How Hotschedules CEO Mike Arenth grew Hotschedules to $100M revenue and 160K customers in 2018.

hello everyone my guest today is mike erin he serves as the ceo currently of hot schedules before being named ceo he joined the company in 2016. that was october 2016 focusing on implementing key leadership changes to support innovation and growth at the company other previous roles include senior advisor at silverlake executive vp for sap and senior vice president and general manager at ariba mike received a ba in economics from john hopkins and his mba from george washington university mike are you ready to take us to the top i'm good nathan how are you i am doing well all right walk us through the company as best you can because you have many product lines uh who are you serving and what's the company do yeah so we are the leading cloud-based intelligent operating platform for restaurant management so what does that mean we're the actual backbone that runs the restaurant when you think of two thirds of all spent in the restaurant or on people and product that's what we do right we have a platform that allows the back of the house to run efficiently and effectively we're in a 160 000 locations uh 60 countries 35 000 different concepts and we have three million team members that are connected to our network and what does that number mean so when i think you said 35 000 concept or 3 500 concepts what do you mean by that yeah so you think about chick-fil-a and mcdonald's and yum right they have a lot of different locations so we count yum and mcdonald's as one concept but we have 160 000 locations when you look at all of our customers together got it so we could take the 160 divided by the 3 500 and assume each kind of brand has on average 46 locations with you yeah roughly and some we work across the entire barbell so we work in the local independent space which is like you and i opening up a restaurant we have one location where we work with some of the largest brands and concepts in the world like mcdonald's and yums and chick-fil-a where they have thousands got it and so give me i mean what what what do you measure more closely and probably the better question is what are your sales more closely aligned to selling the logo or landing one location of the logo and expanding it's a it's a great question because it depends on kind of where you're operating within that barbell you're if you're in the local independent space you're selling to the owner which is the operator which is one to two or three locations when you're working in a large multi national corporation like mcdonald's which is made up of a lot of franchises you actually work top down and bottoms up right you try to get a corporate mandate but you have to also work with the franchisees to adopt technology so it really really depends kind of where you are in that barbell so walk us through i know you probably have this thing cohorted all the way out probably across dozens of different cohorts but i'm going to try and force you on an average here what is the average kind of concept would you say pay you per month for your suite of products yeah so we actually sell the products individually as best and breed whether that's our labor or inventory or operations management task management right that can be anywhere from 100 to 150 dollars right per store per month okay the entire suite that could be three to four hundred dollars per month right the math adds up pretty quickly when you think about the locations that we have we have a good land and expand model right we have some core assets that right we can land into a a location or a concept that's having a difficult time optimizing their labor we help them do that and then they broaden their footprint with us with the other modules that we offer in the back of the house the biggest thing to understand kind of in the restaurant space is the technology is really fragmented right there's hundreds of companies that are providing just one little part of the kind of the solution we believe that you have to have actually a platform in place because restaurant tours are looking to sacrifice functionality for simplicity and in order to do that you have to actually be able to meet their scalability requirements but flexible enough to deal with the fragmentation that they're occurring every day yeah and look i mean some of the most successful brands have taken a fragmented space and just delivered incredible value ones that come to mind immediately are you know you think about ministry brands which basically did a roll up and provided this same kind of thing but focused on ministries you've got mind body which is rolling up and same thing for salons you're essentially doing this and you're hyper focused on restaurants so i love it uh just to make sure i understood that you clearly 160 000 locations it sounds like kind of the minimum ish price they're going to get in for one of your product lines it's going to be around 100 per month and some of them go up to four or 500 bucks per month depending on scale yeah you got it all right churn i imagine you deal and it's frustrating as hell churning the space because you don't control if a restaurant goes out of business so what's your churn and how do you manage it so it's great so our gross retention is like 90 and our net dollar retention is 110 which is pretty amazing when four to five percent of our churn is uninfluentiable right you just said it they go out of business yeah um so you may sell you may do a great job a job helping them adopt the technology but if they go out of the business they stop paying you so to have 90 percent retention right even when you're dealing with that that's gross right that's gross and then 110 right net dollar right returns you've got 20 expansion revenue happening when you're in there you're expanding by locations you're expanding with additional products that we bring to market and the cool thing about it when i worked at ariba right we would always pray that that mps would just come back greater than zero when we ran it here what does mps mean mike it's net promoter scores oh nps yeah do you have more promoters than right distractors um and we ran it here and we got a half a million responders and our scores at 33 right so people have a huge passion and affinity for the brand and you see that in terms of our retention rates but also we're the number one downloaded paid app on the app store number three overall paid app in the app store in 2017 and just great affinity for right hot schedules provides to that team member where there's 15 million employees that work in the restaurant space in the us that's 10 percent of the us workforce somewhat disenfranchised from the technology evolution and we're just trying to leverage technology to make their lives a little bit easier yeah and it sounds like it's working i mean if i take some of your minimum numbers right 160 000 locations times 100 bucks a pop you're north of 16 million a month at this point correct yeah we have a really good strong recurring revenue model right we're on a hundred million dollar run rate um we'll be past that already on the run rate for it yeah right uh we're profitable um and right we're actually growing in double digits on our technology road it's a good business to be in i think when we look at it one reason i joined is it's a massive market 800 billion dollars in sales which is like four percent of gdp 15 million employees 10 of the us workforce totally fragmented and antiquated from the use of technology by great affinity for the brand um and we have a great mission we're trying to serve those who serve others and leveraging the technology to make their lives easier it's a good environment to be in with us tell me again about i've only probably interviewed 30 people that are at run rates north of 100 million bucks and so growth rates are always interesting at that scale it's harder to double 100 million than is to double a dollar right so what did you say you're growing at you every year so we're actually if you look at our arr we'll be close to 20 right year over year which is pretty good given how big we are and we're still growing at a fast pace no that's great i mean if you're at 100 million run rate today that's 8.3 million a month and so take that back to cot what is that what would that be 6.5 million a month about a year ago would give you the 20 year over year growth healthy growth rate we've got a good foundation and right continuing to build on it where is the majority of that growth coming from is it expansion revenue across the current customer base or is it brand new customers coming on so it's both you see that in our net dollar retention right we're able to actually land in accounts then right expand them with the different products we actually have come to market with a new platform called clarify clarify actually brings together a lot of the different assets that we had independently within the company over the last four and a half years to really deal with the two major issues that are happening in restaurants today one is this fragmentation issue restaurant tours are just they're tired of it right see they're willing to like i said before sacrifice functionality for simplicity and the second thing is in order to run a really good successful restaurant you got to have a great product and great guest experience and if you do that you get satisfied customers satisfied customers pay more than right new customers but the issue it's harder than ever to balance that equation one reason is just not enough good managers and the reputation of the technology is not helping to right make their lives any easier so right we provide the technology in a way that really drives intelligence and insights to help them run that perfect shift and by doing that with the platform it just makes their lives easier so they're not in the back of the house right dealing with issues they're out on the floor by driving that great guest experience that's what it's all about but it's hard when you got multiple go into any restaurant today and look at how many different pieces of technology they're trying to do i believe it i i believe it yeah i believe you're clarified platform i mean you're talking you're spanning a subset of kind of labor management inventory assets talent financials and cash everything right yeah and you're we're providing in a way that doesn't feel like a mini erp right we're using what we call an intelligent workflow that guides the manager through their shift so the analogy that i give is everyone's got a small smartphone but how often do you use it to make calls right in the morning it's your alarm that wakes you up it tells you what the weather's going to be so you know how you're going to address it tells you what the traffic's going to look like so you know when to leave when you're using waze it tells you that you got to take a detour and get you redirected after an accident right it helps you stay connected with friends and family that's the guided experience that we're giving the manager in order to run that perfect shift don't worry about all the other things that are happening worry about this is the most important thing that you need to do now and at the same time don't and disenfranchise that team member that just wants to engage and interact on their own terms right when i was at a reba before i would talk to cpos and they would say i love your technology and some of the end users would say hey i hate it and they hated it because you're forcing them into a business process when you talk to a team member someone that works in the restaurant they'll tell you they love it they love it because they don't look at it as i'm optimizing the business process for the manager operator it's my method of engagement with the restaurant it keeps keeps me connected it allows me to know when i'm going to work it helps me make money by picking up more shifts yeah so a totally unique model where you're driving value to all the different constituents without disenfranchising any of them yep talk to me more kind of about how you're onboarding new customers what's your fully weighted cac today yeah so we pretty good we have a good ltv the cac right it's four to five so depending on where we are in terms of that barbell really influences how quickly someone can get started right if you are a local independent you're right not integrated from a point of sale perspective right you could call us today and we'll have you up and running tomorrow if you're a more sophisticated right mid-market concept that has 30 to 75 different locations or a national right concept it takes a little bit longer you have more integration points but we start taking out some of that complexity as we put the platform in place because you're dealing with us instead of dealing with eight to nine other vendors yep sometimes i've met companies even at scale where their lifetime value to cac ratio is actually really healthy the problem is the payback period is way too long and the lgbt attack actually lies to you right because you have a huge cash gap issue what do you optimize your payback period for no matter which cohort you're pursuing yeah so when we think about that it's all about how quickly we can actually drive value for the customers so for them they get value pretty quickly with our labor solution that which then allows them to think about the other solutions they want to adopt within clarify because that's bottom line savings okay one to two percent labor savings within the first one to two months of using our application and once again when you think about two-thirds of all spending in a restaurant is on labor and inventory if we help them on the labor cost and the food cost right they get a quick payback which allows them to spend more money with us in terms of broadening out the platform what does that mean though for your payback there are we talking like four months six months 12 months it depends really on where you are in that right uh barbell right we have some that are within two to three months okay some that are upwards to more like 12 to 15 months depending on how you play in that barbell okay obviously payback period you can get more or less aggressive with that based off your your your kind of access to capital walk me through quickly the fundraising history of hot schedules is it bootstrap or if you raise capital yeah so hot schedule cpg growth is the lead investor in hot schedules they've been in right just over five years they're great partners to work with they see the value they have the thesis of coming into the business of right the fragmentation the importance of creating the platform in the back of the house we are set from a capital perspective we're big believers that you can go grow revenue profitably as we continue to scale so you're profitable today yeah we're profitable in 2018. oh great and right it allows us to think about the the next level of growth it's given the fragmentation there's a roll-up strategy to happen whether we're the ones driving it or someone else i mean that's why i asked by the way right so so i think you raised about 20 million to date correct well now we over the years there's been more that have been raised we're not going to kind of disclose what that is today but right there's the investors have been in the business for the last right four and a half five and a half years they're really uh supportive of what we're doing uh there's a long roadway ahead of us when you run way ahead of us when you think about hey there could be upwards to 800 000 restaurants in the us we have 160 000 globally 10 million globally to go after but there's still a lot of runway yep and what year was the company founded in so it was brought together by four or five different companies hot schedules which is the core labor part was founded almost 20 years ago but right bringing the companies together was formed in 2013. 2013. okay so caught maybe 2000 the first thing and then kind of a mini roll up in 2013 with some other products brought in yeah we brought in from a labor from an inventory from a task management and then spent the last two years really bringing those uh solutions to market together as a unified platform and what um what's the teams i say and where you guys based so we have 600 employees we're in austin we're in atlanta we're in denver and san francisco we have an office in shanghai one in sydney we have a good footprint across the globe so all over the place yep last question here before we wrap up with the famous five um when you think about growth uh and you think about you know the the i think there's a huge opportunity in this space for a roll-up strategy right because it's so fragmented how do you you probably have so many options how do you keep yourself sane how do you decide what to focus on in terms of what your next m a deal is yeah so for us what we think is we've done a pretty good job of creating this platform that's really focused on people product and operations we now look for right opportunities to add to that whether it's specific functionality that we can enhance within our platform we don't think it's at the right time it could be from a customer acquisition perspective where you can start taking customers and sudden setting other people's technology or you can look at it from hey their specialty speciality that we don't have maybe in safety and compliance that could be added to it so there's lots of different ways we think about it we just know right now running our core business is key for our customers and we don't want to they take our eye off the ball uh that's the most important thing for us yeah yeah you're not right now considering a sale to any bigger private equity from like a vista equity are you well we're good we're we're happy where we're at we're bringing clarify to market we feel good about the opportunities ahead of us um and continue to just try to execute every day that's what our customers want from us when you look at traditional size in terms of ipos in the space you certainly meet most those metrics you i assume made a conscious decision not to do that walk me through that thought process yeah i think right now we think in the private market there's opportunity for us to continue to grow and scale the business that's what we want to be focused on we don't want to be focused on kind of externally kind of some of the complexity that comes in the public markets right now we're really just focused on running our business and doing the best that we can with our customers yeah mike let's wrap up here with the famous five number one what's your favorite business book i just read measure what matters by john doe which is very good number two is there a ceo you're following or studying right now um i've always been a big fan of bill gates and what he did with microsoft and uh how he constantly was uh transforming that company to the very end before he left number three what's your favorite online tool for building your business um i'm a big fan of uh for sales for course i'm in it every day and it drives a lot of our customer experience number four how many hours of sleep to get every night not as much as i would like probably more like six and a half to seven okay not horrible what's your situation married single kids uh married with three daughters they keep me busy three you met you're outnumbered man i know and a female dog so all right mike and how old are you i am 46. last question what do you wish your 20 year old self knew um have more fun guys there you have it i think he's having fun though have more fun joined hot schedules back in about two years ago 2016 and then eventually took over as ceo uh more recently call it mid-2017 now they're serving over 160 000 restaurant locations across over 3 500 concepts think wendy's young brands you know mcdonald's things like that they've raised north of 20 million bucks but more importantly they're profitable so they don't have to ipo they don't have to raise more capital uh you know they're growing caught about 20 year-over-year currently doing about a hundred million dollar run rate 110 net dollar retention under that metric you've got about 90 gross dollar retention annually so healthy economics payback periods all healthy less than 12 months and quite frankly sometimes less than two three months depending on the cohort 600 people based across remote locations again helping restaurants manage their businesses more effectively a lot a lot of this happening through their mobile app as well mike thank you so much for taking us to the top thanks nathan