How Logz.io Reached $24M Raised and 70 Employees by Mid-2017 (Interview with CEO Tomer Levy)

Introduction and Background

Nathan Latka

00:01Hello, everybody. My guest today is Tomer Levy. He's the CEO and cofounder of a company called Logz.io. Before founding this company, he cofounded what what... And was the CTO of another company called Intigua, a company that developed innovative Docker like containers designed for large enterprises. Prior to Intigua, Tomer spent six years at Check Point where he led its intrusion prevention system or IPS product from concept to market, generating a $100,000,000 in revenue in in the

00:30second, year alone. Tomer was an MBA from Tel Aviv University and it had... And has a BA in computer science and is an enthusiastic kite surfer. Tomer, are you ready to take us to the top?

Tomer Levy

00:40Yes. I am.

What Logz.io Does and Its Revenue Model

Nathan Latka

00:41Alright. Very good. So let's just jump right in here to Logz.io, your current company. What does it do, and what's your revenue model?

Tomer Levy

00:49Sure. We're a log analytics company. We help customers like Dyna, Intermedia, British Airways analyze data generated for machines. If you think about it, every machine in your room from your computer to your mobile phone to even your house has software that generates logs. We help companies analyze this log data and basically reduce the time it takes to solve problems in their web servers, in their databases. This is kind of the main product that we offer. Our

01:22business, as you asked, is basically selling software as a service to analyze its data.

Nathan Latka

01:28Yep. So are you selling to IT folks or CTOs at companies?

Tomer Levy

01:34Yes, usually it would be SRE, DevOps, IT operations. This is, I would say, most of our customers. About a quarter of our customers are actually security teams that also need to monitor log files, monitor log events, and kind of correlate to understand threats and attacks.

Customer Segments and Contract Values

Nathan Latka

01:50And what would you say on average, just so we can get a sense of kind of deal size here? What's the average customer paying you, either per month or per year, whatever is easiest for you?

Tomer Levy

01:58As you get this answer often, it's complicated. It starts with the, I would say, the self-service tier, which usually people buy online, paying a few $100 a month, that would be a few thousand dollars a year. On top of it, we have two main cohorts. One of them is the SMB, usually would pay about 10 ks, 10 to 15 ks a year for the product. And on top of it, we have what we call SME, small

02:24medium enterprise, would usually pay 50 ks per year minimum, and then would go to a few 100 Ks for the high end enterprises.

Company Age and Average Deal Size

Nathan Latka

02:35When you look at your sweet spot though, I mean, is it fair to... Mean, we put a range on it. It's fair to say between 10 and 40 k in annual contract value? I mean, is that... Think about the last few deals you've closed. They've kind of been in that range?

Tomer Levy

02:47Yes. Yeah. Would say, I would say as we evolve... We're a very young company.

Nathan Latka

02:51We... How old are you? When did you launch the company?

Tomer Levy

02:53We launched it on 2014. We launched the company. We launched the product in end of twenty fifteen, so we're about a year and a half in the market today. So if you look at the last 10 deals, probably around 40 k.

Nathan Latka

02:53Yep.

Open SaaS Model and ELK Community Strategy

Nathan Latka

03:07And are you is your process on those folks, do you have an inside sales team there or no?

Tomer Levy

03:13Yes, so what we do very differently for most companies, at least in our space, is we focus on open source. So we're actually... A large part of what we offer is actually an open source platform called ELK, ELK often used. So to the sense that ELK has about half a million downloads a month.

Nathan Latka

03:33What is it? Like for a non technical portion, describe that to me.

Tomer Levy

03:37So think about it like a set of libraries. You install them on a server and they basically take all the data, any data you have. It can be web application, it could be data about a credit card swiping, your e commerce, it doesn't matter. You put it into this one bucket and what ELK allows you to do is basically visualize the data and understand what's important in it. What we do is we offer that in the

04:00cloud with more capabilities. So I'm going back to your question about kind of the way our business works is really based on the open source community. So we see today many companies, thousands of new companies sign up to our platform every quarter and start the process, start to use the platform, and this is kind of the main driver to the business, and this is how we actually get our initial knowledge.

Nathan Latka

04:25Did you intentionally launch this open source project with the know how that one day you would use it as lead generation for a paid product?

Tomer Levy

04:34So unfortunately, we're not the one who actually developed the open source from the beginning. It was actually developed by different folks, and they spend most the time kind of investing in the core search engine. The ELK is, I would say, a very strong search engine. What we've built on top of the core open source, we've built, I would say, an application, a solution specifically for log management. So customers instead of them trying to install and maintain, it's

05:01really hard. It takes a lot of time and effort. They kind of get that as a SaaS from us in the cloud, and unfortunately we didn't invent that.

Nathan Latka

05:10So is it good a way to think of ELK for a nontechnical person, it's basically like Google search for all your log data?

Tomer Levy

05:16Perfect. Yes.

Nathan Latka

05:16Okay. Got it.

05:18And then what you're doing is making management of those logs easier, way more robust than just a search with your new platform.

Tomer Levy

05:24Exactly, exactly.

Nathan Latka

05:24So

05:26do you make... So this is an interesting question because this is a growth channel that other people could use, kind of the open source to paid model, since you didn't create the open source software, how do you make sure you're the one getting leads, right, when people go use that for free?

Tomer Levy

05:39Yeah, that's actually an interesting discussion, and we're not the only one doing something called open SaaS. It's open source as a SaaS.

Nathan Latka

05:47Who are some others? Just name one or two.

Tomer Levy

05:50You can think about Pantheon. They do WordPress as a service. You can think about probably Cloudera is kind of in this market, but it's more on prem, Hortonworks and others.

Nathan Latka

06:03And what's the label you gave them? What was it called?

Tomer Levy

06:05Open SaaS, Open Source as a Service.

Nathan Latka

06:08Open Source as a Service. Yes. Interesting. But it's free usually. I mean, has to be free.

Tomer Levy

06:13If you sell it as a service, it's hard to do it for free. So obviously, the three tier... Think about GitHub, right? GitHub just offered the Git open source as a service, obviously. GitHub offers more capabilities. If you're a developer, it's a great platform. In the same sense, we offer first the open source and then start to pile on more capabilities, machine learning and some more advanced stuff. So yeah, that's kind of in a nutshell. And

Content and SEO as the Primary Growth Channel

Tomer Levy

06:39the way we get leads and how do I make sure that we are dominant in that space is a lot of content. So we've been writing content before, just as we launched the the company, we started writing content. Today we're the number one contributor of content to the ELK community. So if you search Google for ELK on AWS, ELK in production, we're number one in Google in all of these searches. We're contributing a lot to the

07:04community and also getting obviously traction and leads from these articles.

Nathan Latka

07:09So if someone else wanted to do this, what you would do is go find a relevant open source community for whatever your product is, and make sure you're the one contributing the most free value to that community so that when someone wants to a more advanced version, they find you naturally.

Tomer Levy

07:21Exactly, and I would add one more thing, and this is very delicate for open source. The open source has to be good enough to get started, good enough, easy to get started and use it so it will have mass distribution, but it has to get to a point where it's hard to scale it, it's hard to make it production grade, and this is where commercial companies have a lot of leverage.

Customer Count and Free vs Paid Users

Nathan Latka

07:40Because otherwise people just keep making open source stuff

Tomer Levy

07:40Exactly.

Nathan Latka

07:40Or So how many customers are you serving today?

Tomer Levy

07:47So we have today about one... Just again, one and a half years in the market, we have about a thousand companies from 80 different countries which use Logz.io. A few 100 of them are paying customers, a few 100 of them are free users of our...

Nathan Latka

07:47Okay, I

08:02mean, call it like 300 paid, something like that?

Tomer Levy

08:05I'll keep that one private, but a few hundreds.

Funding History and Team Size

Nathan Latka

08:09Okay, good. And then walk me through kind of the story from a financial perspective. Did you decide to bootstrap this or have you raised capital?

Tomer Levy

08:17So we had to make a decision very early on. We raised money, but we could have built a lifestyle business out of this company very easily because we had traction day zero. We made a decision we want to build something big. Given our experience in the past, we already built companies, So we raised $24,000,000 in these two and a half years. The last round was in October. We raised the $15,600,000

Nathan Latka

08:17Of 2016?

Tomer Levy

08:17Yes.

Nathan Latka

08:46Got it. And what's the team size to date?

Tomer Levy

08:49We're 70.

Nathan Latka

08:50Seven zero.

Tomer Levy

08:52Seven zero.

Nathan Latka

08:52And you said, I always love this because I got in a huge debate on a show a few days ago of this guy that said, Nathan, we have 10,000 customers. And later on the episode, I did the math and it didn't check out. And I said, what happened? He goes, oh, well, these aren't paying customers. I'm like, well, what the hell is a customer if they're not paying? Like, call them a free trial. Right? And he's

09:12like, no. We like to call them a customer because it's a it's a mode of thinking, and it's how we should think. I said, you're... Listen. You're full of shit, basically. These are free people. You haven't monetized this thing, and it's not working. You... And he's like, you can't you can't sell software upfront. And I said, baloney. I know people that do it all the time. It sounds like you were profitable or you had traction on

Early Revenue and Product Launch Story

Nathan Latka

09:29day one. Tell me about that traction, how did it happen? What was day one revenue?

Tomer Levy

09:34So when we started the company, it was October 2014. I think probably February, we already had something up and running, and we had five brave companies who said they're gonna work with us.

Nathan Latka

09:50For free or did they pay?

Tomer Levy

09:52No, we didn't charge them money. Just their hands for allowing us to test the product. And then a month later we opened it up and said, Okay, now maybe someone will sign up. It's not good enough, we're afraid. And then someone signed up and then another person signed up and we thought it would be five signups a day, 10 signups a day. We get today many signups a day. So I would say my advice, even though

10:15your product is, sorry for the language, and it was shit in the beginning, open it up, people will understand, you'll iterate fast, we just jumped into it.

Nathan Latka

10:25That's so smart. What was first, I guess 2014 was your first year, right? You have any revenue in 2014 or no?

Tomer Levy

10:32No, zero.

Nathan Latka

10:33Zero? Was first year revenue then in 2015? How low, how embarrassing was it?

Tomer Levy

10:38So we launched the product in October 2015. I think we were 6 figures at that point of

Nathan Latka

10:38Okay, so you broke...

10:46Of ARR, okay, so you hit like what, like $9,000 to $10,000 a month by December 2016?

Tomer Levy

10:52Yeah, I the money like right now, but probably yeah, we had our first few customer probably a few 100 k, few 100, yeah, definitely. For ARR, we like to count ARR because it sounds higher.

Nathan Latka

11:07Yeah, yeah. For everyone listening, you guys know this because I talk to hundreds of SaaS CEOs, but ARR is just monthly recurring revenue multiplied by 12, right? It's a run rate. You take your current month's revenue multiplied times 12, and that's how you get $200,000 or whatever you guys were at, Tomer. And then have you guys broke the million dollar run rate?

Tomer Levy

11:26Oh, of course.

Nathan Latka

11:28Okay. What can you share? How big have you grown it?

Tomer Levy

11:31So unfortunately, would love to share, but we made a decision in the company not to share our numbers for competitive reasons.

Nathan Latka

11:38Who do you compete with?

Tomer Levy

11:40We brought that a long time ago.

Nathan Latka

11:42Who do you compete with?

Tomer Levy

11:43So we actually compete mostly with engineers setting up their own open source, and that's an interesting competition. On the commercial side, we compete with Elastic

11:56and AWS. So AWS, Amazon Web Services, obviously a strong base in the market, and they offer, I would say, simplified version of the open source. So they resolve some of the pain, and we see ourselves as more of a premium product, we're much more expensive. We're working more with larger companies to help them get a kind of a more strategic solution.

Gross Margin and Amazon Hosting Costs

Nathan Latka

12:18Are the... Does a company like this, I imagine, hosting heavy... I mean, do you... Does your gross margin similar to other SaaS companies, like in the mid 80 range, or is it way lower or way higher? What... What's your gross margin?

Tomer Levy

12:28I... It's it's not way lower. It's it's about that, maybe a bit lower. We we will be at around that number, I hope next year. But it is a challenge, right, when you host. And think about it, we're a very young company. We have so much data. We have Amazon bill that go to the millions. So just think about how much the constant effort of technology to make sure you're not just moving the money to Amazon

12:51is always a challenge for every SaaS company.

Nathan Latka

12:53Yeah, so just to be clear, you're paying between 1 and 5,000,000 just a year just to Amazon for hosting.

Tomer Levy

12:59Absolutely.

Nathan Latka

13:00God. That's such a good business. Why don't we think of it? Damn it, Jeff Bezos.

Tomer Levy

13:03Know.

Nathan Latka

13:03So

13:05you're... You're like... You just said you're like, maybe call it 80% gross margin now, but as you scale, that's improving slowly, you expect to be mid mid eighties later this year?

Tomer Levy

13:14Well, we're going that path.

Nathan Latka

13:16Do you focus on that or that's not something you really care about?

Tomer Levy

13:18It's always a challenge, right? You're in a management meeting or a board meeting and you say, Hey, I have two engineers extra. Where should I put them on a new feature to bring a new customer to grow the business, or should I bring them to reduce the cost? And it usually goes to not reduce the cost, but focus on growth and focus on expansion, and this is where we are 100% of that. So to your question,

13:38we're investing very little resources and reducing the cost.

Nathan Latka

13:41Yep. Now I want to put a floor on this because honestly, look, a lot of times people like shiny objects, they like clickbaity headlines, they like to hear about numbers and success. So the floor you gave me was a couple 100 customers, I'll call it 300, and the minimum you said, I mean, basically you said on the low end you're going to do $10,000 in ACV on one customer. So that's a thousand bucks per month. I'm

14:00just multiplying 300 times that to come out to $300,000 per month in revenue at a minimum. Is that fair to say that's minimum? I expect you're probably doing significantly higher than that.

Tomer Levy

14:11We're doing high... We're doing significantly higher than that.

Nathan Latka

14:13Good. Well, there you guys have it. So, right, a lot of success there. He's built a minimum, but look, he... My gut tells me it's probably... He won't confirm or deny this, but probably two, three, four, five times that, but he doesn't obviously want competitive folks understanding how that works. Tell me more, tell more about the team. How did you... So you're 70 people. Where are you guys based?

Tomer Levy

14:29So we're based in Tel Aviv, Israel. Big part of the team where we founded the company were Israelis, two Israeli founders. So r and d, in Israel, and now I'm actually talking to you from Boston, from our Boston office. So we have a growing team in Boston here, and it's where the most of the go go to market activity is here in Boston.

Churn Rates Across Customer Cohorts

Nathan Latka

14:48And what about in a space like this? What's your gross, not net, but what's your gross monthly customer churn look like? I mean, is it high, low? Does people switch easy?

Tomer Levy

14:59So the way we look at it is if you look at the self-service, people who sign up on their own, they do something, this will have a higher churn rate.

Nathan Latka

15:09Give me an example, what's high?

Tomer Levy

15:12It's still single digits yearly, like still less than 10% yearly.

Nathan Latka

15:16Okay.

Tomer Levy

15:17And on the once you pay, I would say 10 ks a year, I would say very close to zero.

Sales Team, Marketing Team and Paid Ads

Nathan Latka

15:24Okay, got it. And then what... So maybe the right question to ask here, I'm trying to get a sense of how you're using your team, how many of them are salespeople, and how you use them to acquire new customers. So what do you forecast? You're still young, but hypothetically, do you forecast lifetime values on these customers so that you can back into how many salespeople can I put on them and what can I put on paid

15:45marketing?

Tomer Levy

15:47Sure. So we're very much a land and expand business. We see a year and a half, but we see the growth of existing accounts and the low churn, and it gives us the confidence that we should bring customers to where they feel comfortable coming. If they feel comfortable coming in with a small project for five or ten or twenty ks, that's perfect for us. And if you're happy, and usually you are happy, you will grow. So

16:11when we look at how much do we wanna invest in bringing a customer, currently it's extremely low. It's way beyond the standard of the industry because we bring customer through content.

Nathan Latka

16:22Well, yeah, but how many of the 70 people are sales and marketing?

Tomer Levy

16:26Marketing is a pretty big team, like relatively, I would say probably eight or nine. Sales team is about 10.

Nathan Latka

16:32Okay.

Tomer Levy

16:33Most of the companies still R and D driven or the focused product.

Nathan Latka

16:37So if you look though at a fully weighted CAC, meaning include the salaries of marketing and salespeople, don't just look at paid marketing spend. I mean, are you are you spending $5 to get one of these new customer? I'm talking, by the way, about not your self serve cohort. I'm talking about your 10 k ACVs and higher kind of cohort.

Tomer Levy

16:54Yeah, I think we're well way beyond industry standard for the type of customers we bring. Usually you would see kind of the return period would be, I would say twelve to twenty four months for this kind of business. We're way below these numbers. So we feel we have currently very, very efficient customer acquisition cost.

Nathan Latka

17:20Just to rephrase that, so your payback period, you're doing way better than getting it back in the first year?

Tomer Levy

17:28Yeah, you depend on the customer and the cohort, know, it can be first year

Nathan Latka

17:32Or similar, definitely by the second.

Tomer Levy

17:34Yeah, absolutely. Well, yeah, definitely.

Nathan Latka

17:36Got it. And that's just to be clear, guys, he's got two cohorts, a self serve, which is its own animal, but everything above the self serve cohort, your payback period, super healthy. You've got, you said, eight salespeople and seven marketing people?

Tomer Levy

17:48Yes, something like that.

Nathan Latka

17:49Yep, yep. Very cool. What about... I'm always curious about this. Are you doing anything on paid marketing at all right now, or is it all just content?

Tomer Levy

17:58Yes, we do, and actually it's a pretty...

18:05Easy to predict with PPC, and we see that we don't spend a lot of money. A few thousand dollars a month, it's really small.

Nathan Latka

18:05Quantify that

18:12for me, 5,000?

Tomer Levy

18:14Yeah, something maybe 5 to 15, depending on the month, depending on what you're trying to achieve, but relatively small number, small money, and works well for us.

Events and Sponsorship Investment in 2017

Nathan Latka

18:23Yep. And where are you doing that? Mean, you just doing typical PPC kind of ads or are you doing anything creative like sponsorship at events or things like that?

Tomer Levy

18:30Oh, right. I didn't include events. Events were... Especially this year, we're massively investing in events. We have a team of community evangelists and what they do is they go to events, they talk about the industry, they talk about something people care about, and they basically get the name out, they get the word out that Logz.io is here. And this is kind of... It's very hard to measure, but this is one investment. Think on the obviously paid

18:56campaign we do through Google.

Nathan Latka

18:58How much will you spend on marketing stuff in '27... Sorry, keynote, on sponsorships and events in 2017?

Tomer Levy

19:05Hundreds of thousands of dollars.

Nathan Latka

19:07Less than 1,000,000?

Tomer Levy

19:08Yeah, definitely.

Famous Five Rapid Fire Questions

Nathan Latka

19:09Okay, got it. Very good. Tomer, let's wrap up here with the famous five. Number one, what's your favorite business book?

Tomer Levy

19:17I would go for Ben Horowitz, The Hard Thing About Hard Things.

Nathan Latka

19:21Number two, is there a CEO you're following or studying right now?

Tomer Levy

19:25You you gotta look at Jeff Bezos. Right?

Nathan Latka

19:28Yep.

19:29Number four... Or sorry. Number three, is there a favorite online tool you have, like acuity scheduling?

Tomer Levy

19:34Yeah. I'm I'm using Grammarly. Being, you know, not not native English speaker. It's great.

Nathan Latka

19:39Your English is great. Number number four, how many hours of sleep do you get every night?

Tomer Levy

19:45I would say six to seven.

Nathan Latka

19:47Okay. And what's your current situation? Married, single, do you have kids?

Tomer Levy

19:50I'm divorced with one girl.

Nathan Latka

19:52Okay. So this is one little one. How how young is she?

Tomer Levy

19:55She's 10.

Nathan Latka

19:56Oh, 10. Okay. And how old are you, Tomer?

Tomer Levy

19:58I am 39.

Nathan Latka

19:59Okay. Last question. Take us back nineteen years. What do you wish your 20 year old self knew?

Tomer Levy

20:07Yeah. I think that, you know, when I was 28, still today, you think that other people figured it out. But, you know, now I see more that no one actually, like very few people actually figured it out, and it's okay. Everyone is struggling. Take it easy. You'll figure it out. And... Yeah.

Nathan Latka

20:24There you guys have it from the Logz.io CEO and Founder, Tomer. Take it easy. You will figure it out. They launched back in 2014. Really got their first revenue in 2015, couple hundred thousand dollars. 2016, obviously, they've grown significantly. To date, we know they're at least... They're serving at least, in the low hundreds of customers, call it 300, paying at a minimum, call it a thousand bucks per month. They're about a $10,000 ACV for doing a minimum, again,

20:47$300,000 per month or well over $3,000,000 annual run rate, potentially significantly higher. Tomer's being very modest, I feel like. But a lot of success, 80% gross margin. Again, helping these really CTOs and and technical teams understand and and and get a better grasp of how to manage their different logs and what... And the processes they run around all those log files. Tomer, thank you for taking us to the top.

Tomer Levy

21:09Thank you.