How Madwire CEO Jb Kellogg grew Madwire to $105M revenue and 20K customers in 2024.

hello everyone my guest today is jb kellogg with a company called madwire it's a technology company that provides business management and marketing software and services for smbs and franchises matter i was founded in 2009 with the mission of helping small businesses grow and their local communities grow when jb came on the show last they passed 105 million bucks in ar that was back in 2018. jb you ready to take to the top sounds good i'm ready all right so the world has changed since we last spoke how's cobot hit you guys in your smb cohorts well yeah it definitely affected us luckily we're pretty diversified which is part of our strategy we work with a lot of different industries and types of businesses which is good but the verticals like fitness clubs restaurants definitely were impacted so that affected us a lot of those businesses essentially paused things temporarily we actually told them to um just to try to help them out a lot of them are reactivating now which is good but there's still areas like california and stuff you know we have a lot of customers there that are pretty tight but like i said luckily we're diversified so some industries actually you know did better during this time period such as e-commerce so that was helpful about 35 percent of our accounts are e-commerce so there was um some balancing there but it definitely affected us for a couple months and we're starting to ramp back up now that's good to hear that's good to hear and so for people that missed your last interview we did together just tease them real quick with the product what do you guys hope these gyms and these franchises do yeah so our number one product is marketing 360 which is a small business marketing platform and business management solution so essentially within a singular platform you can do everything to manage and grow the business from a crm to payments like invoicing recurring billing e-commerce all the way into all the marketing related pieces like email marketing social marketing multi-channel advertising et cetera so one platform one login really allows you to do everything you need to do to manage and grow the business when i hear that description without knowing it's you and you're the founder of madwire i think i think hubspot i mean are you playing very much in the hubspot space pretty similar to hubspot yeah but more geared towards small business so our customer is generally one to a hundred employees that's kind of our wheelhouse there's about 30 million of them so there's a lot out there but it's truly the small business hubspot is one level up from that so a little bit larger of a business generally speaking so and then our platform also does a little bit more the types of things that a small business needs to do and is a little bit more comprehensive in that regard but that being said hubspot can be you know become more complex so you can customize it maybe a little bit more and then one thing that makes us different than really any company in the sas industry is we also have the talent component so if you want to build essentially an outsourced marketing team through the platform with us you can actually do that too we don't leverage third-party partners or anything we actually provide those services and marketing modules to the customer so you actually have there's a portion of your team that is full-time dedicated to services to the customer it is and we've built technology to automate a lot of that on the back end but what we're selling to the smb feels like services because an smb wants to buy services but on the back end we're using technology to increase scale and profitability so you have a dedicated support person essentially when you add these marketing modules um when you're a diy customer you're using our shared support that's kind of how that works so tell me more about the makeup of the team you just sort of tease support but what's the total team size today team size 500 people 500 folks and how many of those are engineers 60 60 interesting and and i guess if you're serving the smb cohort you have a high volume lower rpo sort of model what is that our typically what are customers paying you per month on average per month on average well we have 20 000 customers and so when you look at it globally it's about 500 per month per customer about 6 000 per year that's globally but we do have different segments of customers so we have like the true diys which are much smaller price points and then we have customers that have all the marketing modules that are much higher price points so those average prices are much different but that's how it is globally that's impressive and can i take that 20 000 customers times 500 viewers at like 120 million run rate today yep that's right that's great so yeah i mean comparing that to where you were back in september of 2018 you said you had about ten thousand customers and so you've doubled your customer base um your average acv then you told me was around ten thousand so that shrunk a little which makes sense because you have way more volume uh and you've increased ar from a hundred million in an ar up to 120 million bucks an error are you happy with all those numbers yeah you know we're pretty happy and you know we're still we have a lot of reactivation still with some of these industries to get back on board and put us back on track but we have targets about this time next year to be in that 150 million range or so we feel pretty good about so that's what we're kind of marching towards and we've also really improved profitability over the last couple years since we last talked that's been a big focus of ours so we're trying to get that into that 15 to 20 percent range here over the next year which we think is very doable um which would put us you know we're trying to align to that rule of 40 kind of where our growth is going to be that 25 percent plus area um and our ebitda is right in that 15 to 20 area so that's kind of our target and where was it last year what was profit last year very small like about one percent one percent so so what how do you how do you change and how do you try and add you know 10 or 15 percent to your private margin this year especially obviously during covid big piece of it's through uh technology so we launched our new platform marketing 360 a new version um here about eight months ago and it's already really increased profitability because we've automated a lot of stuff that used to take a lot of manpower so for example when we onboarded a new account was very labor intensive and with the new platform we have something called smart start which is you click one button based on the vertical and it customizes the whole platform and automatically builds out the marketing journeys and everything for you so now it takes no human effort so right now our 500 people is like 60 in in tech we have about 200 in sales um and then quota all have quota yeah wow yeah 200 in sales we have 100 which is acquisition sales and 100 which is retention sales so they're upselling cross-selling um and then we have about 40 back office and the rest is support so when you think about 20 000 customers our support team's actually pretty small our account per person ratio now is about 50 accounts per person which is better than hubspot and sprout social or support person per yeah well per person as a whole support even even more yeah yeah so all those things we've been really improving upon to increase profitability overall and we've started offering more usage based things like we've offer payments now so shopify you mean their success story you know really triggered off of when they added payments so we have payments now where you can manage your invoicing recurring billing etc in the platform that's additional revenue you know that we're receiving every month on top which really helps with the profitability piece in july how much gmb did you process through your payments through our payments well it depends we have his legacy payments accounts which are more of like an iso model because we acquired a company called silveredge two years ago um so with them it's close to a billion but if you exclude them and just like yeah annually yeah if you exclude them and look at our just our new payments products it's very very new so um it's only been launched for about a month at this point and so what we're seeing so far is 65 percent adoption rate so users um buying marketing 360 right now but 65 percent are activating payments and the average ticket size so far has been pretty good it's actually been close to a thousand dollars because we have hvacs and those types of businesses that are using it so for example if you have 1 000 invoice paid we make about 30 bucks on that so it adds up pretty fast and this is additional revenue that we didn't capture before got it so so what is that point you're taking 0.3 fee basically yeah 2.9 yep 2.9 how do you make the margin on that work though because usually i mean visa is taking 300 basis points and if you're charging 300 basis points where you squeeze margin out there yeah you recognize the gross that's how shopify does it we do it the same way so you recognize the gross and you um record the net so the net improves with volume we're using stripe so we're using strokes like just like shopify so it's exactly the same way shopify does everything got it so so what you're saying is even if you don't make any money on the payment thing right now because the full three percent that you're recognizing uh is being paid out to oh sorry sorry are you taking six percent and three percent one of these and three percent is actually gross revenue on your balance your profit and loss no it's about two and two point nine percent total and then you have all the card fees and everything and so at the end of the day you're going to make a margin off of the 2.9 um which improves over time is how that works i see i see but that what i'm saying is that margin is going to be something like 0.05 it's very very small yeah yeah it's like five basis points kind of thing yeah yeah but with volume obviously it can get big right and we're really we're hoping to see most of the impact actually with stickiness and churn because customers using those types of products and features within the platform they just generally never cancel i mean if they're doing all their billing especially if it's recurring billing it's just so painful to move um that we expect the churn to improve you know really double the improvements of churn over the next 24 months call it when we first met this was the biggest thing about your model that just shocked me you know i've interviewed thousands of ceos i had never heard metrics like this because what you told me was you were spending three thousand dollars to get a new ten thousand dollar a year customer nothing wrong there three month payback period super healthy but you then told me that your percent your gross revenue churn annually uh was about 90 and i said well holy cow that's way too much and you said well nathan our payback is so quick and what happens is of a cohort of 100 that sign up last month we know two years from now that even if only five of those customers stick they're gonna have 10x the price point we're going to upgrade them 10 times they're just huge accounts which makes up for that loss is that all accurate and true and if so what does that look like today today we're uh our logo churn on core customers which a core customer is a customer that's been with us 12 months or more is about 2.8 per month and we expect that to improve to about 1.5 percent over the next 24 months with payments and some other business management tools that we've built into the platform our new customer segment which is zero months up to 11 months essentially those are new customers they turn at a higher rate so um it's not 90 it's improved you know quite a bit from there it's more like 50 we'll make it to that 12 month mark but like you just said the 50 that we lose we're making up for with growth out of the 50 that we keep so with a small business you're just never going to have a great churn rate in the first 12 months because 80 of small businesses go out of business in general so you're you're really defeating the market if you're doing better than that which we are but the key is not necessarily keeping every single customer it's about growing the customers that find success and so that's what we've done pretty good at is when we find success with the customer we're able to grow the customer and then that makes up for the losses so the mrr turn is better so when you look at your full recognized revenue today what is expansion revenue percentage on historical cohorts uh well which how how long of a cohort like of the revenue you had exactly one year ago in that customer base obviously you lose a portion of those but then you upsell as well what percent are you upsetting 10 20 50 100 percent upsell uh over 100 of the loss yeah for the core customer segment that's all we track at that point so it it comes down a little bit into month 18 and then month 18 and beyond it actually grows larger than it was in month 12. so just to be clear if each month you're turning 2.5 to 3 so annually that's 36 revenue turn what you're saying is your expansion on that same cohort is more than 36 percent so your net revenue retention is greater than 100 in the first 18 24 months right yeah the 2.8 logo so we're losing 2.8 accounts what's the revenue churn after the 12-month period the revenue churn is in the core customer it drops for a little bit from month 12 to 18 and then at month 18 it climbs back up to the high point of month 12 and actually grows beyond it so that's where you get that hundred percent plus um retention on the revenue term the core what is revenue turn annually that's what i'm trying to get at on gross basis well that's what i'm saying for the core customer it's positive it's it's positive gross gross churn can't groce yeah i get that but peel back that there's two components to revenue retention one is gross turn and then then there's expansion revenue when you add them together what you're saying and i hear you is you have created 100 net revenue retention but i'm trying to understand those before you add back expansion what is just gross revenue turn on historical cohort um i don't know i don't have that number i'd have to look because we have we have so many we have 42 plus cohorts now i can tell you do a lot of match you do a lot of measuring because you're very specific with how you answer these you clearly do a lot of cohort tracking right yeah so you'd have to look what is what does it look like for the you know cohort for month 14 you know that kind of thing so yeah i don't have the total aggregate off the top of my head no worries are you still paying about three thousand bucks to get a new customer yeah um it's right it's between three and four thousand depending on the month very cool man and again what's most impressive to me about what you've built is you've done this for with raising a relatively small amount you had about 7.5 million last time we spoke have you raised any additional capital we've not that's great really any plans to uh right now we're kind of thinking if we continue improving on our platform and our numbers and metrics and just our business in general um we think that we have a good opportunity at ipo in the next call it 12 to 18 months that's kind of our target right now and you think you'll do traditional ipo or direct listing or look at a spac or something else uh we've looked at spax that's really interesting to us actually um but right now we're kind of focused on traditional yeah interesting very cool and why would you do that over just staying private and doing a rev share you know with your employees that's an option too and that's the nice thing is we don't have to do anything we just feel like there's an opportunity right now the market's pretty hot you know sprout social was very successful big commerce we work with actually quite a bit as a partner they were very successful just you know a week ago so we feel like it's a good time in the smb space with technology which we feel like we're the leader in for smbs so you know why not go that route and kind of be a transformational company is kind of our thinking right now but like you said we don't have to so things could change profitable a relatively little raise team of 500 strong it's all good stuff let's wrap up here jb with the famous five number one favorite business book good to great number two is there a ceo you're following or studying um not right now number four how is there a favorite online tool you've got for building madewire we use marketing360 we use our own product no come on besides your own we actually we actually do but i'd say right now i mean zoom i mean so we moved to zoom like literally a month before covet so it was perfect timing we have everything on zoom call you know everything so it was awesome how many hours i sleep freaking every night about seven okay in situation married single kids married three kids uh four four kids four kids four kiddos and how old are you i just turned 40. 40. last question what do you wish you knew when you were 20 what did i what wish you knew when you were 20. i wish i knew everything i knew right now if i could start over i could go 10 times faster i would say that um give me something specific what is the specific thing i wish i knew let me think about this for a minute sort of thing about where you were when you were 20 what were you doing i'd say what i wish i knew when i was 20 was just to act faster because i actually knew the madwire business model would work at that time um but i really didn't pull the you know put the gas pedal on it until i was 27 really 28. so there was eight years there where i could have really captured a lot of market share if i just jumped on it earlier but i didn't so i'd say i would act faster guys there you go mad wire a full suite for smbs to handle all of their marketing they've grown from a hundred million dollar runway to 120 million run rate over the past 12 to 24 months uh they are profitable hoping to grow profitability about 15 to the bottom line this year it would not surprise folks they're looking at it potentially doing some sort of ipo in the next 12 to 24 months but again don't have to do it because they are profitable and have raised relatively little capital to 7.5 million arrays serving 20 000 small business customers jb thanks for taking us to the top yeah thanks nathan i appreciate it one more thing before you go we have a brand new show every thursday at 1 pm central it's called shark tank for sas we call it deal or bust one founder comes on three hungry buyers they try and do a deal live and the founder shares 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