How Kustomer Raised $38.5M With Zero Churn Above $5K ACV and 40% Expansion in One Quarter (Interview with CEO & Co-Founder Brad Birnbaum)

Introduction and Background

Nathan Latka

00:01Hello, everyone. My guest today is Brad Birnbaum. He has been building customer support companies for more than twenty years. Previously, he was the cofounder of Assistly, was acquired by Salesforce and became desk.com. Before that he was CTO for Talisma and co founder and CTO of eShare Technologies based in New York now building kustomer.com with a k. Brad, are you ready to take us to the top?

Brad Birnbaum

00:21Absolutely.

Nathan Latka

00:21Alright. So you're... Yeah.

00:24I'm glad you're here. You're addicted to the space,

Brad Birnbaum

00:27Yeah. Just, you know, ended up there by accident '95 and just keep coming back for more. Really really really have grown to love helping customers.

What Kustomer Does and Its Revenue Model

Nathan Latka

00:37Alright. So tell us about kustomer.com again. It's customer with a k. What do you guys do and what's the revenue model? Is it a pure play SaaS company?

Brad Birnbaum

00:44Yeah. It's a it's a SaaS it's a SaaS business. So Kustomer with a k, we are all about

00:52build building a platform to understand everything about your customers and supporting them on top of that platform. So more specifically,

01:02when customers go to a company to seek support, most of the time companies are using a standard ticketing system, and those ticketing systems know very little about the customer, right? They... A customer may mail it, may email in, hey I have a problem with this pair of pants I ordered, if it's let's say an e commerce company. But more often than not, the company can't relate it to an order. They don't know anything about that customer.

01:22They don't know that their most recent order was invoice number 13, four, you know, SKU five, six, seven, eight size you know X. They don't know anything about it and then they can't actually action it inside of the support system, inside of that support channel. So Kustomer is all about a platform to orchestrate all of that. So we we know everything about the customer. Most of our implementations will have tremendous amount of data coming in from

01:46different data sources, could be from your e commerce systems, Shopify, Spree, Magento, Wufoo, etc. Or lots of homegrown systems. We're seeing we're seeing immense amount of integrations with lots of custom proprietary systems and data comes in and when customers are seeking service, the support agent knows so much more about the customer, and then more importantly, they can action it very very very quickly. Right? So somebody needs to say, hey, need to return that pair of pants

02:12for a larger size. In a lot of traditional models, you're going to three four five different systems to process that you're going to a return system, you're going to an inventory system, often you might have to go to a suggestion engine if there isn't that that pair of pants inventory, and then ultimately replace the order. You finally go back to the customer and say, alright, we're sorry, you know, we're sorry it didn't fit you, but we

02:30just replaced an order and here's your tracking number. Inside Kustomer, you just push one button order a larger size and it takes care of all of that magically for you.

Nathan Latka

02:39That's right. So a lot of API connections I'm imagining.

Brad Birnbaum

02:41Yeah. I mean, our platform and the business process automation on top of our platform can orchestrate really advanced business operations.

Why Kustomer Was Built Outside Salesforce

Nathan Latka

02:49And so Brad, why not, you know, the Salesforce acquisition, it was reported as call it 50 upfront and maybe some 30 after that with some combination of weird terms. What I mean, why not build this inside of Salesforce? You're already there.

Brad Birnbaum

03:02Oh, well, I mean, that's a different that's a different story. But you know, the sale my experience at Salesforce was great. I spent three years after being acquired at Salesforce, learned a lot.

Nathan Latka

03:13Was that because you had to because of deal terms or because you chose to?

Brad Birnbaum

03:17It was a little bit of both, but no, it was it was a it was a great company to to learn from and spend some cycles, and I enjoyed my time there. But yeah, you know, moving on when when when my co founder and I decided to start Kustomer,

03:32you know, we wanted a modern platform. Like the Salesforce platform is twenty years old, right? If you ever had to use it, it's all built on Apex and SOQL and and a whole bunch of very proprietary solutions that that you know, modern apps don't really use it at this point anymore. So we knew that the world needed something something started today, right? You know, I often I often hold this up and say this is only ten

03:55years old, right? The iPhone, right? So just think about how the world has evolved in the last twenty years and the technologies you would build platforms on today versus twenty years ago and the ways that you would make it easier for people to build amazing apps on top of it. Just a different situation and that's that's that's why we've done it. Right? I believe wholeheartedly that every decade technologies and products need to be reinvented. The world

04:20moves so rapidly.

Ideal Customer and Pricing Tiers

Nathan Latka

04:22So Brad, give me a little bit more, so we can understand about who your ideal and typical customer is. I mean, what's the average customer paying for this set of services per month would you say?

Brad Birnbaum

04:30Oh, so we have three pricing tiers starting at at basically $50, 50 dollars a month. Our enterprise our enterprise plan is a $100 a month, and then our ultimate plan is a $169 a month, and there's there's different capabilities within within each tier. Most of our customers tend to be on our enterprise tier. Our enterprise tier is pretty rich in what it what it includes. We don't have a bunch of add ons like some of our competitors

04:54might. So everything is is included. All of our channels that we support are included. And

Nathan Latka

04:59So Brad, just to be clear, is it fair to say that the average is probably around that $100 mark? Is that is that fair?

Brad Birnbaum

05:04Yeah. I would say we definitely have some customers who've embraced what's in our ultimate plan, whether it be our advanced pulse capabilities, or whether it be sandbox capabilities, whether it be unlimited collaborators, if you have a really large organization that you need non non agent licenses for us. There's definitely certain advantages to being on the ultimate plan.

Nathan Latka

05:04Mhmm.

Brad Birnbaum

05:04But yeah, would say, know, more more of our customers are on the enterprise tier than than the other

Seat-Based Pricing and Expansion

Brad Birnbaum

05:28two tiers.

Nathan Latka

05:28And are there... What specific pricing levers are you using to drive things like expansion or revenue? Salesforce obviously, you know, might use contacts. HubSpot is using, you know, contacts or API calls or things like that. What things like that are using to drive expansion?

Brad Birnbaum

05:41So at the moment, it it... It's seat based. So at the moment, as companies grow,

05:47they're adding more seats. And and our expansion numbers, while we don't publicly disclose them, are are quite large. We're seeing just mass expansion happen. We've we've partnered with a lot of early amazing companies and we're watching them grow up, and you know, we're seeing companies that once started with us at 10 seats a year ago, or or up to a 100 seats you know, just 12 months later. Right? So we're seeing a tremendous amount of of expansion.

Zero Churn Above $5K ACV and the Mid-Market Focus

Brad Birnbaum

06:09We're also you know, super proud of our zero churn that we have. So a lot of companies in our business

Nathan Latka

06:13That's net or gross?

Brad Birnbaum

06:16It's it's it's net. We have we have like no... We're basically no churn.

Nathan Latka

06:20Yeah. Well, I mean, just just to clear be though, Brad, there's... Mean, there's a lot of companies in your space that have net negative churn because expansion outpaces lost revenue. When do you guys think you'll hit net negative?

Brad Birnbaum

06:28Yeah. Oh, we're we're we're we're... If you're talking about it from that perspective, we're we're way past net negative. You know? So we...

Nathan Latka

06:36What does that mean though? Way past net negative?

Brad Birnbaum

06:38Well, we've got from an expansion, if you think about it, if you're including expansion in there, you know, I was saying zero churn, we've lost no customers. Right? If you're talking about churn including expansion, then we've... Our expansion is

06:5340% this quarter, right? Yeah. Of our... It was massive expansion, right? So if you're including that in the churn number, then then it's... And it would be negative.

Nathan Latka

07:01I I... It's... If I'm understanding you correctly, that's super impressive because you said your your lowest price points $50 a month. I have never interviewed a CEO with a meaningful volume of $50 a month paying customers that has never lost any of those logos. I mean, they go out of business. So how have you managed that?

Brad Birnbaum

07:18To be clear, one, we don't have a tremendous amount of customers on the $50 plan.

Nathan Latka

07:22Okay.

Brad Birnbaum

07:22And more specifically, we do define ACV. We do define churn very similar to in a similar methodology as a lot of our competition does as measured by any customer above five k in ACV.

Nathan Latka

07:37Oh, got it. So so yeah.

Brad Birnbaum

07:40Focusing. We're focusing on mid market at the moment.

Nathan Latka

07:40So why

07:43not just kill the bottom plan?

Brad Birnbaum

07:44It's there. We we do have a we do have a bunch of customers on it. We have seen customers start on that $50 plan and and and upsell to to to the enterprise plans. We are seeing that happen a bunch.

Nathan Latka

07:44Mhmm.

Brad Birnbaum

07:44But almost all, I would say 80% or greater of our of our new deals in the last two quarters have been enterprise or ultimate. We're doing tremendous amount on on the pro plan. There's so much

08:09more. There's so many more capabilities inside of enterprise that most customers are are are opting to take that capability and it's where we're we're not focusing on the the lower end of SMB at the moment.

Nathan Latka

08:19Yep. So just to summarize all that to make sure I got it all in a very clean sense. Most people coming in at a $100 a month that's where you're focused at and above higher than $5,000 ACVs. Not only are they starting at a $100 per month, you're seeing incredible expansion year over year to the tune of about 40%. I think you're... I think I heard you say per quarter on those same customer accounts. And that

08:38doesn't even include new brand new customers you're adding. So yeah. So that's where you get net negative churn. You say you're significantly negative at this point. Correct?

Company Timeline and Founding Story

Brad Birnbaum

08:48Yeah.

Nathan Latka

08:48Okay. Give me more... I wanna put this on a timeline for a second. So you launched the company sold in 2011, I believe to Salesforce. You said you were there for three years. So you launched this in 2014?

Brad Birnbaum

08:57No. So when I left Salesforce, it was one of my only opportunities outside of the customer service space. I went to... I was the CTO of Airtime, which is no, it's Sean Parker's company.

Nathan Latka

09:11It's yep.

Brad Birnbaum

09:11Well, you know, was all about building next great social network.

Nathan Latka

09:15What that Brad? What the hell happened to the launch was incredible? You're doing the bling and the bling and the big what the hell happened?

Brad Birnbaum

09:21So I wasn't there for that launch. I was I was after that launch. It was it just seemed like such a great opportunity, right? I when I was approached for the opportunity, it was there's a bunch of great people there. Sean and Daniel Klaus who ran it. Just great people, amazing investors, an amazing board. It seemed like such a great challenge. Not a space I was super familiar with, but one that I figured, well, I'd love

09:43to learn from Sean and Daniel. Love to be a part of that. Do something different for a little while, see how that works out. I spent a year there. It was a lot of fun. We rebuilt the product, we rebuilt the engineering team, we rebuilt the engineering process, really scaled it up. But in the end, I I realized my heart my heart isn't in the consumer space, right? I I'm a I'm a b to b person,

10:04right? I I like to build a product that I know has proper product market fit that I understand and I can see the vision. You can put a price on it and sell it. That's just the world I'm accustomed to. So I decided I wanted to get back into a space that I'm that I'm just used to, that I was a better fit for. So in in 2015,

10:21Jeremy, my co founder, and I decided... He was with me at Airtime, and we we left Airtime at the same time in August 2015.

Nathan Latka

10:28Are you talking... Was Jeremy also with Jeremy Serial?

Brad Birnbaum

10:31Yeah.

Nathan Latka

10:31So he's also... He also left Salesforce. He's with you at Assistly as well.

Brad Birnbaum

10:34I've been working with Jeremy since 1996. He's been working together for quite a while through many many companies. Yes. We've we've we've... You know, I've got a good collection of folks that we've we've been super super tight with over the years.

Nathan Latka

10:46It's important.

Brad Birnbaum

10:47Yeah. And and you know, that level of trust and you know, knowing knowing, you know, being able to finish each other's sentences, it's just critical. Right? It's it's great for building a business.

Nathan Latka

10:56So 2015 is officially year one,

Brad Birnbaum

10:58Yeah. So we we incorporated in September 2015 is when Kustomer was formed. We were initially planning to self fund, but there was a lot of strong interest from the VC community, and we found some amazing partners with Boldstart, which is...

Total Funding Raised and Round History

Nathan Latka

11:12How much have you raised?

Brad Birnbaum

11:14To date?

Nathan Latka

11:15Yeah. Oh,

Brad Birnbaum

11:1638,500,000.

Nathan Latka

11:1838. Okay. Yeah. So you... I mean, you really just went all in on that.

Brad Birnbaum

11:20Yeah. Well, we did... Yes. We've done a we did a we did a 2.5 seed, a 10,000,000 a, and then and then we just did we just did 26 on the on the b.

Customer Count and Market Focus

Nathan Latka

11:31That's great. That's great. And walk me through. So again, 2015 launch, great team building out past co founders, great chemistry, 38,000,000 raised. Where are at today in terms of total customers?

Brad Birnbaum

11:42So we don't disclose customer count or revenue at the moment. I'm sorry.

Nathan Latka

11:45Okay. Well, me a general... Mean, are we talking like millions of customers, tens of thousands, a thousand? Give me a general range that you're comfortable with.

Brad Birnbaum

11:51No. We're not millions. I mean, we're we're we're focusing on mid market. So if you're focusing on mid market, you're you know, we've no, we're we have you know, it's more... It's definitely not thought of in tens of thousands. It's less than that.

Nathan Latka

12:02Okay. I mean, I don't wanna push you too hard here, but I want a big range. So can we say between 1,000 and 10,000 is fair customers?

Brad Birnbaum

12:11Yeah, I would say it's about right.

Nathan Latka

12:14Okay. Okay good. You're thinking on...

Brad Birnbaum

12:17Yeah, it's a little less than that.

Nathan Latka

12:19Okay, fair enough. Good.

Brad Birnbaum

12:21Our customers are of size, Like we have customers that are 2,000 agents, right? We have

12:28we have lots of large customers that are that are plus 100 seats. Right?

Nathan Latka

12:31Yep.

Brad Birnbaum

12:32Going all the way up to thousands of seats right? So those are those are borderline enterprise opportunities. Like a 2,000 a 2,000 agent call center, that's enterprise opportunity at that point. Right? We do have fortune 50 companies.

Nathan Latka

12:43Yeah. So am I hearing you correctly in saying, I mean, you might have 900 logos on you, but your impact is much greater than that if it's a thousand seats per that one logo.

Brad Birnbaum

12:52Sure. So some of our some of our some of our logos are thousands of seats.

Growth Rate and a Projected 6x From Year One to Year Two

Nathan Latka

12:57Yep. Yep. That make that makes good sense. Walk me through growth rate today. So you said 40% revenue expansion kind of quarterly, but walk me through like a year ago today. Are you going a 100% year over year, 200% where you at?

Brad Birnbaum

13:09I'll tell you, you know, the this much I will I will share. So you know, the the VCs, they have this this this rule of thumb nail like to use. Right? The triple triple double double.

Nathan Latka

13:09Yep.

Brad Birnbaum

13:09So we'll be at six x triple. Is that what our first two years will look like?

Nathan Latka

13:25Hold on. Six x? I'm can... I don't understand what that means.

Brad Birnbaum

13:29Well, mean traditionally, if you use the triple triple double double rule of thumb, right? It means from year one to year two, you wanna triple your

Nathan Latka

13:29Yep.

Brad Birnbaum

13:29From year two to year three, you wanna triple your run rate. Well, from year one to year two, we'll we'll have 6x it.

Nathan Latka

13:44Wait, you're past that already. Right? So

Brad Birnbaum

13:46No. Let me let's be clear. We only we're only in market for five quarters.

Nathan Latka

13:50Oh, got it. So even though you launched 2015, you're not really counting.

Brad Birnbaum

13:53No. We weren't selling. We were building a platform is a hard thing to do, a proper platform. We only began selling in April 2017. So almost a... We weren't in market for the first year and a half our existence. Yeah. That was always the plan. That's that we set up the company that way. We structured it. We capitalized on it. We wanted to build the proper products for scale, and and more importantly than even that was

14:20a proper platform to build our apps and for others to build to build our apps on top of. So to do that properly was a was a was a large effort, and one that we planned accordingly. So as a result, yeah. We we had customers starting to get our product in November 2016, and the plan is always to begin billing on 04/01/2017. So we are five quarters in right now. So yes. So we're we're our growth

14:45was so strong. We had to re re re re re forecast our model in a good way.

Nathan Latka

14:48Yeah, but I just I just wanna call this out though to be fair, going from a dollar to $6 in revenue is a great growth rate when you're starting but it's difficult right? What what you're saying though is, you're generally seeing healthy growth. Look we came back into some very minimal numbers. If you've got you said you said a little maybe a little less than a thousand. If you're at 900 logos right? A And $100 is

15:06what they're paying on average, you're well north of $90,000 a month per per per month in revenue at this point. Right? We can kind of back into this stuff and assume, you know, apply the growth rates to that and assume kind of where you might be going.

Brad Birnbaum

15:16Yeah. What I would just simply say is is in comparable SaaS companies, I would say we're doing very well.

Nathan Latka

15:24Yeah. Well, you you have you you have to because you raised $38,000,000.

Brad Birnbaum

15:28Yeah. Yeah. You know, we're we're being evasive, but but, know, I... We we don't share our numbers publicly at the moment. But yeah, they're they're they're they're quite strong compared to other companies at our stage and time in market. So we're proud of that. Right?

Nathan Latka

15:42Yeah. I mean, just to be fair though, you've raised $38,000,000. They better be strong, otherwise there's gonna be some changes that no one's gonna be liking very much.

Brad Birnbaum

15:48This is true. Yeah. The large portion of that raise just occurred just a couple weeks ago.

Nathan Latka

15:54So that... Oh, so you just you just closed that in what? June... July, June?

Brad Birnbaum

15:58June 15. Yeah.

Nathan Latka

15:59June 5.

Brad Birnbaum

15:59Right? Yeah. We just we just announced and closed the the series b. Yeah. End of June.

Nathan Latka

16:03So Quick last questions here.

Team Size and Office Locations

Nathan Latka

16:05We're out of time. What's the team size today?

Brad Birnbaum

16:07We are 52 employees.

Nathan Latka

16:08Everybody in New York?

Brad Birnbaum

16:10It's our only office. We do have we do have some people in regions. We've got some folks in in the Bay Area. We got some folks in LA, Austin, Seattle, and Toronto.

Payback Period and Hyper-Growth Plans

Nathan Latka

16:20And with the current money that you've raised, are you getting more aggressive or less aggressive on your payback period that you're comfortable with?

Brad Birnbaum

16:26We're actually gonna get a little more aggressive.

Nathan Latka

16:28Yeah. So you'll let it go to twelve months, eighteen months, maybe twenty four if you need to.

Brad Birnbaum

16:31Yep. Yep. We're gonna be a little more aggressive. We're entering that hyper growth mode right now.

Famous Five: Tools, Sleep, and Personal Life

Nathan Latka

16:35Makes sense, Brad. Let's wrap up with the famous five. Number one, what's your favorite business book?

Brad Birnbaum

16:39Oh, wow. That's...

16:43I gotta I gotta think about that one. What's the next question?

Nathan Latka

16:46No. What's the last one you read? Do don't make one up. If you don't have one, that's okay.

Brad Birnbaum

16:50Well, let's go to next question.

Nathan Latka

16:51Alright. Number two. What's... Is there a CEO you're following or studying right now?

Brad Birnbaum

16:57So I'm I'm a huge Elon Musk fan.

Nathan Latka

16:59Now you buy a flamethrower?

Brad Birnbaum

17:02I do not buy a flamethrower because I don't need a flamethrower, but I'm I'm... I I admire everything he does, including the most recent mini submarine that he and his team have put together to help the kids in Thailand. I know they didn't use it, but still amazing.

Nathan Latka

17:14Number three, besides your own, what's your favorite online tool for building a business?

Brad Birnbaum

17:19My favorite online tool. So I I have a developer tendency, so I'll I'll I'll say GitHub.

Nathan Latka

17:25GitHub. Are you developer?

Brad Birnbaum

17:27Oh, yeah. By nature. Sure.

Nathan Latka

17:28Oh, great. Good. Number four. How many hours of sleep are you getting every night?

Brad Birnbaum

17:32I get about four and a half.

Nathan Latka

17:33Four and a half. What's your situation? Married, single, kids?

Brad Birnbaum

17:37I've got I've got three kids. I'm I'm happily married with three kids.

Nathan Latka

17:40Oh, jeez. How do you... Four and a half hours of sleep, how do you function?

Brad Birnbaum

17:43Yeah. It's it's... There's there's only one way to manufacture time, and that was to lose... You know, that was that was that was on the sleep side. Right? So, yeah, I kinda go to bed about 12:30 and tend to wake up at about five.

Nathan Latka

17:54Alright. And how old are you?

Brad Birnbaum

17:56I am 43.

Advice to Younger Self on SaaS

Nathan Latka

17:57Take us back twenty three years. What do wish your 20 year old self knew?

Brad Birnbaum

18:01Oh, wow. Yeah. So that was like the dawn of the Internet era when I was when I was doing it back then. Right? So I didn't even know about venture capital back then, to be honest. Right? That was that was sort of an an interesting anomaly. What did I what did I know?

Nathan Latka

18:16What do you wish you knew?

Brad Birnbaum

18:17I I wish I knew. I wish I had thought about SaaS earlier on. We struggled as a, you know, an on prem company for so long and the pains I I wish I had thought about doing SaaS earlier. You know? That would have changed the game. It certainly did when Salesforce first started with it. I wish we had rolled out SaaS you know much earlier right in the in the in the late nineties early early two

18:37thousands.

Nathan Latka

18:37Guys there you have it from Brad. Founded his current company in 2015 with partners that had a lot of success in their first company Assistly selling to Salesforce for north of $50,000,000. Stayed there for a couple years. Then had some time at airtime and then jumped back into where his heart is, b to b SaaS. Launching Kustomer with a k. Again making customer interactions way easier with way more kind of data integrated so that the

18:57processing of feedback or refunds, changes in sizes, things like that are much easier. They've got 40% quarterly revenue expansion, 52 people based in New York City, $38,000,000 raised, growing at a very healthy clip. Average customer paying about a $100 per month, know, call it just south of between a 10,000 logos per month, but impact much greater in terms of large seat sizes for each of those logos. Brad, thank you so much for taking us to

19:23the top.

Brad Birnbaum

19:24Thank you. Take care.