How Inspectionxpert CEO Jeff Cope grew to $3.1M revenue and 2K customers in 2018.

hello everyone my guest today is jeff cope he's the founder and ceo of inspection expert and has a passion for helping precision manufacturers transform inefficient paper procedures into efficient standardized fully traceable and secure digital processes jeff are you ready to take us to the top i am all right so inspection expert break this down for us for those of us not familiar with precision manufacturing what do you do and how do you make money so uh yeah so what inspection expert does is it helps uh you know companies who make very precise parts so think uh aircraft engines um cars um things that are really precise so as a shoe manufacturer if the shoe's off by a couple millimeters nobody's gonna die if a jet engine is off by a thousandth of an inch uh you know the the jet engine can explode so people who make companies who make really precision uh parts typically out of metal sometimes plastic uh have to do quality inspections on that our software uh enables that and uh enables them to do it very efficiently so is your revenue model a pure play sas company uh it is oh very good yeah okay so give me a general sense i'm sure you work with a lot of different customers but on average what's company pay per year for your software um so uh so if i understood the question you want to know uh what type of companies we work with not what type jeff but because i'm sure you have a bunch of different cohorts of customers my question is on average what's a company pay you per year to access this kind of software got it okay so we have two type we basically have two software so uh inspection expert basically takes a cad model or cad drawing intolerances on the model with uniquely numbered balloons and extracts all the dimensions the expected values so that it basically makes a checklist for the quality inspector so they can do qaqc on the on the actual part and make sure the as built part uh aligns with the as design part as designed by the engineer so our software that builds that checklist starts at fifteen hundred dollars per user per year for 2d pdf um if they want to move up to a 3d model with an import their cmm results from the coordinate measuring machines which is a fancy machine that measures precisely then it's 4 500 per year us um for quality expert which is a full uh you know it's kind of a hybrid between a quality management system and a manufacturing execution system which runs on the shop floor instead of just running on the quality inspectors computer it runs at the machinist workstation so they can actually inspect all the parts as they come off the machine manages the gauges kind of does quality for a whole the entire job shop that runs anywhere between 7 500 per year for a small job shop of less than 20 people to 90 000 a year for uh you know a job shop of over 100 people and jeff just because you have two separate products and probably lots of different customers on each of them the potential combinations of you know acvs are literally in the thousands so to simplify things for the rest of the show i mean you're you're kind of perfect fit customer your average are they paying what maybe 10 grand a year for three or four 3d seats something like that yeah something in that range okay now have you built out an inside sales team around closing those kinds of deals or how are you driving sales yeah so all of our sales are inside web sales most of them are to be honest responding to requests for information from you know inbound marketing um i would say something like 85 of our business comes from inbound um and we're just now starting to get into uh you know sdr type outbound uh appointment setting uh we're having some very early success with it we tried it earlier uh maybe three four years ago we tried it that the technology wasn't that advanced like the with the voicemail drop and the you know the the calling and all that uh we used uh a popular crm software at the time and the uh uh the softwares that worked with that crm were crap they were expensive so jeff put all this on a timeline for me when did you launch the company what year two so uh 2004 is when i started officially started the company but 2008 is when we actually started selling products okay so how did you support yourself for those four years while i assume you were building the software yeah so i i 2008 is when i quit my day job so i basically uh from eight o'clock at night when which is when my small children at the time went to bed uh until about two a.m which is when i would fall asleep from exhaustion um i i i coded the software at night so i'm not a software developer i'm a mechanical engineer um oh my battery has uh stopped uh charging let me get my cord going again yeah take your time yeah so so basically um you know i i taught myself how to code so that i could uh write the software and it took me four years to write the software initially and learn how to code at the same time okay and the way you're supporting yourself is you still have the day job the day job but in 2008 i quit my day job uh naively thinking that you know our revenue when i quit was a little over seventy thousand dollars for the year um and that's what i was making as a you know as an application engineer i mean that all that seventy thousand dollars would go to me but i needed people almost immediately um so for the first uh three years i think i made between sixteen thousand the first year and 24 000 uh the fourth year is what you know my salary went from 70 000 a year down to 16 000 and i was a sole breadwinner it was very painful that's crazy now what are you in terms of scale today so uh we're 3.1 million revenue uh annual recurring uh revenue run rate right now um but uh it looks like we're gonna we're expecting to do five five million next year jeff you're cutting out there 3.1 million today 5 million next year was that right that's right and where were you at about a year ago so if you're doing 3.1 million today that means you're doing about 258 grand per month right now what were you doing again in november 2017 uh we we did 2.5 we were at 2.5 just over like 2.5 and change okay that's great so call then you would have been doing maybe 180k a month about a year ago yeah so yeah for the first seven years we were seeing uh 50 to 75 percent growth year over year in 2014 we made the switch from a perpetual license software model to uh and you know to the full sas play and uh annual recurring revenue and we we hit a trough it you know we we uh it took about three years for us to figure out the annual recurring model part of it is our resellers and our customer base weren't in manufacturing it wasn't um people weren't ready for that we maybe made the jump a little early um it took us a while to get the infrastructure the right people we had to change some of our staff um but uh but now we've hit our stride that's great and did you do all this are bootstrapped or have you raised capital 100 bootstrap i love that okay and how many people are on the team uh we've got uh 20 people right now all based where uh apex north carolina north carolina very good all right so 20 people in north carolina and break down that 20 for me how many of them are engineers or sales and marketing so yeah and we do use a couple of out we do use some outside contractors so we've got uh basically on our product team we've got six people um uh on our you know sales and marketing team uh we've got four people and um and you know the rest is a mix that's great so when you look at you know you know if you have 250 you know thousand bucks per month right now on revenue or about 3.1 million bucks per year and you have um well how many so how many customers are you serving today oh and we have six contractors in addition to those 20 people okay so 26. how many customers today uh we've got over 2 000 customers okay so so 2 000 customers divided into your current run rate that would mean each customer is paying what on average something like 130 bucks a month something like that something like that yeah but we have we have a couple of large customers of course yeah and a long tail yeah okay well so what the reason i bring that up is because i'm curious how aggressive you're being in terms of customer growth so what's your customer acquisition cost today fully weighted yeah so um i would i would have to defer to uh i i don't i'm not sure so my co would know that do you do you know generally speaking when you have strategy means how aggressive you're willing to be in other words if you have to spend 10 grand to get a 10 000 per year customer would you spend that uh we would um but we're not we're not being that aggressive right now so we're not we we just uh uh maybe three months ago started doing the uh adwords and the the pay you know the the pay-per-click type stuff um so we're just getting that going again up until a year ago we didn't even have a marketing person um so yeah yeah the sales people though right fielding on the inbound yeah we had sales people that that's where most of our cat came from of course now we now that we have the full-time marketing person she just implemented hubspot maybe six months ago uh building the collateral she's fully fully instrumented our our funnel and um and we're just getting now to the to the uh paid uh you know to you know the paid cap even even when you ignore direct paid spend you still have cac because of your you have sales people on the marketing person so i mean do you generally know how effective they've been in landing new customers yeah so we we've got um it's gone up tremendously but our long you know over the from 2008 to say last year for the first nine years um we got about a 20 percent close rate uh you know once people once from for the mql uh to you know to to close yeah that's great very good and then churns critical in a sas company what's your turn today and how do you make sure to keep that low so our our turn this time last year uh was around 90 percent i i'm not a return sorry our renewal rate was 90 percent 10 um that's that's gone down uh now we're under eight percent on our turn okay so that's under eight percent uh revenue return per year yes that's really healthy and what what enabled you to drive that down by a couple points well we hired uh we hired a full-time customer success person uh we implemented um uh software called walkme for uh you know onboarding new customers and uh you know implemented uh you know uh customer surveys and we we doubled down on customer success so every time um part a lot of the churn was people who had never implemented for whatever reason the person who was intending to use the software got distracted or left the company or they just never got around to getting up and running so now when we close a deal within two weeks of closing the deal our customer success person has done a training session and has walked them through uh on board that's great we're running out of time here so last few questions um do you know what your expansion revenue is in other words if you sign a customer up today for 10 grand per year and a year will they renew for 12 grand 15 grand how much do you expand them by right this has just changed dramatically so we just uh we went from a complicated pricing model to a good better best uh pricing model and uh we've upgraded uh you know somewhere close to 40 percent to that middle um you know the mid-tier the 2500 model so um i don't know what the exact numbers are i can find out that's okay do you know what your net revenue retention number is uh i can find it out but i don't know that's okay and the reason i'm asking so if you have eight percent revenue insurance per year i'm curious if your expansion upsells from that same cohort more than yeah right yeah there i mean there is there is some offset there but what i can tell you is just the number of customers turning has gone down dramatically uh since in in terms not just revenue in terms of number of customers since we implemented our i'd argue the revenue churn is actually way more important than logo churn because it's a function you know but it sounds like you're moving both in the right direction which is great jeff let's wrap up here with the famous five number one what's your favorite business book uh i would say blue ocean strategy um number two is there a ceo you're following or studying yeah i i really like um it's a tough one there's a lot of them but i i would say uh tony say from zappos number four three what's your favorite online tool for building the company favorite online tool for building the company um [Music] what's it what tool do you use the most so i use i'm a product guy so i use balsamic i do a lot of mock-ups i i do too i love balsamic number four how many hours of sleep do you get every night between four and five that is how do you manage that that's someone it seems so unhealthy it is yeah well it's gotten better um it's it's it's probably it's starting over the last i'd say so i i actually sold the company uh two months ago and um and it's uh now i'm getting about six who do you sell to idea jen why'd you sell um yeah so basically uh i've done this for 14 years now and i've kind of you know started feeling like i was covering the same ground and doing the same thing and looking to to maybe uh you know have some money to throw at the next problem that's great um do you i mean can you give me a general range i'm curious what the market's like today i mean are you talking selling for like three or four x or was it more like 10 or 11 x we did uh we did 3x okay um yeah and that was mainly because of that uh uh 20 to 14 14 to 2017 the the rough patch um if if i had waited a year we could have sold for more yeah i know that makes good sense all right uh last questions here what's your current situation married single kiddos married with three kids three and how are you i am 46 46 last question jeff what do you wish your 20 year old self knew um that basically when you're 20 years old you're unencumbered you can eat ramen noodles you can you know you have such freedom that's the best time to start a business and it doesn't matter what you don't know um you just get busy this is the best time in the history of the world to be an entrepreneur guys take more risks earlier on inspection expert founded back in 2004 helping precision manufacturers make sure their 2d and 3d balloons and extrapolations match the actual physical products once once they're printed currently serving 2 000 customers at about 130 bucks per month so doing about 3.1 million bucks in ar today that's up from about call at 180 grand per month just a year ago it's a healthy growth bootstrap the company sold it uh about two months ago for 3x or about 3x ar so call it somewhere in the 9 million-ish range turns on the right direction 8 revenue turn per year today team of 20 based in north carolina jeff thanks for taking us to the top thanks nathan