How Employ Inc CEO Pete Lamson grew Employ Inc to $192.1M revenue and 7K customers in 2024.

hello everyone my guest today is pete lamson he is focused on building a company called jazz hr he's also a results oriented executive with a 25-year history of strategic metrics driven approaches to accelerating revenue he's focused on the global small business market with deep experience and b2b high velocity new customer acquisition as ceo of jazz hr lamson is responsible for jazz hr's strategic direction company performance day-to-day operations and services support center for his revenue teams pete you ready to take us to the top it's great to be here again nathan and yes i am all right so jazz hr folks missed that first episode what are you selling to people so we provide recruiting solutions for small businesses which we define as companies with between 25 and 500 employees and what we do is we replace in our target market most customers are using some version of microsoft office which is excel docs and word documents and email inbox management so we provide we replace that with a very simple to use software solution that is very affordable easy to use and with uh industry leading support so is this sort of workflow and admin management for smbs or helping them hire or both helping them higher helping them higher okay so the obvious question anyone listening is well wait a second what's pete doing now no small businesses are hiring right now or at least most aren't because of the virus so i i think it depends on on where uh you're looking um in fact we have had the most jobs posted most new jobs posted with by jazz hr's customers in the history of our company with just the past month in july how what was that number how many posted just over 40 000. wow and okay well wait so this is completely different than what i would have predicted the data would say so what are you seeing when you dive into those 40 000 applications what are you seeing so it's in the areas you might you know when you hear them they're sort of intuitive so we're seeing a hiring explosion in things like logistical support you know all the companies and people that are involved in in those trucks coming down all of our driveways every single day with the things we need to work from home we're seeing a lot of work in healthcare we're seeing a lot of work a lot of hiring in technology um so the hiring is shifted away from from some industries tragically such as restaurants and and and uh retail stores and and fitness centers and so forth um but there are jobs being created elsewhere and by the data we're seeing uh literally at record levels and help me understand what a small business might pay you to use your platform where they pay on average per month yeah so our account average is a little under 200 dollars per month okay so very consistent doesn't it just just it's designed to be affordable and our pricing starts as little as just 39 a month so you can you can get the ball rolling in an even more affordable way but averages i guess a little under 200 per month and launch date for the company was what year 2009 and you came on what year uh tail end december of 2015. okay got it and we covered guys how pete came in in a last interview back from uh march uh march 28 2018 so we won't dive into that today but give us an update uh pete when you came on last you guys had just broken about 3 500 customers what do you have today just under 7 000. wow okay so incredible where did most that growth come from over the past two years um in terms of industry or by channel or answer it however you define it so um well i'll answer both ways so so we're industry agnostic we do have uh clusters uh of industries or verticals that are largely focused around where hiring has taken place over the last few years so we see a lot of work in manufacturing we saw we'll see a lot of work at a lot of hiring and technology health care financial services non-profit just to name a few um but no one vertical within our business is more than five percent of our business so it's a really nice even distribution which candidly in a time like this also gives us some downside protection that's right um and then in terms of of how we're acquiring them um when i joined jazz hr we sold only through direct means so in other words kind of the one-to-one relationship of jazz hr to a small business customer we launched indirect sales or channel sales um not long thereafter and that today is almost 50 of our new business and growing i would expect it would be more than 50 by end of this year or beginning of next and what that allows us to do is move beyond the one-to-one nature of our direct customer acquisition which is still important and we will remain 100 committed to um to the one-to-many nature of uh channel or indirect relationships so we partner with a number of different uh human capital management um and payroll companies uh who in turn offer jazz hr to their customer bases and whether you're acquiring via a channel or direct via paid spend or something else a bunch of writers doing great seo work when you look at your sort of your fully weighted blended cac what would you put it out to get a 200 a month customer so we are right now just under a 12 month kind of payback so we're a little just about two thousand dollars yeah are you happy with that um you know not unhappy i mean i think it always can be better and and that you know part of our move from direct to indirect is in fact to to impact that i mean there's no free lunch but for for indirect what typically happens if you do it well is your cap will go down but you're shifting that cac to to success driven revenue share so it's a more efficient use of use of a cost of capital um so your cap goes down your gross margins go down too because you're paying a rev share as does your arpu if you're thinking at it on a net basis but um but that's a driver of our continued improvement will continue to be a move towards indirect which not only as as you know drives drives cac um but also increases velocity of acquisition diving deeper on this indirect channel strategy that you launched about 18 months after you joined the companies about 2016 and now it's responsible for more than 50 percent of your business we just had such almost almost 50 percent almost 50 okay we just had sachin gupta on with hacker earth and he articulated how that company has now grown they're about to break five million dollars in arr they've passed uh he told us 500 customers super healthy economics in terms of retention you just launched a partnership with them how does that work um i'm sure that the the company again is hacker earth yeah um so heck i i can't comment on the uh well you know i'll tell you everything that that you might want to know about our business i'm not going to talk about anyone else's business that's kind of that that starts to get into territory that i i wouldn't share but but certainly you know we have some partners that that perform more than others um partnerships typically do take a little bit of time to get up to speed but we're dedicated to helping all of our all of our partners perform as best as they can got it uh yes sorry and maybe this is because chuck brownfield is the one quoted in this press release saying we're thrilled to integrate with hacker to empower teams to hire talented engineers faster what i'm trying to get at here is with this surreal like a real idea of a channel party or hack earth what does that actually look like so are they putting a button for jazz hr inside of hacker earth or vice versa what is that how does it actually work so it varies partner by partner um and we first we off we allow them to offer jazz hr to their customers either on a resale or a referral basis so um whichever they're more comfortable with so in all cases there'll be generally some form of recruiting promotion on their website and that their sales teams will will be offering to their customers um their customers either then are referred to us in which case then we would work with their customer um if their customer chooses to purchase then pay them a revenue share in perpetuity um for the first time as long as that as long as their customers are are paying us we are paying them we don't limit it after a 12-month period do you have any claws in that agreement sorry i don't want to put you off there but do you have any i mean one of the things i talk to vc's all the time about just margin improvement in businesses and and one quick way to get margin improvement in a business obviously if there's channel partners a big chunk of it is to have a clause and that channel partner agreement and all your channel partner agreements that say you have the right to buy out that rev share for for looking 12 months at any point in time that way if you go out and raise 30 million bucks you essentially buy back whatever your rep shares with that partner so 30 margin right for a forward looking 12 months do you have that clause built into your channel partner agreements or no no no and we wouldn't you know yes mathematically that will work and it'll look good in a spreadsheet and yes you will improve your gross margin short term it's also a great way to limit sales yeah yeah i mean you know because that after a period of time that partner can just switch to a competitor of ours um we use it as a as a retention strategy where they get to the point where they're getting a nice chunk of change from us every month and it builds up over time um if they leave us they're walking away from that and it takes time for them to rebuild that with someone else so it's it's um it's a uh uh it's a benefit we're delighted to offer and then the second way that we sell is of course resell um and if our partner partners who are reselling um which would include adp and others um what they effectively do is they're purchasing a jazz hr subscription at a discount from our retail price and then they then mark it up or not at however much they choose to do so and result to their customers so in that case there is you know the button or our pure ecommerce uh solution that resides on our partner pages now pete 7 000 customers at about 190 200 bucks a month i mean it sounds like you guys have broken about 1.3 1.4 million dollars per month now in terms of mrr yeah we're just under 7 000 but uh that's your numbers are correct okay which is great growth right when you came back on into early 2018 you're at about an eight and a half nine million dollar run rate so nice growth what is that about uh 9 80 90 growth uh have you done this with the capital you'd already raised at that point you had raised 26.6 million back then did you raise more capital we have not raised any additional capital oh wow that's great i was expecting you to raise a bunch more now we run the business at cash flow break even um we could be uh cash flow positive if we chose to but we plow everything we can back into the business to drive additional growth that's great what's the team like today should i say that again i said i just was saying that's that's great uh being at break even what's what's the team look like today how many people 80 employees 80 how many engineers that's a good question i'll say uh low 20s but i'm kind of guessing about 20 is fair enough and obviously this price point does not lend itself usually to an inside sales team because the acvs aren't high enough to give commission do you have quota carrying sales reps on the team we do you do okay so i'd love to learn about how many do you have and how does that work so we've got i'll say again i can't give you i mean i would give you exact numbers i just don't know the top of my head i'll say we've got probably uh 12 or 13 um inside sales reps um and they're broken across our direct and indirect teams so they're they're their day-to-day activities are a little bit different but our with our direct team it's entirely an inbound model so our marketing team is driving customers to jazz hr where they can do a number of things they can download a white paper they can participate in a webinar they can watch videos but ultimately what we really hope they will migrate towards is beginning a free trial or request a product demonstration and that's when our sales team really leans in and we have found that with the addition of a sales team the the lift and conversion rate uh uh more than um covers the investment we're making in in those sale steps um and on top of it our north star is customer lifetime value so so if we look at the expense of a sales team um of a quota carrying sales team to bring in a customer who's going to stay with us for 10 years ish on average it's it's more with that through that lens it's it's more than worth the investment we don't look at it purely as a as a you know the revenue we bring at the time of the initial sale because our retention metrics are such that people tend to stick with us for a long time so the math works yeah speaking about lifetime value obviously churn is critical to this it's part of that lifetime value equation last time you came on in 2018 you told me annual revenue turn was about 12 so actually fairly low i would say for this price point in this cohort is it still at around 12 percent or has it changed ash actually a little our our net retention now is um uh about point eight percent per month um so your gross your gross turn per month or your net churn our net churn net so net churn per month is let's just call it one percent for some one turn per month so you're under 12 yeah that's that's great can you peel back that on you know for me because you have expansion revenue added to churn and that's where you get the one so can you give me those two metrics uh so for on a gross basis uh our gross churn right now is still at about that 12 number okay um and our net is or one percent per month a little over one percent per month um and i mean we're in the 1.2s generally um and then our net is when we because of of uh expansion revenue which we which we define as both add-on sales and upgrades is where it drops down below one percent i see i see got it so you've got if i if i just multiply times 12 to do annual you've got about 12 gross revenue churn annually maybe a little above 12 you've got about five or six percent expansion so your net revenue retention is right around 97 98 yep not bad for this price point do you see a path to getting that above 100 net revenue retention with some maybe higher priced products you know net negative churn is of course the holy grail for sas companies um hard easy to say hard to do in the smb market as you suggested um so i you know i i hope so uh certainly that's what we keep marching towards as best we can um we continue to make progress towards it i don't know if we'll get there or not but but you know every tenth of a point of progress we make adds value to the company and to our customers um so i i hope we can get there but even if we don't it's it it is a uh an effort worth pursuing because even if we get halfway there from where we are now we're better off still better off yep all right pete let's wrap up with the famous five number one favorite business book um well my favorite hasn't changed it's i think it's still the hard thing about hard things number two is there a founder that you really respect or admire um i'll say uh dave maffey with a coumado uh mafia okay great number three what's your favorite n-a-f-f what e-i ei number three what's your favorite online tool for building jazz it's evolved right now size sense psi sense i haven't heard of those guys they used to be periscope oh got it number four how many hours of sleep do you get every night seven and a half okay not bad in situation married single kids married all right how many kiddos any kids three three what busy guy all right how old are you 57 57 last question what do you wish you knew when you were 20 um that's a great question uh i i'll say uh push yourself harder guys there you have it jazz h argan helping smbs get their hiring needs taken care of they serve almost 7 000 customers up from 3 500 just about 20-ish months ago so nice growth without raising additional cash their break-even today with 26.6 million raised approaching 15 16 million dollar run rate as you continue to drive growth even during cobit with one of their record months happening just last month 40 000 new applications coming through their system in just one month pete congrats on the growth and thanks for taking us to the top thank you one more thing before you go we have a brand new show every thursday at 1 pm central it's called shark tank for sas we call it deal or bust one founder comes on three hungry buyers they try and do a deal live and the founder shares back end dashboards their expenses their revenue arpu cac ltv you name it they share it and the buyers try and make a deal live it is fun to watch every thursday 1 pm central 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hello everyone my guest today is Pete lamps and he's got 25 years of experience in leadership roles with high growth companies spending majority of his career with technology solutions designed for the global small business community he's now with Jaz HR but prior to joining he was senior vice president of global sales at Carbonite where he was responsible for all revenue and the company's expansion into the SMB market would sure to exceed a hundred thousand paid small business customers he was a member of the Carbonite IPO leadership team Pete are you ready to take us to the top let's hope all right well let's have some fun so first off those that are not familiar with Jaz HR give us the quick overview what do you guys do it how do you make money sure we provide a very simple to use powerful and affordable recruiting tool for small businesses which we define as SMBs with between 50 and 500 employees that replaces the typical recruiting solutions of spreadsheets Word documents and inbound email management now last time we had you on the show which would have been back in I guess let's see September of 2017 you shared a bunch of data points with us you you know over three well back then you had over 3,000 paying customers they were paying you know some more on the order of 200 bucks per month so people come back into revenue rights I'm around 7.2 million dollar run right at that point your team size you were about 60 employees and 20 million in funding and your churn was impeccable for an SMB company at less than 1% in terms of gross logo churn monthly walk me through one any of those numbers drastically different today six seven months later and what do you focused on today so we're focused on the same thing we were then which at least I hope we are yeah quick update on our numbers we are we have north of 3500 paying customers 4,000 customers total now using the platform a number of our marketing partners and channel partners we can come back to that have access to our solution for free so about four thousand total businesses using Jaz HR we were able to successfully complete an additional funding round in October of 2017 so we raised 6.6 million at that point our and raids continued to be clear see you now have twenty six total twenty six six that's correct okay back on attention and our attention numbers continue to be strong I mean we are the ARPU numbers you you rattled off have stay the same and and while we value every single business we ultimately value them when they stay with us for a long time and so we work very hard to ensure that that happens this is a lifetime value game you know no business and we're part of it but I would think that's true you know you don't make money by selling somebody for one year you can sell anybody anything once but you don't have a business until they renew and so deriving that lifetime value is critical for SAS businesses and with something we pay a lot of attention here to and what do you assume today like cut you know if a new customer joins today you've got a pretty good indicator they're worth at least X amount to you over their life that's right so so our lifetime value right now is just under ten thousand dollars got it and that's even that's even probably conservative when you consider that your churn is under one percent monthly in terms of logo churn that means the average customer would stay with you for about a hundred months now that might be stretching it a little bit by extrapolating but a hundred 100 months at a tuner dollar ARPU is over twenty grand so your conserve their attend grand well our our our our lifetime value metrics continue to move up and to the right so at any point in time you know the numbers a little bit dated we continue to get better at that and on top of that we are focused on not only retaining those customers but expanding the value they participate in at jazz HR through add-on sales and and upsells and so forth so that helps with our LTV metrics as well now let me dive into the expansion real quick so a two hundred our month customer or after year one I mean what do you want average upgrade those folks to is it if you know up to three hundred bucks a month four hundred you double them where do you get them to so no we don't double them so we have a well first and foremost we don't really look at it that way we have to start with what's best for our customers and to jam them into things that they don't need that is a losing strategy and so number one is we want our customers to be on the right solution for their business so what of our products do they need to accomplish their goals and in some cases that means a downgrade right that means they're gonna move to a lower price product and that's okay because that's how they're gonna stick with us for the long haul we offer three plans we have sort of a good better best we start at 39 bucks a month amid plan is 200 our high-end is 309 per month we offer any of those products can be purchased sort of or the functionality in those products can be purchased ala carte for a certain amount per month and we have additional add-on sales as well through through job posts and so forth so so it really starts with what's best for the customer and our perspective is that if we do what's right by our customers they will stay with us and when they stay with us everybody wins most of all the customer but we do as well so that's the focus not just cranking revenue per customer absolutely G right now again in a natural environment where you're not cranking people I'm just talking about in a natural environment where usage is growing onboarding is effective they're getting a value and what do you typically see expansion grow to in the first year on average about 10 percent per year okay I mean that's pretty healthy so 200 bucks a month first year 220 next year you go upwards from there one of the remarkable things well well one of the red flags I would say when I interviewed you last time that I was trying to understand is you know having a 24 you articulate a $2,400 CAC in the SMB space and and typically are pues you know 200 I would say maybe as high end for the SMB space relative to some others that are like 20 30 bucks a month in different industries but how that money in terms of acquiring these SMB customers where are you spending that $2,400 CAC typically so well for a nice little leeway time yeah yeah let me challenge one of the statements with our within our target customer $200 a month it is actually not high in fact our ROI calculators suggest a really high return based on the amount of time they save and the efficiencies our product adds even at our higher end so if you're a 3 400 person business which is still a small business to spend two or three hundred dollars per month to greatly improve your recruiting solution is a solid investment in terms of where we're spending our dollars it is a combination of you know sales and marketing personnel as you might imagine secondly with high speed today what do you up to now our marketing team is about six people I think okay maybe five our sales team is about fifteen and total your what sixty still are up north seven yeah we're about sixty okay great and and so so our our spend is on a personnel of course secondly it is in media mostly digital to drive inbound demand generation and then third it is empowering our channel partners to drive market awareness for Jaz HR through them mmm-hmm so I want to break down the tooth the second ones that you said which are the channel partners and the paid media spend give me a sense on average per month what are you spending these days on paid stuff directly so off the top of my head I can't tell you exactly but I would say it would be a bout a hundred thousand dollars a month okay got it in our you know something directly are you finding Google is more effective than Facebook or some other paid channels more effective than both of those so we certainly you know measure this eight ways from Sunday are anytime especially with a small business you are tapping into existing demand versus creating demand it's going to be more effective because it's it's you're tapping into that mid funnel versus top of funnel so certainly SEM Google being being chief among them is a good return for us but we do we do a lot of for example webinar promotion a lot of ePaper our ebook promotion across a wide variety of channels to drive that top of funnel as well so but yeah certainly tapping into into into SEM is amongst our most effective channels and what do those channel relationships look like so if I sign up as when your channel partners and I bring you a bunch of customers how are you incentivizing me typically so we've got we have two types of channel partners first we have over 200 small I don't say small but call it regional or local providers who sell in to HR departments already so an example would be a local area benefits broker HR recruiters our recruiters HR consultants and and they sell they have typically have local customers they now can offer jazz HR to their customers and like I said we've got over 200 channel partners today they're selling jazz HR and are you paying like 50% back to them 30% of RP what is it it's a sliding scale depending on their own volumes and it ranges between 20 and 30 percent depending on how much business they are driving ok got it that makes sense and then at larger partners we have some if we have a lot of the smaller guys but then we have a smaller number of much larger partners that have thousands or in some cases tens of thousands of businesses who they're now offering Jaz HR to their customers as well on a similar revenue share or resale model got it that'll mean it sounds give you get you let them use it for free then they sell their partners you have about 500 those to its north of 200 north of 200 ok good ok and then just to round out some of the revenue data we talked about last time so you articulated in 2016 you did about 7.2 million today if you're up to 3500 customers at 200 bucks a pop I mean you're on a ar-are run right about 8.4 million do you I mean do you think you break the 10 million mark this year yes you will ok good what what did do you mind sharing what 2017 rounded out at we ended at just under 8 million okay that's pretty so that's up from 7.4 that's pretty healthy yeah yeah yep yep it's a 7.9 million and just be clear that's not December of 2017 to run right that's total revenue and I know that's just that December of 2017 run right ok perfect December 17 run right great how is how we tend to look at it yep that's good ok good and so you just to be clear you think by the end of this year 2018 you'll be doing north of 880 grand or 830 grand per month which puts you at that 10 million a or R run rate yes we're just south of million we're just south of 9 million right now that's ok that's that's incredible right so that means in under let's see under three months you've gone from 7.9 million run rate to what eight point nine you've added a million bucks and a are basically yeah this will be the best new business quarter we've ever had and now would you credit that because you've done a really good job and your team's done a good job at effectively leveraging the new capital of the company yes although I I would I don't think we're doing necessarily a better job than we were before you raise the capital we're just doing more of it coupled with our indirect strategy which we were just talking about a minute or so ago which is the channel partners and then our larger we call them alliance partners that's now we're driving 30% of new business up from 0 just over a year ago interesting I mean you look at companies like HubSpot that rely heavily on kind of the value-added reseller model you're tapping into that now as well walk me through where you're seeing I mean everything seems to be going great where are you seeing headwinds our biggest challenge is that if education is categorical education is helping SMBs understand that there is a better and highly affordable solution out there than the word document and spreadsheet hell they're stuck in now and whether you choose us or one of our competitors there are very good affordable solutions out there that can make life for that the HR manager and the hiring manager if they're not the same person a lot better and and our biggest challenge is whenever you're talking about education you're typically talking about time and and time is never anyone's friend right you want to move as fast as you can having said that we have to invest in educating the more educated the market which is why we do so many webinars which is why we do so many ebooks and so forth and and why we offer the trials we offer and we spend a lot of time with prospective customers to help them understand the value of our product so that's I think our single biggest our biggest challenge and and you know and then but work in our favor you know the economic trends have been favorable certainly unemployment being as low as it is has been a nice tail limb so you know we take the good with the bed what did last question before we wrap up I mean again the most remarkable thing I see about your company is how you've kept churn so low in a business model or sorry in a business that many people would would argue is seasonal which is recruiting I mean how do Pete how and why do people stick with you once they stop recruiting what we do is is first if you are a let's say you're a seventy person company hypothetically right any year that means your natural churn of employee you're not a natural turnover for most businesses about ten percent so if you're 70 people that means you're losing about seven employees per year if you're losing seven employees per year that's that's a little more than one every other month you're kind of always recruiting even if you're not growing so just through normal employee attrition you still need a recruiting solution if you're bigger than that you're looking for even more people so what we do is we offer an incentive for people to come to us on an annual contract versus going month-to-month although we do offer month-to-month as well so if you want to get a little more favorable pricing you commit to a one or a two or three year contract and you stick with us having said that you need to stick with us because if you're losing seven ploy is a month or between the people you're losing and the new employees you're hiring your look are the sub people year or between the people you're losing and the new hires you're making maybe you're recruiting ten twelve or fifty a month you always need a recruiting solution in place and that's where we what percent pide your new sales coming in today our annual contracts are higher eighty percent eighty percent or at least how many are two years of non percentage we know I'm sorry eighty percent are total like one two or three years of those that are on a contract annual or more about 92 percent or one year okay got it I was right to say that but I very rarely do I meet folks that have got such a sales engineer but look at those two in three years but even at 80 80 percent doing a year mean that's that's fantastic alright let's wrap up Pete with the famous five quick answers here number one what is the last business book that you read ah last business book I read was the Anglin he's got it he's bringing it up yeah the science of growth by Shawn Emirati is it good very good okay good number two is their CEO you're falling are studying right now Steve pokrovsky and what Castillo of which company people fluent people fluent very good number three is there a tool that you use a bunch to grow your business right now we're using grow a lot grow Rob Rob over there and those guys are killing it and you guys are there in the database I'd get Latka calm if you want to look up that data number of for peat how many hours of sleep are you in every night so that's good and what's your situation married single yet kudos married three kids good still still married still three kids those are both good signs business is second to those and Howard are you Pete I am 54 last question what did was your 20 year old self knew it's gonna be okay keep pushing it's gonna be okay there you guys have it he came on about oh eight nine months ago with Jazze HR at that point they were doing about seven ish seven point four million and in terms of an annual run rate they have since raised an additional six in capital bringing the total capital infused of the company over its life since 2009 to about twenty six million bucks they've effectively used that capital do more of what they're already doing adding over a million bucks a new ARR in about four or five months which is really just incredible they're an up to 3,500 paying customers a couple hundred resellers now on top of that as well again going a healthy clip year over year healthy economics less than 1% logo churn gross logo churn per month lifetime value breakin 10,000 as they look to help companies again recruit more efficiently more effectively and make those folks last longer P thank you so much for taking us to the top thank you