How Inkit CEO Michael Mccarthy grew to $2.5M revenue and 100 customers in 2022.

just got done editing this interview you guys are gonna love it before i do that though i want you to know that i'm going to be in the comments for the next 30 minutes or so answering your questions if there's additional questions you want me to ask the ceo next time i interview them leave them below or if you're just loving the data points i get ceos to share click the thumbs up button below that's your way of telling me you're loving this stuff and i'll get you more of it additionally again i'll be in the comments answering any questions you have all right for 30 minutes enjoy the interview hello everyone my guest today is michael mccarthy he is building a company called inkit which is a direct mail solution track which tracks and automates personalized letters of marketing collateral statements policies and many other items michael you ready to take us to the top let's do it all right so just be clear you are not directly competing with call it a hubspot or salesforce in terms of the technology of the crm you're just tying in via web hooks or something to do direct mail correct we already bolt on to those types of platforms or products okay which of those platforms i imagine you're you're obviously integrated with all of them which one of them drives you the most customers we we wouldn't say one or any others drivers more than the other so there's you're not gonna pick a baby anybody listed at our ecosystem drives us drives those customers so we're very friendly to you know lots of different solutions and and in fact nathan there's actually solutions out there that are that are point solutions where they might be used by really really large insurers or really large banks tank for take for instance like an fis where they might drive one or two customers a year but those one or two customers are massive whales compared to to other products in the market yeah now explain to me how you price is it a sas model we price as a sas model pricing is very transparent so we have a software as a service amount and that gets you a certain amount of mailings every year so it's it's very very very very basic vanilla so break that i mean give me give me a sweet spot on the sas side what's the kind of the average customer paying you per year to use the tech so average customer is you know north we're we're typically seeing a lot of six-figure size contracts on average uh okay so you're not an smb player not as much as smb play smb is really really tricky when you go into direct mail meaning a lot of you know your local coffee shop probably doesn't have the budget for for direct mail even begin with so it's typically more of a mid to enterprise type of customer play okay and then i cut you off but you were going to say you also have kind of a per mail delivered fee what did i imagine that's in a sense how many cents yeah so that can that can really vary it can be as low as 30 cents it can be as high as you know let's say you want to send out a 100 page document that could be 10 bucks just depending on how many pages there are so we have a we have a sas amount then we have a per piece amount per piece is fixed interesting so okay let me let me ask let me ask you a question when you add up all your revenue over the past 12 months what percent came from pure sass versus the metered portion that's something that we don't publicly disclose but it's it's it's definitely we have we have a lot of sas it's a very healthy mix so it's it's it's it's similar to like if not more than like food comps out there publicly trading well i don't i don't know what those are i'm just trying to get a sense of are you more a metered business that's pay as you go or more a sas play because they're very different questions i'll ask based off what you're the majority are like it's more than 80 of the business sas would you say i'd i'd say less than 80 but definitely more than 50. so it's it's a hybrid of the two it's it's definitely sas is definitely a big component of it and you know of course as companies ramp up their usage then you start to see more metered the metered side yeah yeah that's that's fair enough now obviously your margins are gonna be better on the sas side correct yeah correct yeah sas sas is pretty pretty good margins from from what i've heard put this uh put all this michael on a timeline for me when'd you launch the company so company was started in 2017 it was started by myself my my best friend abram isla who's the other co-founder cto our our quick backgrounds are abram has been coding since he was four years old the two of us grew up together he was one of aaron schwartz's best friends aaron was one of the founders at reddit co-founders at reddit so abram and aaron helped build some of the very first open sourced python frameworks that actually ended up being used to build reddit and then right out of high school my my cto abram was hired onto leadpages to be their chief information security officer when he was 18. myself i went off to college played soccer i had a degree in econ minor in computer science and my my first actual job out of school was sitting next to a direct mail team i wasn't doing direct mail but i was sitting next to a team of 70 people doing this and just saw how archaic and really how the process was all dependent upon flat files and csv exports and everything was just like very very manual and actual like human intensive right meaning that if if if a bank like u.s bank wanted to turn around a direct mailer it would take them sometimes up to 12 to 16 weeks to actually get this out in the mail yep so you started this thing in 2017. now how much time and money did you spend coding before your first dollar of revenue do you remember we spent a good six months coding um you know tough to put a dollar value on it other than our time but we had a team of myself and three other guys that we were we were all just working on this whole time to get things going well did you have to pay did you have to pay those other three people anything uh to work for all equity we had a lot of those guys just on on hybrid types of just equity agreements so it was a pretty pretty i guess different a traditional setup process from the beginning no no it's not i mean it's not different i mean founders have to get creative in the early days to figure out how to get stuff done for free right so you use equity you use other incentives you do consulting work on the side whatever you have to do exactly yeah so we did a little bit of consulting work on the side you know paid people a little bit differently than out of the gate and then yeah we really really launched our product in you know i'd say early jan february of 2018 so we've we've really only been around for you know even a little less than two years and how many people are on the team today we have a team of 15 plus um mostly most of them are based in minneapolis okay how many engineers we have i'd say over still over 70 of our businesses is engineering based so 10 plus okay very very engineering side do you have are you at a stage i imagine with your contract values you must have some folks that are carrying a quota are you the only sales rep right now no i'm not the only sales rep and we do have other sales reps carrying quotas so we have we have a few other sales guys how many total we oh man we have three right now and are you still figuring that out or do you think you've perfected it in other words you know what the quota target is you know what the ram time is you know what the kind of ot to you know quote a target is in terms of you know payback period all that jazz i don't think anybody's figured out their ote or their their sales formula so if we're even even big companies are constantly tweaking that and changing that so we we have a we have a really good idea of what kinds of customers we want to sell to we have a really good idea of what those cycles look like we have a really good idea of who the buying centers are now from a ote and just earnings side i mean let's let's face it some of these large enterprises let's say you go out and talk to the the exxon mobils or the walmarts or the the united healthcare groups of the world a lot of those companies take you know years to do things so that's where that's where it there's sort of it's more of an art to how you craft these these sales yeah yeah i mean just to be fair the companies once you're north of 20 30 million bucks in ar that this is a this is a system it is a well-oiled machine there's very little tweaking that happens so i mean so i guess what i'm asking you is you're you're at a valuable point where most of my listeners are probably very similar to you they've hired maybe their first one or two sales reps but they're still tweaking they're still figuring out i'm just trying to understand what different inputs you're using for that model to try and get a better guess of what that would look like at scale yeah so this is the two big two big inputs we have is one we have a baseline compensation and baseline comp is we actually pay very similar to like what uh what a sales rep would make in silicon valley or new york city so there's just that there's a base amount and then what we do is we have a we have a commission structure based on the sas component of our product so depending upon you know different functions too obviously a sales rep is incentive incentivized to sign a a two-year deal over a one-year deal or a five-year deal over a one-year deal or to include things like auto renews or other types of favorable provisions there's a there's a baseline cut that we provide just on getting the contract signed and then for each additional like added benefit that's pro ink it such as like an auto renew then that that that mechanism slides up what new annual revenue do you want to see kind of reps closing in their first 12 months is it like 300 000 worth of arr or a million or something else we'd like to see you know close to close to 400 at least in this first first you know couple couple months but we do know too that a lot of these take time right where we what do you mean first couple months so let's say i just joined you today i'm your fourth sales rep kind of higher you're going to say nathan our expectation is over the next 12 months you're going to close 400 000 a new annual business correct right now we have a lot of we have a lot of those types of clients just coming in inbound so it's it's pretty it's it it'd be pretty tough not to hit you know those types of types of quotas that we've laid out already well it's not about all the leads coming in i mean there's plenty of people have plenty of leads coming in but someone asked on the phone with them if they're paying you a hundred thousand dollars a year and actually get the deal done you know what i mean totally yeah totally okay interesting um okay so three folks uh with quota 10 engineers 15 people kind of full time now here's a question so you guys start at the desk you're sitting next to these people doing direct mail you're going this is a massive pain point did that customer become your first customer or how did you get your first couple customers i wish no they're we're actually talking to them right now so so our our first actually so so truth be told our first couple customers were when we first got going we we didn't know who we were selling to nathan we frankly were just trying to figure out the market so we spent the first three months literally walking around this college town area knocking on on restaurant doors you know wondering if a restaurant or a dry cleaner or a local business would actually buy our tool and what we very quickly learned was that a lot of these you know small mom-and-pop businesses just one didn't have the budget or two didn't even have the marketing automation tools to make this you know medium automated so we we started calling into companies that you know you and i have heard of like like takovas or who was do you remember the first logo let's tell that actual story who was the first customer yeah so our our first customer was a company called bite squad okay and how did you get them and we made just a ton a ton of emails like i i believe i emailed this lady probably 15 times over the course of a month was her title her title was she was head of demand gen is that still kind of who you're selling to how to demand gens it can it can vary a lot of times it's crm users or it can be it can even just be marketing buyers so she was a vp of demand jen and we must have just passed her to the point where she was like hey we have to we have to buy this okay so you you closer that's your first customer called 18 19 months ago and then what are you at today kind of a handful four or five customers yeah so we we now have 40 plus customers um actually well a lot more than that we're we're close to like that hundred customer range at the moment and they're paying customers and not no free yeah we don't we're really not we don't do free from a from a business side so we have you know 100 plus customers and customers come from a wide variety of industries we see we see a lot of people in insurance we see a lot of people in financial services healthcare and just consumer goods or e-commerce so there's a pretty good variety i mean ultimately for for our product in particular there's you know really two different use cases the first use case is you have a marketing use case so that the marketing use case really resonates with grocers e-commerce consumer goods types of brands and then we also have an operations use case which is sending out like actual forms or notices or bills or compliance materials and that's a huge sweet spot with financial service providers insurers health care companies so now michael in terms of scale right so 100 customers you told me earlier the average kind of contract value is you call in the six figures so 100 grand now i if obviously if i multiply 100 grand i'm 100 that puts you at more than a million dollars a month in revenue i don't think you're at that scale yet is your average customer paying you a little bit less than 100 grand a year we we have so i mean obviously we had a couple customers that were first um that you know well what's the that's why i asked the average acv right not your top customer your average your sweet spot yes our average is about that about that sweet spot yeah which is what we're we're right around that like 100k clip range okay but you understand i don't think that can be true right so if you're at the average i yeah i mean i understand if you if you go run the math i mean but that that's what we're seeing in the last six months so if we were to go back and average everybody out like sure it might be under that threshold maybe it's closer to because we did have a first couple clients no totally that's that's why i'm asking them michael i i don't want to know what you're landing customers today at which might be 100 grand that's great no no i'm curious to get the historical value so so was it more like a thousand dollars a month from your all your historical accounts i mean we're a lot more than that we're oh man i'd say if you were to if you were to balance them all i mean somewhere between let's just say 20 to 40 20 to 50. okay i mean i don't i don't have the numbers off the top of my head but that's just a guesstimate well let me let me ask you a different question i mean when do you think you break a right a million dollar run rate we're already yeah well past that okay so it's the next target five i mean what's the next big goal you want to play our big next milestone is we'd like to get to that that five area do you think you can do it next year or is that gonna be a stretch who knows i mean we think we can definitely do it next year we've got a couple big ones in the pipeline right now that are that are certainly able to to get us there quickly okay so it's unfair to ask this question because multiplying small numbers is easy so your growth rates go through the roof but if you're past a million dollars in run rate today where were you exactly a year ago so we get growth rate oh um you had only been like six months old yeah you know that's i have an idea that's just not something we disclose that's just that's for us that's like just private private information uh it's kind of like on a need to know basis for those types of types of numbers so well give me if you want to stay vague that's fine just i'm just trying to understand you're talking like a hundred percent over your growth or like a thousand percent year over year you give me a range we've we've done between 100 and a thousand i mean we're definitely we're definitely more than tripling okay great so yeah that's good okay good so so 300 percent kind of year over year growth uh your past million rate today and you feel like in the next you know call it four to eight quarters you can break a five million dollar run rate but based on your model of combined metered plus sas revenue sure that's that's fair bootstrapped we've taken in a little bit of taking outside funding so it's it's michael why take the dilution it sounds like you were basically making money from day one we we were taking making money from day one so we um we took the money just early on very very very nominal amounts and that's also just not disclosed for for obvious reasons but um there are no obvious reasons for that why would you be coy about that that just my listeners are gonna listen and go this guy's hiding something why would you be coy about that strategically there's no reason to be coy about it i think there's a lot of reasons to be coy about it strategically but i can look it up we can look into sec files and quickly look it up you you well not all the time no not necessarily a lot of things can come in as as uh secondaries or safes or all sorts of other things that don't just get disclosed so no say save sk convertible notes saves these these things these things do get disclosed once they convert sure sure but not at not time um and if that's you know so basically there's a there's a lot of we've taken in some money um not a ton but you know definitely like very very well-known investors who who have backed us so yeah i guess what i'm asking is it's more impressive to me someone that bootstraps right versus that's raised a ton so i'm trying to get a sense if you raise 10 million bucks your story is less interesting to me right so we have not raised 10 million can you can you just make can you just make this statement you've definitely raised less than x amount um yeah i mean definitely raised less than a million okay perfect so that's good that helps give context yeah any plans any plans any plans to raise in the next 12 months or you can get pretty far on that that money um i mean always open to the right offers is sort of the answer there so it were i mean it depends on how the market is right if we don't need to then we won't if we need to then we might are you burning massive amounts of capital right now do you need to go out and raise are you casual positive we're were neutral or pretty much neutral as far as things from how we're sitting at the moment so you're looking for your lips were about to say b as in burning and then you quickly went back to neutral after your brain kicked in are you burning are you neutral we are we are neutral we have we do not have uh massive amounts of burn going on every month nathan but what does massive mean that can be that's relative um massive to me would be i i know of one company where they were burning a hundred thousand dollars actually million dollars that was a hundred thousand dollars a day so um we're not doing that type of uh a rate okay but michael that comment makes as if that company is a billion dollar company okay well fair point but but i mean out of the gate as a seed stage company no so yeah um they're no longer in business either so got it so okay so basically the cash will break even uh if the right you know if you do go out and raise obviously you're open to the right deal comes along you're in a hotel room right now do you have investor meetings later today we do not no i do have a sweater on though because i have a lot of meetings with insurers and financial service providers i am i am not envious of you let's just put it that way uh last couple of questions before we wrap up um churn uh when you look at your past 12 months gross revenue churn what's it at no churn we have negative churns so no you've had no you've had no no by ask gross you can't have negative gross churn we've had we've had no we've been no churn so we're actually our customers are buying more from us than they were so you've had no of your 100 customers that were paying you call it a year ago none of them have either senseless mail so their metered kind of thing their revenue has gone down or have downgrade based off a feature based on the sas side no no downgrade revenue none okay and what's expansion look like are we talking 20 kind of customers expansion year over year very very high expansion so we're we're north of 50 on expansion side okay and that's not on like your best case scenario that's on the full cohort from a year ago let's see that yeah you've expanded them 50 that's good obviously dealing with a small amount of customers but 150 revenue retention is pretty good this early on so so nice work there we're we're expanding a lot on the expansion side yeah do you have a model around acquisition so so to get a new thirty thousand dollar your account will you spend 30 grand to get them we we're still working out our our cac from a cac side um but we we we're seeing like you know very very healthy cac types of cacti like ltv sorts of sorts of metrics of course because you could argue your ltv is infinite if you have zero percent sure and that would be a big mistake for you to make what we're saying is like when you look at at the contract acv to cac our acv to cac is is is healthy is what i mean from what we've heard typically like metrics are three to one is like good we're way more than three to one okay so if you're if your annual contract if your annual contract value is more than three x your cac right so what i'm hearing you say is if you're going to land a thirty thousand dollar account you're saying you're spending way less than ten thousand dollars to get that account currently correct yeah yeah okay good stuff let's wrap up again let's wrap up with the famous five number one favorite business book favorite business book really like phil knight's shoe dog book number two is there no actually how to be a capitalist without any capital that's my favorite i'm not going to go easy on you just because you use my book all right number two i'm looking at it is there is there a ceo you're following or studying is there what ceo you're following or studying i i follow actually a a guy named mitch cooper a lot from uh from a ceo so he used to be the former ceo at code 42 which is a backup company yep so number three what's your what's your favorite online tool for building the company favorite online tool for billing company asana hands down number four how many hours i sleep every night five oh it's brutal okay and what's your what's your what's your situation married single kids i i have a girlfriend yes okay not married any kid no kids no kids and how old are you i am 26. 26. last question what do you wish your 20 year old self knew oh man that's i think is this the sixth question or seventh question no six six six years ago what do you wish your 20 year old self knew uh oh man let's say it's a tough question hmm it's it's uh i'd say it's a lot harder to build a sas company than i probably thought it was when i was 20. so you know you see a lot of stuff going on when you're 20 you're like oh this must be really easy but um definitely i definitely think like with a lot of bootstrapped in an early stage sas businesses the first two years are are the most important two years just getting stuff up and running and we've gotten through those two years really well so it's exciting now for for year three year four et cetera so guys there you have it ink it helping a hundred paid customers connect their direct mail campaigns with their crm uh oh doing more than a million dollars in revenue today hoping to break five million in the next call a year or so has looked to scale they've done this all by raising less than a million dollars team of 15 people 10 engineers three reps no gross revenue turn right now and about 50 expansion so 150 net revenue retention again pretty healthy uh spending less than one third of their annual contract values to get the customers that's worst case scenario right now as they look to figure out how to scale that model michael thanks for taking us to the top cool thanks nathan appreciate it these ceos rarely give these kinds of interviews i hit them hard i get the data and i want to do it more so if you want to get more of this stuff make sure you subscribe up here and then additionally go check out one of my other ceo interviews right now