How Lbaware CEO Lori Brewer grew to $2M revenue and 50 customers in 2018.

hello everyone my guest today is lori brewer she's the ceo of lba aware and she's also an accomplished entrepreneur and technology leader following the conclusion of her service in the u.s air force she dedicated her talents to improving the mortgage industry she founded lba ware in 2008 to deliver business process optimization through lba where's flagship products compensate and los talker lori are you ready to take us to the top yes good morning nathan good morning so 2008 is a tough year to launch a business personally where were you at that point did you just leave the military or where were you at i was working for a mortgage company doing a custom development so software development and operations and they went down um it was a sinking ship so i was a bit of an accidental entrepreneur but it was the best thing that ever happened to me and now what is lba where for those not familiar what do you do and how do you make money sure so the mortgage industry is a complex uh vertical and we operate only in that vertical we provide staff systems that are back office uh products so the comp and safe our main product is built around managing the sales performance and analytics of the loan originators mainly and then paying them compliantly on their loans the mortgage industry is traditionally a commission based industry so they and after 2008 and 9 there are laws within dodd-frank that they can only pay in certain ways they can't pay on the revenue of the product but they can pay on uh the production of the products so we we have a business engine business rules engine lenders can use to facilitate how to encourage um and motivate their sales staff and then pay them commissions okay so it's really a tool that maybe you know the chief revenue officer or the head of hr someone internal like that at a company might buy right we're usually selling to the cfo hr staff ceo that's our main target at a company depending on the size okay and i don't want to go down every customer cohort but give me a general sense on average what are these customers paying per month for the product sure in general um we're selling annual contracts and general annual revenue our general price point is um about 40k so we charge per we have a flat fee and then we have a per loan funded fee so uh so we're you know the more loans they originate and close the more we're making the more they're making uh so we're dividing our revenue on we have a floor and then we charge uh per loan above that so not for user but for quizlet okay now that flat few just gave me is that the 40k annual or is that the average flat fee plus the you know per loan funded fee correct average all in okay average all-in great okay good and and let me i want to walk down an example of this real quick before we put all this on a timeline and get more your backstory when you say a per loan funded fee so let's say the head of hr at a bank got their sales people to hit quota you know two months faster than usual for the year and one of them did a loan by making this up for a hundred thousand dollars to you know a bank client of that hundred thousand what will you take so well the loan amount being a hundred thousand so they'll probably make uh around eight thousand but of that their net is getting skinnier and skinnier that's one of the problems in the in the industry right now um so per loan fee we're very cheap on average uh again depending on the size of the lender but between three up to ten dollars loan okay now is that oh oh that's a flat fee no matter if it's a dollar loan or a hundred million dollar loan correct it's not correct it's yeah we're just per unit and not per volume okay sorry and you said it was three to ten dollars correct that's great okay good so again putting this again back on a timeline 2008 was when you launched now did you bootstrap this or did you raise capital we are bootstrapped i love that something i've struggled with but yes that's why it's taking us so long but we're telling me tell me why you've struggled um just you know standard answer we need money to have more resources to go faster so i've contemplated whether um you know not taking money was the right decision i feel like we probably could be a little bit further in our process had i taken money but on the other hand we are at a good point now so we're not planning to take money you know at this point because we've we are cash flow positive and um you know plan to increase increase that what's your team size today we're at 25. 25 everyone in atlanta uh about 80 yes and then we have some we have an outside sales person um and a couple of senior developers that are remote that's great and then lastly you know 2008 you've created obviously bootstrap you hustle you hustle your hustle for 10 years what are you at now today in terms of total banks or customers working with you total number of clients yes yeah so we we just surpassed the milestone um we're over 50 lenders and those lenders represent sizes of you know within a lender it's an enterprise fast sale so we contract of course with the lender and then with within that company we may have between 30 and 3 500 users so we have a range um typically we're looking for lenders doing at least 100 unit mortgage loans a month uh we do have a few that are smaller than that um and then some that are doing we had one do 10 000 units uh last month so oh wow so i mean can i take that 50 those 50 clients times that 40 000 average annual price point it gave me and assume you guys are cut out somewhere around a 2 million ar range that would be accurate that's that's great congratulations especially doing that bootstrap i love that thanks yeah every day is a challenge i hear you walk me through the onboarding so you said you have you know it's a very much enterprise sale what does your sales team look like today and how long is the sales cycle to land one of these new lenders so sales cycle is a little bit uh complicated you know it's it's a little bit strange um in that we know exactly who our potential clients are and there are really only you know let's call it 5 000 companies out there that we could potentially sell to um so i have an outside business developer i have a elite legion and then i of course do still do sales um so we're typically going to conferences it's a long it'll take anywhere between a couple months to a year to land a lender um so our cost of acquiring that lender is is not cheap um but how much what is it all in would you say are we talking like 20 grand to close or 40 first year acv 40 grand to close or what so probably in the neighborhood of 2025 yep and that's mostly on like the salesperson traveling around that kind of stuff right conferences marketing we have an external pr company so that's a monthly fee um just general social yeah so we're spending money to try to ensure that those six thousand companies know who we are and know what we do yeah and with that 25 thousand dollar kind of in cack and i guess probably in a worst case scenario if your acv first year is 40 grand is it fair to say that you get that cac back in about eight months that's your payback period yes however the onboarding of that client um is it's not a simple product so and we are very close to our clients we so our best stat nathan is we've never lost a client and we've never had a failed implementation so we what do we have over backward a sales implementation a failed a fail yeah so even when um it takes longer than we expected we're taking the hit to ensure that we successfully onboard the client so i say all that because the first year we're we're not making any money on that client because of resources that we extend um for you know customization ensuring that we migrate all their plans it's so yeah i would say it's at least a year before we're making money yeah laura you know if you have zero churn you know what that means right uh i don't know what you're going to say it's too cheap triple your price points so our plan is land and expand uh we're adding we've we're building the product out so that it's modular and slowly adding piece pieces that all the clients don't have so as clients request things we're adding that as essentially a module that then will our plan is upsells the other clients so i hope to increase the revenue we're bringing in on our established clients and then we're adding a third product to that will be essentially a bolt on uh for analytics and predictions so i hear you yeah you're probably right let me i mean i'm being a little bit facetious but but let me ask you a different question it sounds like your utility value is you help more loans get issued right so a good measure of your success there is well what's the total loan value that's gone through your system so so in the past year what's the loan volume that's gone through your system in terms of dollar figures so i don't have that number off the tip of my tongue but it's it's millions um if not billions of loan volume you know if you think about a 100 000 loan typically an ella a loan originator is being paid a commission somewhere around um 100 basis points or a thousand dollars and then on top of that there's bonuses and then there's multi layers and that's where our value comes in you have branch manager area manager divisional manager production manager all taking a piece um so the the piece we're dealing with are those commissions and over the lifetime of the product we have t-shirts now they have three commas because we exceeded a billion dollars in the commissions that we calculated um and we just this month went over two billion so uh so over two billion in in loans that have gone through your system in commissions that have been calculated on the loan value which are typically you know let's call it three percent of the loan volume i mean if you're okay so so if you know the commissions are obviously less than the total loan value because it's three percent of the loan value so i mean three times call it 33 gives you 100. i mean can we multiply 2 billion times 33 and say you're the loan value gone through your system is approaching potentially 100 billion yeah that yes we're gonna have to make you we're gonna have to make you a four comma club shirt soon that's right let me ask you another question if 08 happens again you know donald trump is he's deregulating a lot of this stuff banks are getting more aggressive with lending especially mortgage lending if something like 08 happens again and lending just just goes right to the floor does it hurt your business or have you figured out a way to cushion yourself from that potentially happening so it is um if you're not in the industry right now you probably wouldn't be aware of it but this year is is going to be a hotbed of merger and active merger and acquisition activity refinances are down because of rates going up there's a lack of liquidity in the housing market compliance is just killing these lenders like their the mortgage bankers association last quarter released a report that said on average lenders were losing money on everyone on average so it's it's to the point where people can't um it's cash flow problems so so yes i've spent a lot of um brain cycles thinking about it um what's strange is our business is up our pipeline has never been healthier and it's because we have a product that can help the lender maximize their revenue and control their biggest expense which is usually 50 of their of the revenue on the loan around the sales so we're able to put business rules where they can actually control what's happening so we're seeing an uptick in activity [Music] so i'm just my goal is to position ourselves to ensure that we continue to play that card out as lenders continue to look for ways to you know decrease human capital and increase the amount of sales they're getting per person yeah uh you're currently at 2 million bucks in arr i want to get a sense of growth rate where were you about a year ago july 2017 so overall so we were um like one point a year ago we were about 1.6 i believe 1.5 so call it 30 40 growth year over year it's pretty good bootstrapped are are you raising capital now no are you in any not planning are you in any acquisition talks with any other companies no we're not at the moment you're smiling why uh just i'm not you know i right now um i think potentially someday we could be a good a smart play for strategic buyers um but i feel like right now we have so much we could do uh there the the technical um gap in the mortgage industry is just it's so huge you you can walk in and you walk out the door with you know a pad full of sticky notes on all the simple things you could do with technology to improve their businesses um so right now i'm in fun i don't i want to just maximize what we have we know lori cabbage is in atlanta kind of in your backyard you know they've been on the show many times he told me very directly they are looking at doing kind of rolling up additional products that they might be able to do they're obviously in the small business lending space this is kind of analogous and that's a fintech product he comes due and offers you 5x your current ar so 10 million bucks you don't take the deal no she says no i think we have i think we have far more value than that thank you i love the confidence lori let's wrap up here with the famous five number one what's your favorite business book um i just read reread predictable revenue baron ross i think that's a great book number two is there a ceo you're following or studying right now um david cummings he's in atlanta i i don't know if you're familiar with him tech village he yes atlanta tech village he sold pardot for 90 something million several years ago but he's he's fabulous he's involved in the community so yeah i follow him number three what's your favorite online tool for building your business i have a lot of tools i stand behind um we use slack a lot but one tool in the database arena that uh people might not know about at redgate red date has sql server tools that are fabulous number four how many hours of sleep to get every night so i know that's one of your questions um and we have this mattress that actually reports it to me and it's kind of scary so um yeah i'm probably in the five statistics but i'm working on improving that and what's your situation lori married single do you have kiddos i am married and i have three teenage boys oh well oh my gosh you have your hands full and lori do you mind me they're fun that's good do you mind me asking how old you are so yeah i'm 49. oh wow congratulations and last question take us back 29 years what do you wish your 20 year old self knew uh my 20 year old self i wish i knew a ton i wish i would have trusted myself i i had i feel like there were ideas um i wish i would have gone out on my own and tried to uh you know so 20 years ago when i was in my 20s the internet was coming around and businesses didn't even have websites and so i you know the ideas around leia let's create websites with these tools but i was too focused on thinking i had to make a steady income of probably at the time like 40 000 um that i wasn't brave enough to do it i wish i would have been a little more brave guys trust yourself more be more brave she certainly was that you know 2008 was a tough time to start a business not only just any business she said okay i'm going to start a mortgage lending business the thing that caused 2008 and now look she's doing so well bootstrapped 2 million bucks in ar she's working with about 50 lenders helping them more efficiently put out loans and then pay back commissions across the entire commission's stack they're up about 30 40 year-over-year up from 1.6 million in ar in july 2017. they have no churn which is great willing to spend up to about 25 or 30 grand to acquire a customer so eight or nine month payback period with their team of 25 people in atlanta and other remote locations lori thank you for taking us to the top thanks david