How Kahuna Reached Close to 100 Customers and Over 100% Revenue Growth Serving Consumer Marketplaces (Interview with CEO Sameer Patel)

Introduction and Guest Background

Nathan Latka

00:01Hello, everyone. My guest today is Sameer Patel. He joined a company called Kahuna in August 2016 as its CEO. Before Kahuna, Sameer was GM at SAP and SuccessFactors where he led the team responsible for making SAP a leading provider of collaboration solutions serving over 35,000,000 subscribers. Sameer received a bachelor's and master's degrees from Babson College and Boston University. Sameer, are you ready to take us to the top?

Sameer Patel

00:26Let's do it, man.

What Kahuna Does and Its Business Model

Nathan Latka

00:27Right. So what is Kahuna and what is the business model? Is it SaaS?

Sameer Patel

00:31It's a SaaS company, focused on customer engagement for consumer marketplaces. So everybody from, if you're a classified, you're ride sharing like an Uber or an Airbnb or a DoorDash or Yelp or an OpenTable. When you bring buyers and sellers together, Kahuna helps you find the right buyers, spin them up, get them onboarded, get them on platform. Same for the sellers, gives you the analytics to figure out who's your most profitable buyer, where should we be doubling

00:59down, where should you fix your stuff, and helps you grow your marketplace.

How Kahuna Works with Both Buyers and Sellers

Nathan Latka

01:02So give us an example for Uber. Let's say they onboard a thousand new drivers in New York City next month, that obviously then they're selling their services. I'm the buyer as the consumer that wants an Uber trip in New York. How do you work with both sides?

Sameer Patel

01:17So if you're on a, you know, so I'll use Curb. Curb is a customer of ours. They do right tech sales in New York. They use Kahuna. Idea here is you spend a ton of money on both sides, which a typical business doesn't have if you're not a marketplace, right? In the marketplace, you've got to spend money to power up sellers and power up buyers. You spend all this money bringing them to your site, getting them

01:38engaged. Kahuna picks up the ball right from that point when they land on one of your properties and guides them through step one, step two, and whatever that step is by your definition to say loyal buyer, loyal seller, right? So we'll them, we'll nudge them through the registration process. We'll make sure that if your definition is, if passenger doesn't take 3, 4, 5 rides, they're not a loyal customer. Kahuna will stay on them till we get you to

02:08that place, right? If someone's dormant, they came, they signed up, they use it once. They haven't come back for thirty days. We'll wake those people up. So if you're a marketplace right now, it is supremely expensive for you to go and get people to pay attention to what you're doing and to come to your site. But once that happens, you need somebody to really get your customer acquisition costs covered. You need to drive them through a

02:31very, very systematic process to get them to a point where every time they think of taking a ride, they'll use Curb. Every time they think of booking a restaurant, they'll use your service if you're a consumer service. So we want delivery, they'll use you and not somebody else. So we wake up every day trying to solve that on both sides. Cause if you don't have both sides working, you can spin up buyers and sellers. But if

02:54you got, if I got a lot of buyers in Austin, a lot of drivers in California, it doesn't make it, doesn't help. So we can help you with those kinds of problems.

Pricing Model and Customer Range

Nathan Latka

03:00That makes good sense. Sameer, walk me. I don't want go to every customer cohort. I'm sure you have a bunch segmented, but generally speaking, what does a customer pay you per month for this kind of service?

Sameer Patel

03:09It ranges, right? It's an activity in a volume base, right? We've got customers who pay us $3,000 a month. We've got customers who pay us $30,000

Nathan Latka

03:18Okay. Well, I mean, what do you think is more of a fair average? You know, $4,000 or $5,000 a month or $20,000 to $30,000 a month?

Sameer Patel

03:23I mean, it's really hard, right? Like it's, I don't think there is one. I think it's just basically depending on the size and the volume of your business. If you're in a small country somewhere in the world and you've got a curtailed user base that can never grow over 5,000,000 or 10,000,000, it's going to be on the smaller end. If you're selling across world domination and you got 12 countries, you spending $20,000 to $30,000 for CRM at that

03:44point in time is a drop in the bucket.

Why Sameer Joined Kahuna as CEO

Nathan Latka

03:46Yep, all right. 2016 is when you joined as CEO, why did you join? Did they pursue you or you pursued them?

Sameer Patel

03:52No, they found me and I got intrigued pretty quickly. So I will not, they definitely came to me first, but it didn't take long for me to fall in love with just a core of what this company has built.

Nathan Latka

04:05Why'd they come to you though? Mean, were they raising a VC round and they said you gotta bring in a CEO, go find one?

Sameer Patel

04:10No, I think at the point where Kahuna was four years into its life, it was, there'd been tremendous technology build as far as the company was concerned. The question now was how do we find someone who can help them figure out a market that we go after that we can actually own, dominate, own the thought leadership around, own the technology space around, know exactly how we build stuff. It's kind of what I love to do. And

04:33so, when I walked in and I started going through the interview process, I quickly realized that I did have a bit of an unfair advantage. The work that was done before I came up on the technology side was actually unique, was different. The pedigree of Kahuna, our co founder on the technology side was the co founder of SugarCRM.

Nathan Latka

04:52Sameer, sorry, real quick. How many co founders were there? Just one or two?

Sameer Patel

04:56Two.

Nathan Latka

04:56Two, okay.

04:57Are they both still with the company active?

Sameer Patel

04:59The technology one is. They both are active, yes. The technology founder is head of data science in the building. And Adam Marchick, who is the other co founder, he's on the board.

05:09He's

Nathan Latka

05:09Okay,

Sameer Patel

05:09on the

Nathan Latka

05:09as very good.

Team Size and Office Locations

Nathan Latka

05:10And give me a general sense of size today. How many folks are on the team total?

Sameer Patel

05:15We got about a little shy of 40 The team is based in Redwood City. We have just opened offices in Asia on the sales and customer success side. But we're pretty concentrated at the team. All engineering right here in Redwood City in the building.

Customer Count and International Growth

Nathan Latka

05:3240 folks and over the years, 2012 to 2016, they grew, then you've driven more growth between 2016 and today. What are you at now in terms of total customers using the platform?

Sameer Patel

05:42We have close to a 100 customers using the platform. Our growth mainly so far has been international. Every country on the planet right now is racing to build out their Zillow, their Airbnb, their Uber, their DoorDash. So we're just the growth we're seeing outside The US right now is phenomenal. We're starting to see growth in The US as well now. The growth in The US is much more verticalized marketplaces. So we're not a jobs marketplace, but

06:11we do jobs just for the gig economy, for example. Or people who are saying, Hey, we're gonna try to do like a marketplace for doctors, for example. So there's a lot of verticalized ones in The US, but there are massive land grabs happening in every other part of the world. And Kahuna has got leading customers in Asia, leading customers in Latin America. And so we're just systematically building out a pretty wide book.

Revenue Growth Rate

Nathan Latka

06:35So over the past twelve months, what did you guys grow at? 30%, 100%, 40%, where you at?

Sameer Patel

06:41Private company, but way over a 100. So we're growing really, really fast. I think as we're investing heavy on the sales and marketing side, we're actually starting to see really good on the ground traction on the go to market side consistently across all the drill.

Funding Raised and Investors

Nathan Latka

06:57Are you just using revenue to drive this growth or have you guys raised capital to fuel additional growth?

Sameer Patel

07:02We've raised capital. Kahuna is backed by SoftTech, Sequoia Capital and Tenaya Capital. And we've raised close to 50,000,000.

Nathan Latka

07:11Five zero or one five?

Sameer Patel

07:13Five zero.

Nathan Latka

07:14Five zero. And did you say Timiya on the end, the venture debt shop?

Sameer Patel

07:18I'm sorry, say that again.

Nathan Latka

07:19Did you say Timiya on the end as one of the investors, the venture debt shop?

Sameer Patel

07:22No, Tenaya. Tenaya. Tenaya Capital.

Nathan Latka

07:25That 50 was all equity?

Sameer Patel

07:27That's all equity.

Churn and Net Revenue Retention

Nathan Latka

07:28All equity. Okay, very good. Good. And then, let's kind of understand, want to understand more about kind of how you've driven this growth. So economics in a SaaS company are obviously very, very critical. What is your churn today and how do you manage that?

Sameer Patel

07:41I mean, I think, it's no different from any SaaS company on the churn side. I mean, I think in our case, it's a function of having to do a lot more due diligence on the viability of the customers we're going after. Remember, we are going after a slew of marketplaces. Some of them are early stage, some of them are mid stage, late stage. And just like, many of them are venture backed companies as well, at least

08:03at the lower end, right? So the same venture economics that apply to any other company apply to them as well.

08:10We've been fortunate to align ourselves with companies that are right at that point where growth matters.

08:18We have to figure out exactly when we get into those companies well to manage that. Because the last thing we need is our entire customer base following the usual SaaS economics of one in 10 will survive, right? We don't need to be, that's something we don't wanna be chasing.

Nathan Latka

08:32I I'm think asking this question though specifically because I wanna understand what expansion revenue looks like. Have you built a model that has allowed you to more than make up for lost revenue with expansion so your net revenue retention annually is above 100%?

Sameer Patel

08:44Yeah. So our net churn easily becomes over 100% just because

Nathan Latka

08:50You mean your net retention, not net churn?

Sameer Patel

08:53Right. So, yeah. If you're, I mean, whichever way you wanna go with that. But yes, so the idea being that our internal growth within each customer in this business is something that is, because we grow and we charge based on their usage, right? As they grow, we grow. And it's not a per seat kind of, it's a per... It's events and it's the volume at which they use the product that drives it. So as their businesses

09:17go, many of them enter new markets, they take us along with it, right? Much like a lot of marketing automation platforms have done in the old school world of e commerce. So we follow some of those same dynamics.

Nathan Latka

09:27Well, can you name some of those actually quantify those pricing axes? So Brian Halligan, when he came up HubSpot said, Hey, we have number of seats. We have number of contacts. We have a product upsells as well. Actually try and quantify, when you say volume, what do you mean?

Sameer Patel

09:40Volume is, look, if you're a fast growing business, you're trying to engage more buyers, more sellers more often, right? Kahuna is that platform that lets you engage more buyers, more sellers, as much as you need. As you're growing more, you're gonna need to engage with them more. There's more buyers, more sellers. Kahuna charges you based on the usage of the platform. So as your business is growing, we'll come to you and say, look, this is a

10:04kind of the estimate based on what you bought, right? It looks like you're used to just trending in different direction. There's obviously a facility for you to pay for overages, but at some point it's better for you to just consider what your new ARR should be. So you're not paying at an overage rate. It's just sort of a flat budgetable forecastable thing and customers like that. So we'll try not to go to them six months later

10:26and say, here's a bill, right? We try not.

Customer Acquisition Payback Target

Nathan Latka

10:28And how aggressive are you being in terms of acquiring customers? Are you happy with like a twelve month payback or twenty month or six month? Where are you trying to target payback period at?

Sameer Patel

10:36Definitely less than a year. Definitely less than a year. I think we've gotten our lead gen machines down to a place that we're feeling really, really good about in terms of understanding what are the troughs of customers that fit within different average ARR values and what is the cost basis to go acquire some of those customers. I think the other thing that is pretty germane and one of the reasons why this is also part of sort

11:02of the decision of figuring out which markets to go after. As you can imagine, there's this land grab I mentioned earlier around marketplaces. The good news is that these are all customers who have to make decisions fast. So whether you're spending $20,000 ARR or $250,000 ARR, it doesn't follow the usual SaaS economics of well, a $300,000 deal should take nine months to close. Not true. Nobody has nine months in this market. If you're trying to like

11:26keep Uber out of your country or Airbnb out of your country, you don't have nine months to make any decision. So the good news is that the decision cycles move really, really fast compared to, I've done this for HR, I've done this for Europe. I saw all sorts of categories. I feel like where these markets move much faster because nobody has time to sit around.

Nathan Latka

11:46And let's assume kind of a minimum scenario inside of your company. So a minimum someone being onboard is paying you $3,000 a month. Let's say you spend the full twelve months, so you spend $36,000 to get them. Where are you typically spending that? Is it heavy on your salespeople or direct spend or travel or what?

Sameer Patel

12:06No, it's none. I mean, we've done a really good job of being able to sell remotely into accounts that don't require us to do a lot of travel and where we feel like the account sizes are big, we have feet on the street. Honestly, I think it's a question of us cleverly balancing our hosting and infrastructure costs. Because remember, a lot of what Kahuna does is real time. Like within four seconds of you

12:31leaving a bread crumb somewhere in a mobile app of a customer, Kahuna updates your profile within four seconds or less. That kind of compute power can, is something that we've helped customers figure out where do you need that level of real time and near real time, right? And we help them sort of craft out their costs. So, for us, it's just a question of being very clever about having the architecture built in a way where we

12:53charge for things that matter. And we don't pass on excessive costs. Shouldn't be charging a customer for a Ferrari, every time they need to go to the grocery store. Yeah. Right?

Nathan Latka

13:03Are those costs driving your margins down below kind of the average 85% for a SaaS company?

Sameer Patel

13:08No, it could, but we've managed the architecture in a way where we have a straight line to help them manage that. But yes, if we gave the Ferrari to everybody, then you're passing on cost to a customer that they're like, well, okay, give it to me for the use cases I need.

Inside Round in Q4 2017 and Cash Flow

Nathan Latka

13:22Yeah. Then when looking at kind of future growth and where you see this space going, talk me through last funding round. How recently was that?

Sameer Patel

13:30We did an inside round in Q4. Not really talked about the numbers. We did an inside round. All the investors came back to do a round for us in Q4.

Nathan Latka

13:302017.

Sameer Patel

13:302017, yeah.

Nathan Latka

13:42So are you looking at raising again this year or you're still investing from that raise?

Sameer Patel

13:46Yeah, we're fine. We're fine. We're totally fine this year. We're just heads down right now. I mean, as you know, that's a very time consuming process and we started to get it out of the way last year so we can just focus on growth right now.

Nathan Latka

13:46So I

13:58assume you're burning cash obviously putting that investment to work.

14:00You're not cash flow positive yet?

Sameer Patel

14:02No, no. We're growing big.

Revenue Question Declined, Growth Range and Market Headroom

Nathan Latka

14:05Yeah, very good. And then look, can kind of back into minimums here. I have a hunch that you're way bigger than this. But you said earlier you've got, you know, about a 100 customers and you also said earlier minimum monthly price about $3,000. That puts it about $300,000 per month or over 3,000,000 a year. You know, the high side of that would be 36,000,000 if they're paying $30,000 a month on your high side. Is it fair

14:22to say you're somewhere between 3,000,000 and 36,000,000 ARR? What's the next big revenue target for you guys?

Sameer Patel

14:30It's too much to give away, right? Like I think we're growing in a 100 to 200% growth range and that's something that I just wanna keep consistent through the life of the business.

Nathan Latka

14:38Can break 50,000,000 before 2020?

Sameer Patel

14:43Yeah, we could. I think we could. I think there's a lot of, there's if you look at it more as a function of the available TAM out there, I think custom market size is gonna be our limitation in any way, right? So it becomes inbound factors that we can control, right? I'd rather, this is why we moved to market that we feel like there's a lot of headroom above us, right? And it's just a question of

15:05how fast can we scale and we ought to keep customers happy through this. Like there's no reason to just then have to start to pull back and do all those nasty things. So those kinds of limitations that we have.

Famous Five Rapid Fire Questions

Nathan Latka

15:14Very good, Sameer. Let's wrap up with the famous five. Number one, what's your favorite business book?

Sameer Patel

15:20What They Don't Teach You at Harvard Business School by Mark McCormick.

Nathan Latka

15:24Number two, is there a CEO you're following or studying right now?

Sameer Patel

15:29I have a lot of respect for Mark Benioff.

Nathan Latka

15:34Number three, how many, sorry, what's your favorite online tool for building your business?

Sameer Patel

15:39Oh,

15:43I think my new latest favorite is a tool that we use called Drift.

Nathan Latka

15:47Yep. Drift, David Cancel, good guy.

15:48Number four, how many hours of sleep do get every night?

Sameer Patel

15:52Seven.

Nathan Latka

15:53And which situation Sameer, married, single kiddos?

Sameer Patel

15:58Kiddos, married, living in Palo Alto, living the life loving them.

Nathan Latka

16:03How many kids are they? Mean, are they young? Are they keeping you up at night?

Sameer Patel

16:06Yeah, they're 12 and six.

Nathan Latka

16:06Oh. So they're 12 and six.

Sameer Patel

16:06We're big sports family, competitive squash players. I was one, my son is, that's family business.

Nathan Latka

16:16That's fun. And how old are you, Sameer?

Sameer Patel

16:18I am 44.

Nathan Latka

16:2044, last question. What do you wish your 20 year old self knew?

Sameer Patel

16:25Good question. My 20 year old self, I think it was,

16:32I think.

Nathan Latka

16:37What do you tell your little ones as they think about competition and business?

Sameer Patel

16:42I think that is a good question. I think I had it all under my nose and I wasn't looking at it. I think the lessons that you can take from athletics and winning in athletics and sports and how transferable they are to the business world, I think I'm spending more time with my son making analogies of the things he's learning right now, how it's gonna help him and things outside of squash.

Nathan Latka

17:01Guys, there you have it. If you're a parent right now, trying to raise entrepreneurs, think about getting them in some kind of competitive sport, teach him... Teach him... Teaches him ambition. Lots of things you can tie back together. But anyway, Sameer, again, had a lot of success at SAP SuccessFactors. 2012, a company called Kahuna launched. They've then pursued him in 2016. He joined full time. The company now has 40 full time folks based in Redwood, California,

17:23helping marketplace companies keep buyers and sellers engaged on both sides. Very tricky problem. He's solving it. They raised $50,000,000 to do it. Currently have about a 100 customers that pay anywhere between $3,000 and $30,000 per month. So their run rate today is somewhere between, call it, 3,000,000 and 36,000,000. They're growing between 100 to 200% year over year. Net retention in terms of revenue is over 100% also. So healthy expansion revenue based off volume and usage metrics. Sameer,

17:50thank you for taking us to the top.

Sameer Patel

17:51Thanks a lot, man.