there in terms of blending close margin guys big news last month was a huge month for the company I recently acquired which was WWE top inbox comm I liked the company so much when I met the person who created it it lets you send emails later on Gmail set up reminders like snooze almost to keep your inbox clean do things like send Auto follow-ups and do open tracking so you know when your emails get opened it's great if you're in sales or a CEO or trying to be more productive so listen I bought the whole company on the spot and I want to tell you how I did it I've showed the deal by the way to big smart people private equity firms be seized and they're dumbfounded dico Nathan how did you do this we've never seen a deal like this how did you do this so I did an unbelievable deal and I want to show you the income report so for me to send you the income report go to WWE topic inbox comm click the red button that says install this on gmail and when you do that my email will appear it'll appear in a little Gmail pop-up window send me an email and I'll apply immediately with the income report and you can see I'm buying and growing small b2b SAS companies that's ww2 top ten box comm totally free to try and use WWE top inbox calm very cool Dave let's wrap up here with the famous five number one what's your favorite business book [Music] I'd say the halo effect will be another popular one you're flipping through your nose do you listen to the show you know what's coming I'm period why is it guy like you know podcasting stuff I tell people what I'm I don't care how many people listen I just want to get data and stories as quick as possible why do you why do you listen to the show I just think it's great to hear first-hand from entrepreneurs I think you do a really good job of ringing facts out of people and why is the guy like you feel comfortable coming on the show and doing that obviously you know your people Michael why would you give up all those numbers to Nathan you're crazy [Music] [Laughter] Dave question number two is their CEO you're following or studying right now and he's very different from me and those are the people you can learn so much from so so I think he's a phenomenal leader so I like to look at him if he comes to you an offer right you six hundred million our check to sell the company do you my decision it's the board's as well I mean I will tell you he's the only guy who would ever respond to my emails with like a Zen proverb like he said it was a really long you think that's some like AI machine where it just psychos throughs and proverbs and replies to every interesting and what I'm curious your board structures at three five seven nine what are you that any of the initial founders still on there no two companies number three what's your favorite online tool like Hostgator so I gotta save WordPress I mean I use it a lot I run a blog called blog I use the most big Twitter user I use Evernote a lot but number number four how many hours of sleep teen every night pretty good and what's your current situation married single you have kids what's the youngest Wow so you're in the thick of it how old are you fifty-five all right Dave last question take us back 35 years what he was your 20 year old self new [Music] go read power by Jeff Pfeffer Stanford professor PFE ffer and the book about power not an area that I inherently understood it's just a great book about power as the title goes an interesting there you guys have it from David Cal he were to read that book earlier on had a lot of success joined host analytics in 2014 right when they were doing you know much less than they're doing now they're now serving over 70 customers eighty five million dollars or raise call between a forty and fifty million dollar run rate so far ASP around 70 grand are spending 100 grand to get those customers again they're really focused on bringing the the really financial apartments of these companies to the cloud and online right now only 5% of really folks have done that so he is in a time machine they are doing a very very well though team of a team of about 300 folks scattered between India and the United States his secret to growth I love eat with the stickers Dave Kellogg thank you for taking us to the top if you enjoyed today's episode with Dave go back to listening yesterday's episode with David he's the CEO of masterclass and he gives me an answer when I say David will you win the online course wars above you to me and Linda and creativeLIVE and all these other guys [Music]