How Kapta CEO Alex Raymond grew to $750K revenue and 30 customers in 2018.

hello everyone my guest today is Alex Raymond he's the co-founder and CEO of CAPTA a software platform that helps companies keep and grow their largest accounts alex is 20 years of experience in the software industry has worked in the US Europe and Asia he has about Thor's degree from Georgetown University and an MBA from INSEAD all right Alex are you ready to take us to the top yeah great fantastic thanks for having me you better I tell us not CAPTA what do you guys do in and what's your revenue model how do you make money great so cap does a software-as-a-service so a SAS company specifically to help account management teams get more visibility into their existing accounts understand how to expand and grow that revenue stream so it's four key account managers a very specific subset typically of a sales team so our customers usually have fairly concentrated revenue base so what I mean by that is they could have you know they have that classic Pareto principle where 20% of their customers generate 80% or more of their revenue and so what they're looking to do is really maximize the value that they get and the value that they give to that small number of customers that makes up the most their revenue in profits you know I talk to a lot of CEOs in about 3000 interviews I rarely hear one focused on not just retention but actually looking at your most valuable accounts and going all in on those versus top of funnel or something else so tell me on average what's the what's the company gonna pay to use your tool so captain can range so typically our customers are paying today anywhere from about 25,000 to about $100,000 a year so it's not a $5 a month web app this is meant to be something really specific for large high-value customers one of the things that I joke about all the time Nathan as I say they capped is for your million dollar accounts yeah so you've got accounts that are big and complex and multistakeholder those are worth tons of money to your company and therefore you need to really focus on it I mean just for example some of our customers have single accounts that are currently being managed in our system upwards of 50 million dollars a year so big serious you know high stakes business yeah ten percent expansion or a million dollar account more than makes up for a twenty five thousand dollar payment to you correct yeah correct very good put this on a timeline for us when you launch so this product was launched about two and a half years ago so that's the beginning of 2016 the history of capita is we actually did not start building a count management platform we started building this is my classic startup store we started building an employee engagement platform okay so for performance reviews and like what's your work this quarter and this year and what are your goals and this kind of thing and what we noticed was that people were taking their customer facing work and putting that in our platform so they would say well my goal is I have to do this for this customer and I do this for that customer and we started noticing all this activity inside of CAPTA which was meant to be an internal employee focused tool and we called up our our customers the ones that we saw doing this and we said hey what are you guys doing why aren't you doing this in your CRM right because everybody has a CRM and they all universally told us you can't do this in your CRM why not I said I said what do you mean you can't manage a customer relationship and they say well we use the CRM for pipeline or for contact management but we don't have a strategic holistic view of our customer and what we're doing for them and so at that point I say well there's obviously an opportunity here my head also kind of exploded because I thought how is the CRM not delivering this kind of core functionality and that's what allowed us to go and build this product yeah the product itself I would love to say that I'm one of these entrepreneurs with a great vision and a spark of inspiration it turns out it was the customers who told us what they wanted yeah and now over the past two nephews would have you scaled too how many customers paying you so we've got about 30 customers who are using CAPTA today that accounts for something like a billion dollars or more in terms of total revenue that's being tracked inside the application today right feels great yeah it's a number that we track right so how valuable are customers customers so right now it's well over a billion dollars the more important question this is much more difficult to get to is what is the average net revenue retention on all of your customers and if the lift is higher with you versus without you then you know you're winning exactly so that's one of the things that we track as well that's great very good I'm surprised you get that much insight into into these guys they tell you other revenue numbers huh well you know we've got their contracts we've got their opportunities we can see where stuff is happening or not happening but you know there's so many tools out there that do the lagging indicators right the KPIs and the metrics and so on and what we focused on instead is what are the leading indicates so if I am an account manager or in the lingo of today if I'm all about account based marketing or account based everything what are the actions and behaviors that I need to exhibit in order to get the best results and so the source of every sorry what's the source of truth on the on of on the money side are they connecting to stripe or QuickBooks or what's this it's typically some combination of a CRM plus in some cases reports or data from their financial systems which is to best I'm curious what is the financial system typically it could be anything from Oracle to sa P to QuickBooks to homegrown yeah so really varies you know when you get to these large enterprises its it tends to be a lot of legacy applications so people are trying to standardize maybe in a CRM or in some type of you know web financial tool but we don't see a lot of people with the same tools a lot of it is kind of there's a there's a big mix let me put it that way and then run rate today you said you know 25 thousand bucks and up in terms of in terms of revenue per year that's about 2 grand a month times 30 customers you guys are north of 60 grand a month right now in revenue yeah that's great what's the next big revenue target would you say you know I mean we'd love to get to 100 K and M RR right so that's kind of an obvious I wish target for us I would like to do that by the beginning of the of 2019 the beginning of next year that's right so this gives us a nice kind of lift gives us good momentum you know for us in terms of how we build our business the the goal for us is to help our existing customers really hit it out of the park right so so what they're doing is they were saying look we've got these portfolios of business we're trying to figure out how to keep them how do we expand them and so on we want to make that really really work with them and then scale it out from there yeah well hopefully cuz that's what your software is supposed to do right indeed you should be experts exactly 60 grand a month right now in revenue take me back a year ago September 2017 about where were you less than half less no more than 10% you're your growth yes correct correct so we've been we've been growing we've been growing really nicely and the customer mix is very interesting so one of the things about the customer mix is you expect you know SAS software to be adopted by really tech enabled types of companies it turns out that a lot of our customers today are actually more mature industrial companies manufacture example manufacturing chemicals services you know this kind of thing as opposed to just pure tech and the reason is I'm in a more mature market if I'm a chemical company or a service provider or something like that I'm in a more mature market the markets more concentrated therefore every extra point of market share that I win really impacts my revenue my bottom line and often a lot of times you've got people who are doing multi sourcing right so one of our clients for example is a chemical company their customers buy from two or three different vendors so there's that they're saying to us look if we can go from 33% to 40% for these customer sets that represents umpteen million of dollars yeah I was I totally get the value the product no question and it's something that I don't start will focus on so I get it what about funding have you bootstrapped erased we have primarily bootstrap we've raised about a million and a half bucks three years ago the investors in that round were tech stars and access Venture Partners and Raley ventures that's great and it's nice that even as you pivot it sounds like you kept them on the cap table it's the right thing to do right yeah we did I mean look it was a conversation right hey you guys were interested in business number one we think there's an opportunity in business number two there was a conversation to make sure that everyone was on board with that vision it took some time we had to prove it we had to go out there and say yes sure this is not just you know our belief there's evidence and and here's what we're doing about it and here's the progress that we're seeing and we were able to do that and keep those guys on board churn is critical what's your turn today hard hard to measure you know we're still in such a growth rate that it's hard for me to put a specific number on it obviously we track that closely typically if we have a churn issue it's because we didn't boot them up properly if we didn't boot the customer up properly it typically is because they don't pay as much attention to strategic account management as they think they do so what I mean by that is you know sometimes people will come to us and they'll say hey I need to be doing this but they aren't willing to do some of the other work that goes around a successful implementation like training the team investing in upskilling having a well-defined process you know that kind of thing which is typically unsexy work but very very important so when we have a failure with a customer which we never want to see when we do have a failure typically is because of some type of misalignment there or maybe they're not understanding the full amount of effort it's going to take to make this successful and how it's going to set their business up for long term it's that so that's what we've seen and and I mean so your own revenue though your product is supposed to help with expansion so your own customer base would you say you're over a hundred percent net revenue retention annually today yeah absolutely okay how far above probably ten or fifteen points above right now that's pretty good that's not better all one 110 percent especially you know one of things that I see because so many interviews you very rarely see healthy expansion models for companies when they're still sub a million bucks in ARR even sub 2 or 3 million usually you know 10 20 30 percent annual expansion really starts to kick in and you know four or five you know six million run rate time zone right so we're not there yet we're below that but we've got customers who are expanding we have customers doing three-year deals with us paying I finding let's see one yes the other no that's pretty good that's good for the bank account it's very good for the bank I know so I'm a big believer in customer funding I'm a big believer sure that we value every day the way that we after that that's for our service and Alex on an average you know you're trying to acquire a new $25,000 your customer what are you willing to pay for them what's your cap typically as of right now our CAC is substantially less than that so our character LTV ratios are very very healthy I think last time we calculated kaki was sub 10,000 okay that's pretty good so you're getting paid back in less than six months yeah yeah that's great as soon I get again that's on a revenue recognition basis on a cash basis maybe it's instant if they're paying annual upfront certainly can be and plus you got a look at LTV not just for a CD for that type of thing so uh many times LTV winds up being you know two three four five times with the pitch yeah why do you say that I say that because I mean it was just one of those kind of typical SAS ratios right LD be over cash yeah but I know a lot of people that have very healthy LTV to CAC ratios but get killed cuz their payback period is three years I think they can bridge the cash cow got it understood yeah we don't we're lucky to not have that issue yeah yeah very good tell me about the team how many people today three of us three okay and where's everybody based everyone's in Boulder and we are doing so on the CEO I do a lot of the customer facing stuff we have a customer success manager who helps with onboarding setting them up for a strategic account management that kind of thing and a CTO who does all the development plus of course outsource team who helps with marketing and we also have an outsource team who helps with design I love it lean mean to the point three fixed you keep everything else that's non-critical to the muscle of the body as variable expenses in the form of consulting huh correct yes and so that allows us to really focus on what we do best it allows us to control our cost it allows us to control you know where the money is going and you know frankly most companies are coming to us and saying this is a highly specialized operation within their business right and we're saying we're expert at this we can help you solve these problems and they're very happy with that yeah let me ask you a question you know you've been doing this for two years there's a pivot happening any any you know any interest right now and raising additional capital it's something we might consider for 2019 but not something we're actively pursuing this year okay if he did raise in 2019 what would you generally target how much would you want to raise to invest in growth you know we'd probably be teeing up a typical series a bi typical series a you know in Boulder standards that's three to five million in the Bay Area that's six to ten million yeah so you know it's it's very different life and life in the in Colorado is substantially different from life in in the big in the bigger tech hub but you know something like that for now we've got great customers we've got a great revenue model we're able to keep our cost low so we do not have a declining bank account you know so for us it's important there are of course kind of economic uncertainties ahead potentially I already show positive though right exactly so I don't want to be in a position where I have to raise money now I'm talking on a few I'm talking if as big if yeah so if you do raise let's call the smaller in there let's say you raise three million in 2019 in an in an ideal world what would you like to raise that valuation wise like 20 25 3 something like that in an ideal world sure 25 3 you know 3 on 25 would be great I think the dynamics that we see in Colorado typically tend to be different I think in Colorado we typically and I'm just saying this based on people I know and raises that they've done we're typically seeing 3 on 8 ok like those kind of numbers and but but 8 on what AR it really depends on exactly but that's just like see you're saying just series a in general you're saying it's really yeah yeah the typical stuff in Colorado yeah yeah very good all right let's wrap up with the famous five number one what's your favorite business book Alex the advantage by Pat Lencioni number two is their CEO you're falling or studying right now I really like the CEO of in Nvidia right now Nvidia number three is there a favorite online tool you have for building your business the best - well the series I'm using sure right CAPTA you know the I love the simple ones I love schedule once schedule once number four how many hours of sleep to get every night eight and what's your situation married single kids I am married for 11 years my wife is Laura la you are a no kids no kiddos and how old are you I'm 42 last question what he was your 20 year old self new I wish my 20 year old self knew that at the end of the day you know you think that you need to do things because someone else is judging you someone else is holding a score book or something like that on your life I wish my 20 year old self knew that nobody's paying attention nobody cares the only one at the end to judge my success is me guys there you have it coming from a guy that jumped in about what was two three years or 2016 pivoted now helping really accounts drive expansion revenue something I see very few people focused on he's serving about 30 customers they pay on average call it twenty five thousand bucks an ACV doing about 62 grand right now in monthly revenue that's up a hundred percent year-over-year from again about a year ago over a hundred ten percent net revenue retention on his own base so clearly he's eating his own dog food it's working willing to spend up to ten grand to acquire a new $25,000 a CV customer so less than six month payback which is impure important because they're trying to manage and they are managing to cash flow positivity three people full-time everything else it's all consulting Alex thank you so much for taking us to the top I super thanks for being here Nathan take care