How Hubstaff Reached $3.8M ARR and 7,000 Customers While Staying Bootstrapped (Interview with Co-Founder Dave Nevogt)

Introduction and Company Overview

Nathan Latka

00:01Hello, everyone. My guest today is Dave Nevogt. He's the cofounder of hubstaff.com, which helps teams communicate better through automatic time tracking and activity tracking. He's been running the online business since he was 23 and now manages team of 40 remote employees. Dave was honored as one of Indianapolis' top 40 under 40 entrepreneurs and focuses on teaching others to manage remote teams. Dave, are you ready to take us to the top?

Dave Nevogt

00:23>> I'm ready. Thank you.

Company Update: ARR, Customers, and Bootstrapped Status

Nathan Latka

00:24All right. So I believe it was... Let's see. January, February, March. It was April 2016 you were last on the show, and I think you communicated you had about 2,600 customers at that point, about 1,100,000 in ARR, 20 employees, no funding. Give us a quick update there and then tell us what the company does for those that are new.

Current Metrics: $3.8M ARR and 7,000 Customers

Dave Nevogt

00:40>> Yeah, so still no funding, still bootstrapped. We're at about 3,800,000 ARR now, a little over 7,000 customers. And we still are in the world of time tracking. We do a little more, we've got activity tracking, we've got location tracking, that kind of thing. Just for those of you who don't know, basically helping managers and business owners reduce waste in their company.

Growth Drivers: SEO and Word-of-Mouth

Nathan Latka

01:08So how do you go from, again, you you're now 2,600 customers to now 7,500, what's driven most of that growth?

Dave Nevogt

01:16>> Word-of-mouth, good SEO. We try to get, we do we do advertising. We just basically try to put our product in front of of users that are searching, actively searching, and then drive them to a trial.

Nathan Latka

01:30And if I take obviously the the 3,800,000 in ARR divided by 12, you're doing about $310,000, $320,000 per month right now, something like that? Yep. Then if three fifteen. Okay, yeah, that's perfect. And then if I divide this 2,500 customers into that, it looks like someone can get started with you for about 40 ish bucks a month. That's the average price point.

Dave Nevogt

01:46>> Yep, 43.

Paid Advertising Experiments and Consultant Hiring

Nathan Latka

01:47Yeah, 43. That's perfect. Good, and then walk me, I mean, so said you do a lot of SEO, lot of content, a lot of inbound, have you tested any paid channels yet or no?

Dave Nevogt

01:56>> Yeah, we do paid, we have not had a lot of success with that yet. We've been trying for a long time.

Nathan Latka

02:03Tell me about one of the tries.

Dave Nevogt

02:05>> Yeah, I mean, we've tried everything. It seems like we've tried everything. Tried about five different consultants. We've tried Facebook, we've tried AdWords, and you know, it's not like things are terrible. It's just their channel, we have not been able to scale anything into a significant channel.

Nathan Latka

02:22So a lot of people struggle with this. Right? They hear their competitors doing really well, I'm making this up, on Google AdWords. So they go, well, I

Dave Nevogt

02:27>> don't know how to do that.

Nathan Latka

02:28Let's go hire a consultant. Right? And then the consultant just takes their money and fails miserably. What have you learned about how to hire, especially a remote consultant for this sort of thing?

Dave Nevogt

02:37>> Yeah, and we've also had in house people do this as well, and we're doing it right now. I mean, right now our CMO is doing it, but so I think, you know, trials are good, you know, and we've never had to spend a ton of money on consultants doing this. A lot of people charge based on ad spend, a lot of people charge just on flat fee. We prefer a flat fee for this And kind of

03:02>> basically just the number one thing is make sure you get somebody that's gonna help with analytics and understand what's going on on the backend and conversions, not just pumping traffic. Name a

Nathan Latka

03:12few questions that you might ask someone who you're looking at potentially hiring to be a consultant.

Dave Nevogt

03:17>> Yeah, you know, number one, look for past success and make sure that they've had success in a similar industry because, know, B2C does not translate well to B2B at all on paid. Facebook, AdWords, all that's totally different B2B. So that would be number one, make sure that they have success in a very similar thing. E commerce doesn't translate, you know, at all. So they've really got to understand different things. How to drive that traffic, understand there's

03:48>> less of that traffic, understand that each sale is worth more money and understand that basically, you know, conversions are the most important thing when it comes to advertising and how are you going to track those conversions and how deep are you going to be involved in the process?

CAC, LTV, and Payback Period

Nathan Latka

04:03So now what is your fully weighted CAC look like considering all these experiments you've done?

Dave Nevogt

04:07>> Yeah, so it's still pretty, it's still really low. I mean, it's like a $100 right now.

Nathan Latka

04:11Yep, I'm curious how, let me see how that compared. Yeah, so it was, yeah, that's about what you said last time. About

Dave Nevogt

04:17>> 100 Yeah, and we could, you know, most people I think would say to raise that if we, I think a lot of people would say to raise that. Why? We just, well, they, I think, from what I've read a lot is they basically try to say, okay, you want to do about a third of your LTV, which would raise us up to about $200, $250, right?

Nathan Latka

04:35So you assume customers right now, lifetime value is $750?

Dave Nevogt

04:38>> Yeah, about 700.

Nathan Latka

04:39Okay.

Dave Nevogt

04:40>> And, you know,

04:46>> we just feel like we haven't been able to spend that money profitable. So you could spend the money and try, but it's just, why spend the money if it's not gonna be profitable?

Nathan Latka

04:54Well, and something else to note is, right? You've been really smart in bootstrapping and so you have to manage quick payback periods. So if you're only spending a $100, you're getting paid back in two, three months.

Dave Nevogt

05:04>> Right, two and a half, yeah. And that's been comfortable for us. It's been pretty flat, you know, but it's been comfortable.

Nathan Latka

05:09What do you mean flat?

Dave Nevogt

05:11>> Well, we haven't been able to lower it a whole lot.

Nathan Latka

05:13Well, mean, but that's pretty damn low, Dave.

Dave Nevogt

05:14>> Yeah.

05:15>> Yeah. Yeah. It is.

Nathan Latka

05:16That's that's a really good payback period. I mean, I talk to people in the valley all the time. They're talking twelve, sixteen, eighteen months. So that's fantastic. Another question here, because I think it's important. A lot of people that listen to the show have large either user base or customer bases. And they always are looking at how to get new customers versus driving expansion revenue you know, of a couple dollars across a big user base. Last

05:37time you were on the show, which was a year and a half ago, your ARPU was around $33. It's now up to $44, which is meaningful. That's $10 additional per customer and you have 7,500 of them. What's driven most of expansion revenue?

Expansion Revenue and Premium Plan Upsell

Dave Nevogt

05:48>> Well, we have introduced a new plan, new higher price plan. And we also have been building a lot of features we've added to the higher price plan. So trying to get people to upgrade.

Nathan Latka

06:00Okay.

Dave Nevogt

06:00>> Can you name one? Yeah, like for instance, like we're just moving a little bit up market regarding like what people, what our customers are looking for, like things like time sheet approvals, time off, that kind of thing. So they're looking to do things with the time and basically for that, you know, they need to pay for it basically. So they can track all the time they want. And if they're only looking to track time, they can

06:24>> get that in the basic plan, but then they need to upgrade in order to do a lot of advanced things with that time data.

Nathan Latka

06:31And has there been one specific additional feature that's driven the majority of that upsell revenue? Like one thing is just killing it for you?

Dave Nevogt

06:38>> Probably like app tracking, kind of thing locations, that kind of thing. So where like locations would be a good example, like GPS locations,

06:51>> a construction company, for example, can

06:56>> make sure that one of their subcontractors is on the job,

07:01>> on-site versus being in their house or whatever. So that's an example. And the more companies that you get that are looking for premium type features, the more revenue number, average revenue number per customer rises automatically.

Churn: 6% Monthly and International Billing Challenges

Nathan Latka

07:17Tell me about churn, have these additional products decreased churn Not at

Dave Nevogt

07:22>> really. Churn's a little bit of a problem right now, we're catching up to that level where, for a long time churn doesn't really have an effect. And then once these customers start to age, it hits

Nathan Latka

07:37Well, you're getting big.

Dave Nevogt

07:37>> It does matter.

Nathan Latka

07:39So what is it right now?

Dave Nevogt

07:41>> It's like 6%.

Nathan Latka

07:43That's not horrible. So 6% logo churn per month?

Dave Nevogt

07:46>> Yeah.

Nathan Latka

07:46Okay. If you calculate that on a revenue basis, is it about the same?

Dave Nevogt

07:49>> It is.

Nathan Latka

07:50Okay. And is that something that you think is just, it's inherent in the customer you're going after Or it's gonna you think you can bring that down at all or no?

Dave Nevogt

07:59>> I don't think we can bring it down. I think we to fight it in

08:06>> ways that are, because there's other things going on. I mean, like for example, like 50% of our customers are out of The US. So you've got that going on. We

08:17>> get very good data from our customers when they leave. It's usually things like for example, projects ending or going out of business, things that we, it's not really like, hey, we decided to leave for a better product or we decided that we're just not using the software anymore. It's not really like that. So it's hard. And then we've done a lot of work with dunning and things like that, to help with

08:47>> this. So I'm not sure, I think we need to fight it in other ways, like getting more trials in the door, finding new areas to grow into, and that would help us more than, you know, continually fighting churn.

Nathan Latka

08:58Yep. What percentage of the churn is due to credit card failure?

Dave Nevogt

09:04>> Quite a bit of it, but I... You know, like, probably, if I'm guessing, you know, one and a half percent.

Nathan Latka

09:11Okay. Oh, that's actually... Okay. That's actually... I was gonna say I was gonna expect it to be something like 30 or 40% for you. Remember when we were building Oh, sorry.

Dave Nevogt

09:16>> Sorry. I meant one and a half percent of the 6 Okay.

Nathan Latka

09:19Got it.

Dave Nevogt

09:19>> Yeah. Got it. Yeah.

Nathan Latka

09:20Yeah. So that sense.

Dave Nevogt

09:21>> Yeah.

Nathan Latka

09:22I remember when we were driving, when we were building Heyo and we had about the same price point as you, about the same amount of customers, it was our biggest frustration was credit card failures because we couldn't put a human on it reach out to every person to get the card. It just wasn't efficient.

Dave Nevogt

09:35>> And that's where I was going to, like, with the out of The US, there's problems there as well, because you've got a US company trying to bill an international company, and there's just higher rates, there are higher failure rates there in here.

TSheets Acquisition and Competitive Landscape

Nathan Latka

09:49All right. Let's switch away from your specific economics for a second. TSheets, tell me what you think about TSheets.

Dave Nevogt

09:55>> They did great. Obviously, they did very well. Mean, they had a very good business. They had a good business model. They built it well. Yeah, I mean, congrats to them.

Nathan Latka

10:04When Matt came on the show, mean, he shared, you know, they're doing about $30,000,000 in ARR, Intuit paid essentially a 10x multiple on it. Do you think Intuit overpaid?

Dave Nevogt

10:12>> No, I don't think so, because they, you know, they've got a great product and a great customer base. And I mean, I'm not one to judge that I guess in the first place, but, you know, look at what QuickBooks can do with the product once it's theirs and they've been building that product. There's a lot to these things. I mean, we've been building for five years and we're not even close to being done yet.

Nathan Latka

10:33No way. They created that thing. Matt launched it in 2006.

Dave Nevogt

10:37>> Yeah. And it's very hard technology to build. And so

Nathan Latka

10:43What makes it hard?

Dave Nevogt

10:43>> A lot of, well, you know, desktop clients, mobile apps, know, we've got, you know, two mobile apps, we've got Chrome extensions, we've got, you know, Windows, Mac, Linux, we've got web based JavaScript timers, we've got the whole server side. So, you know, we talked to like about a, for example, like a, I don't know, like a web based only, right? Software. I mean, they're doing one piece of code and we've got six.

Would Dave Sell? 95% Growth and the Goal to Double Again

Nathan Latka

11:15If Matt, sorry, if Brad from Intuit came and offered you the same 10x multiple, so offered you $38,000,000 to sell, would you sell?

Dave Nevogt

11:23>> That's getting really close. Mean, like very close because, you know, we think that we're not, we think that we can grow. So for example, like our goal this year is to double again, so to six. So that's why it gets very close.

Nathan Latka

11:35Did you double year over year? So like thirteen months ago, you were about 150?

Dave Nevogt

11:39>> Yeah, it was like 95%.

Nathan Latka

11:40Okay, that's

Dave Nevogt

11:41>> pretty And we're trying to do that again. We're trying to do that again. So in the next two years, and that's the goal. And we think we can do that through some of the, you know, we think we can do that, but

11:53>> it's gonna be hard. And point is, is this would be kind of a bad time to sell if we can do that.

Engineering Team and Integration Strategy

Nathan Latka

11:58Yeah, of course. I mean, if you believe you can keep doubling, doubling, of course you should never sell that company. It's a question of what's the risk in execution. Right? Yeah. Let me let me ask you another question. So Matt told me when he came on the show against CFT sheets, you know, he felt like he was cheating. And I said, do you mean by that, Matt? He's like, well, we're ranked number one in the Intuit

12:16app store for this thing. So our ARPUs are higher than normal. And people are super sticky because they're in the Intuit ecosystem. Do you have that kind of relationship with any other tools like Intuit?

Dave Nevogt

12:27>> No. What Working working on it.

Nathan Latka

12:30I was gonna say, is is it just... That's just a hard thing to do?

Dave Nevogt

12:33>> It's hard thing to do. You've gotta build, you know, you've gotta build for... Well, you gotta be... Well, they've been there for a long, long time. It would be very hard to overcome like TSheets in Intuit marketplace Yep. Because it's just they've got the rankings, they've got the ratings, they've got... Learned... They get the relationships, they've got the users. So, you know, it'd be hard to... It's hard to do. And it's kinda like one of those

12:56>> things where it's like once you're there, you're there. And you've gotta build for their product, and there's a lot of risk in that. So for example, I mean, if I'm gonna build for their marketplace, there's a lot of risk in that because I don't really know that that's even gonna work. Like for example, we we have integrations, we've got a lot of integrations, but it's not very... The the pickup rate is not very high for our

13:19>> product for whatever reason. Now for TSheets, it's little different. They've got a different type of product and different type of customer.

Nathan Latka

13:26Yep. Well, mean, and they built that into their UI, you know, it's kind of like when I use Tinder, When you use Tinder, about every 40 or 50 swipes, doesn't matter if it's left or right, they'll say, are you enjoying Tinder? And that you rate it. And then they say, hey, well you go leave this in the app store now. It's like, I remember when Matt gave me the the tour before the podcast research I did

13:44with him. I mean, he showed me where on the onboarding they would go ask people to go rate it specifically to get that one Yeah. Yeah. Who who drives you right of now all your partnerships? Which one, I know you don't get any significant lift from any of them, but who's the best at driving you leads?

Dave Nevogt

13:57>> Yeah, and it is, I wouldn't say, as a whole, it's significant, but you know, for us, you've got the freebies, like, you know, you've got Trello, you've got Asana, you've got, you know, that kind thing. That's the most for us just because of the volume.

Nathan Latka

14:10Yep. Yep. Do you get traffic from these tools that kind of connect other tools like the Zapiers of the world segments?

Dave Nevogt

14:15>> We don't have

14:18>> those integrations.

Nathan Latka

14:19Got it. And that's just a limit on your engineering time, right?

Dave Nevogt

14:22>> Well, yeah, it is.

14:24>> Yes, it is. Yeah, that's a good, yeah. And we have a lot of engineers, I mean, but you know, we've got about 25 engineers, so it's not, you know, small team, but it's,

14:35>> you know, it's just limit.

Bootstrapping Philosophy and Resistance to Raising Capital

Nathan Latka

14:38Yep. And you, obviously I love that you're bootstrapped. I love that you're an indie. I think that's so important and wonderful. I mean, is there anything chipping away at your resistance to, again, raising capital? Do you think it might be something you consider to drive future growth or no?

Dave Nevogt

14:52>> Well, you know, Jared and I just kind of wanted to build this thing as a lifestyle Jared's your co founder? Yeah, yeah. So yeah, we've been together since the very beginning and you know,

15:04>> two of us own it right now. And if we get another party involved, you know, I don't know, not totally appealing to us. And even the bigger reason is that, you know, yes, I think we could find money. Think we could find some money in better ways than raising capital and giving away equity.

Nathan Latka

15:26Like what?

Dave Nevogt

15:26>> So, friends and family, you know, if we needed money, we just don't, we don't really need the money. Know? Yeah. Don't know,

Nathan Latka

15:32the real thing is here is you don't know where you'd spend the money to drive Other that accelerated

Dave Nevogt

15:36>> than building the product, other than going out and finding awesome engineers and basically just saying, you know what? But even with that all said, I mean, we're getting to the point now where we don't even, I mean, there's more engineering, but you're not starting from scratch.

Nathan Latka

15:52Yeah, I mean, and you're cash flow positive, right? Because you're bootstrapped.

Dave Nevogt

15:55>> Yeah.

15:55>> Yeah.

Famous Five: Books, Tools, and Personal Life

Nathan Latka

15:56All right, Dave, good stuff, man. Let's wrap up here with the Famous Five. Number one, what's your favorite business book?

Dave Nevogt

16:02>> The 80/20 Principle.

Nathan Latka

16:03Number two, is there a CEO you're following or studying right now?

Dave Nevogt

16:07>> You know, not really. I mean, not really. Okay. Just keeping heads down implementing.

Nathan Latka

16:11That's good. Number three, besides your own, what's your favorite online tool for building your business?

Dave Nevogt

16:16>> Google forms.

Nathan Latka

16:17Number, how do you use Google forms?

Dave Nevogt

16:20>> My job is hiring and they help save me a lot of time with hiring.

Nathan Latka

16:24Got it. Number four, how many hours of sleep do you get every night? Eight, That's pretty good. What's your situation? Married, single, you have kids?

Dave Nevogt

16:30>> Yep. Married, two kids.

Nathan Latka

16:33Okay, and how old are you?

Dave Nevogt

16:35>> 38.

16:35>> 38.

Nathan Latka

16:36Last question. What do you wish your 20 year old self knew?

Closing Advice: Add Value to the World

Dave Nevogt

16:41>> To really, I guess, add value to the world and you'll get paid back. I mean, you know, every time I've done well is when I'm creating new things.

Nathan Latka

16:49Yep. Guys, there you have it from Dave, add value to the world. You get paid back. Hubstaff's doing well, growing a 100% year over year, about six... About thirteen months ago, doing $150,000 a month in revenue now up to $316,000 a month in revenue. So $3,800,000 run rate, 6% logo churn per month. He's working on bringing that down. Bootstrap, totally bootstrapped, which I love. They're now up to 7,500 paying customers, paying about 43 ish bucks

17:09per month. They got a team of 40 people totally remote, getting the paid back on their CAC in under three months, healthy economics, again, helping with everything related to time tracking, hiring, employee management, things of that nature. Dave, thank you so much for taking us to the top.

Dave Nevogt

17:22>> Thank you.