How Memsource CEO David Canek grew to $5.3M revenue and 500 customers in 2018.

hello everybody my guest today is david chanyaki he's the founder and ceo of a company called memsource a software company providing cloud-based translation technology headquartered in prague czech republic david a graduate in translation and comparative studies received his education at charles university in prague humboldt university in berlin as well as the university of vienna david are you ready to take us to the top sure all right tell us about memsource what's the company doing how do you make money so i founded mansource in 2010 and we help global companies translate more efficiently and we're cloud-based software so we provide subscription and what's the average customer pay per month it's about five thousand dollars okay so you're very much in the enterprise space yeah okay got it very good and and what do they get if they pay five grand a month what do they get for that so they get pretty [Music] a much solution uh that has you know two major components for your enterprise globalization basically it's a translation management system uh so it's a it's a workflow so it's a way to connect to your content registry it could be a you know a cms that we connect to and then we we we have a workflow that ships the data to maybe the translators the revisers and then back to to the cms and then we also have a translation tool for for all the translators survivors both editors you know the linguists so these are the main two things the workflow and the actual translation tool and you've launched you launched in 2010 what have you scaled to today in terms of total customers on the platform so we have we have about 500 paying enterprise customers and we have uh about 200k users um and uh you know our users are basically uh our translators transition companies and enterprise uh users so these are the you know these are the three big kind of user groups and in terms of you know you can also get the segment so we provide you know we provide uh the transition tool to translators and the workflow the whole workflow component the transaction management system we provide to global companies and david when i take 500 customers times that 5 000 per month price point you just gave me that would put you at 2.5 million dollars per month is that accurate it's actually it's a little less okay but can we say but between 2 million and 2.5 yeah more or less okay great well more or less so is it in that range or is it still lower than 2 million so we're um so we're going you know we're um what we're doing is uh is uh we have a growing number of enterprise customers uh that are joining our platform so uh historically we were focusing more on the small on smaller customers you know when they're still with us makes so perfect sense so new customers signing up or at that 5 000 per month price point on average but historically by the way this is very typical historically folks were paying less so so what are you at today are you doing one eight per month so so we're uh our next aim or our next game is to get to 10 million dollars of of uh annual uh uh revenue you know okay and so and walk me through kind of where you're at today do you think you'll hit that this year um probably next year okay yeah so 10 10 million in an ar would be 830 grand per month in revenue again can you give me a general sense of where you're at today so um a range is fine by the way if you don't want to say the exact number yeah a little guy i think are you you get the idea i know where we are well no no i'm actually not sure i thought it was 2 million by multiplying your numbers but it's actually it's it's less than that i don't know if it's 100 000 a month or 500 000 a month yeah so so are you trying let me ask you differently let me ask you differently so you don't have to so you don't have to say an actual number are you are you trying to double your what growth rate are you targeting what growth would you have to hit to hit that 10 million mark next year so we grew 100 year on year last year and uh we're going you know we're going to so as we grow bigger you know we're uh we're going to grow at a little bit lower rate than 100 percent uh this year yeah that's what i'm asking so that 10 million target what if you hit that what growth would you have hit are you are you kind of modeling 80 year over year growth 60 year over year growth what's that put you at yeah so so you know last year we uh uh we were at about uh uh five million dollars great so you're trying you're still trying to i mean these are big numbers they're getting bigger you're trying to still double you over here uh this year we won't double so if we doubled this year we would be at 10 million yeah and so we'll be at 10 million 10 minutes next year so we will not double uh uh this year because uh i think doubling forever is probably not our not our strategy and also you know we're bootstrapped so so we're we're you know our uh our growth is is is uh you know needs to be profitable in in so so we need to you know we're running a company that is a self-financed crowd yeah by the way congratulations uh on the scale that you've reached bootstrapping that's rare and i applaud you and i think that's wonderful i can't wait to go through the rest of the interview and learn how you've done that just to confirm this at the end of december 2017 you said you hit that 5 million run rate is that accurate okay good and you're giving yourself essentially 24 months to double that yeah i think that's that's pretty reasonable yeah great yeah so at a 5 million run rate in december of 2017 that means you're doing north of kind of 420 grand per month you've got 500 customers some of them paying less than five grand per month but new ones you're signing up are at that five grand per month level for these translation services give me more of the back story here so you launched in 2010 what were you doing before that so before that i was uh i worked in uh you know my first job was was uh was with a recruitment company then i uh you know i was i was always interested kind of in technology so in that recruiting company i was trying to figure out the market uh the the you know the uh and i was uh i actually uh went to work for a couple of technology companies afterwards telco and and a startup afterwards so it was a language technology startup and uh that's where i you know met some of the uh some of the people that work with me currently at memsource and what's the team size today so we're uh we're 80 currently is it eight eight zero yep eight zero great and everyone's in prague no so we have uh most people in prague and then we have some people in the u.s we have a small team in japan also and then we have a few people you know all over europe and we have one person in canada we have uh one person in korea so that's great we'll do it look i have to tell you we've interviewed thousands of b2b sas ceos and the average revenue per employee across all these is about 137 000 bucks if a cro just across bootstrap companies that number's about 250 000 currently if you're north of a 5 million run rate and you've got 8 employees you're up at like 660 grand so i love that you're doing this highly in a highly profitable way you're super capital efficient walk me through some other some of the key kind of unit economics churn is critical in a sas business what is your turn today and how do you manage it [Music] so um so you know mems search memsource is a a uh is a you know pretty sticky service so so obviously to uh be able to succeed you know we you know we make sure that our terminate is pretty uh you know pretty manageable so well we'll quantify that for me so what is churn what's what's logo churn per month today or annually so so uh we you know month and months you know we're we're between two and three percent of of uh revenue that we lose okay so and that's that's net that's net or gross that's net okay sure so you're adding back expansion revenue yeah is that is that i you seem uncertain is it i accurate lost i lost you for for a sec can you please repeat yeah i was just saying you seemed uncertain when i said you add back expansion revenue i just want to make sure so it's you have less than three percent net revenue churn per month which means you're adding back expansion is that accurate little guy i'm probably you know i would i would need to check with the person that's managing the turn to answer uh david come on hold on there's eight people in the company one of the critical metrics in the sas company zero people in the company oh you said eight zero yeah oh i thought you said eight okay i take i i take back my comment about revenue per employee then it's it's it's it's way less that would that wouldn't make any sense and actually you know we've uh uh we've grown a lot we've we've actually been very successful last year and we expanded um the menstrual steam from um 35 to 70 between 2007 early 2017 and and and early 2018 and we've added few more people in the meantime so uh so this actually you know this year or the last 12 to 16 months you know we saw you know huge expansion in in in our team and uh we we built you know we created a few new teams like uh we we've created a mobile team an artificial intelligence team we've expanded our qa team to test software better but david are you just i mean are you just adding head count and adding expenses are these guys are these extra divisions driving growth yet in new revenue that's been an investment that we made and we and now we're working and we've added also sales people you know we've added sales people in the us yeah uh and and also in europe and uh so we we we added people across the board all teams you know and we added a lot of people to our technology to our r d team yep walk me through uh your customer acquisition costs today with your fully weighted cac so i i i'm sorry i i i won't share that okay and why is that help me understand why that sensitive information well you know it's uh you know i'm i'm ready to talk maybe a little bit about the product you know but about you know i'm not going to go through all the financial information here david sorry have you just had a curiosity have you listened to any of the episodes before before you came on well some of them you know okay so you know it's not a it's not a marketing show we don't dive deep and let you just talk and market the product the whole time i think we've got a good idea about what the product does from our first three minutes is there something you want to add that we missed um sure so what what what what what did we miss in the beginning well you didn't have any any question on the product so yeah my first question was what's the company do and how do you make money and you said and you broke down what the company does so it sounds like you want to say something else about what the product does sure so um you know uh we're uh basically you know we're uh focusing on uh so you ask you know about the expansion of our team you thought you know we're eight people we're actually 80 people well you said sorry you said it you i thought you said eight and i said did you say eight and you said yes and then i said zero i said eight zero you know just just to make it just to make it clear yeah well you corrected me so that's good now but but again i wanna did i miss something critical about what the product does that we didn't discuss in the beginning yeah i think a lot of things but you know probably you don't want to deep down you know uh you don't want to uh you know deep dive in into the product i guess uh well yeah i know david i want to get inside your head i mean you've done something incredible which is you've bootstrapped a company to over 5 million bucks in ar from prague right so so i want to highlight that story and and what i found with my audience is they really appreciate when there's qualitative stories but they have to be tied to a quantitative data point because a lot of people come on in right you're not bullshitting i can't i mean you've scaled this thing bootstrap so it'll i think it only helps you so let me let me maybe ask you this right what is your current customer application cost what are you happy to spend to acquire a new customer and which product right now which are your lines is getting the most adoption what's most popular so maybe you know how to approach this is you know we so i told you we have we have three segments of customers we have freelance translators as as uh that that's one segment you know we let them sign up they either use our free version or uh they pay for a paid version that has some additional features and they will uh you know for these obviously that's um that's a that's an area where we maybe have some advertising you know something we're spending a little bit on that but the revenue is not it's not driving our revenue so we will not be spending a lot there uh we have uh translation companies which is an important segment for us um so just to give you an idea we go to about 50 trade shows uh every every year uh across the world that must i mean that must be expensive to fly teams to these trade shows you're paying sponsorship fees potentially i mean are you spending like how expensive give me a sense of how expensive that is okay are we talking are we talking more than like 500 000 bucks per year just on trade shows uh so we're we're talking you know we're talking about you know every trade show will you know could be something between you know you know like six to ten thousand dollars so it will be approaching that figure that includes the sponsor fee plus flying your team there all that stuff yeah some of them are smaller events but some of them are larger than so you know well it will be that amount and would you say that this is maybe your your number one growth channel are these trade shows traders are important and that's probably yeah that's our that's our biggest cost currently i think okay and so when you when you go spend six or ten grand on a trade show how many customers will you hope to get out of that so you know we'll hope we'll from each trade show we would hope to get a few customers you know probably it's going to be you know between three to five okay so if you if you crush a trade show you get five new customers from that and you spend ten grand on it what i'm hearing you say is you're totally fine spending two or three grand to acquire these customers especially if you're selling them on a five thousand dollar per month plan sure is that i i don't really disagree with me is that accurate correct me if i'm wrong it is it is okay great and and as a bootstrapped company right how do you think about making sure you never run into any cash gap issues where you're spending money up front to get a customer and it takes you 18 months to get it back in other words how quickly do you like to get the money back so we we spend the money up front but we also uh you know we're pre-paid service right so for the year yeah so our customers a lot of the time not everyone but a lot of the time our customers prepay for a year just not to have the hassle to to go through uh you know the payment site you know approvals and so on so so pretty much they're being caught 60 grand up front yeah sure yep that's great last question here so we talked a little bit about your churn do you use lifetime value at all to guide your decision making or is it just a vanity metric so that's that's the the team that's responsible for turn they're using that yeah how do they use that how do they use that data point yeah i should have been i should have taken them to the call here so um uh that that's our reference point that's that's uh i know that this is what they're following as a standard uh and uh so uh sorry david what standard are you optimizing for is there a ratio you're optimizing for or a five you know year ltv what are they optimizing for so we're optimizing to be kind of in the uh in the you know uh i believe what's the industry standard for churn you know if your return is pro it is is i don't know 10 you know probably that something's wrong with your product if it's between you know around two percent then uh i guess we're fine we're so we're trying to benchmark against what's the was the industry standard there yeah very good last few questions here so again you built a great company you resist the urge to raise are you raising right now is there any reason you would ever raise capital [Music] so we haven't raced so far and there's some advantages uh you know we we would we're all we're you know we would we wouldn't say categorically no but we don't currently we don't need to raise so it would have to be a good opportunity for us and and [Music] it would certainly be a change uh a change in in the way we operate so again you're doing 5 million right now on a run right let's say someone came in and gave you 5 million bucks on a 40 million dollar pre-money valuation so you're selling less than well a little more than 10 percent of the company i mean is that a kind of deal that gets you excited i would say i would think about it come on david it's a 10 it's 10x your arr come on yeah i would give i would give it a thought yeah if you if you release a statement after the show goes live like a month later it says we've just raised 5 million from excel on 45 million pre-money i'm gonna go david where's my royalty i want two percent royalty check i'm just i'm just kidding okay let's wrap up here david with the famous five number one what is your favorite business book sorry you were breaking up king oh that's okay what's your favorite business book let's make sure okay so look i i um don't make one up say none if you don't no no i'm i'm not into business books number two is there a ceo you're following or studying give me one off the radar somebody in prague you really respect there is it's not a ceo but his name is yanzadak he he worked in very senior positions and at hp and spell it sells the name j-a-n z-a-d-a-k and uh he's been you know so so that that's someone i know personally and i respect number three what's your favorite online tool for building your business hmm that's a good question there's a number i think currently probably slack number four how many hours of sleep to get every night on average six okay and what's your situation married single kiddos i'm married with two kids two okay and how old are you they're eight how how old are the kids or how long no no how old are you some 44 44. last question one number you get accurately from me there you go all right uh last question here what do you wish your 20 year old self knew sorry can you repeat what do you wish your 20 year old self knew if i was 20 euros what i would want to do yeah just something when you were 20 what is something that you wish you knew oh okay uh well uh i i wish i uh i wish i would you know i would have more kids probably and and it's so i would i wish i i would know that you know it's it's possible to have kids earlier and and it's possible to combine it with work and so that was maybe i started late and and so yeah be great to have more kids than two guys more kids there you have it from david again launched memsource translation company selling early to freelancers translation professionals launched in 2010. bootstrapped it all the way up today 500 customers doing no past 5 million run rate in december of 2017 hoping to double that over the next 12 to 24 months to 10 million bucks economics sound like they look uh look good less than three percent net revenue churn per month totally willing to spend at conferences you know spend 10 grand to get five customers 2k cac with a quick payback period because they are typically signing up new people at five grand a month all paid up front the team of 80 based in remote locations all around the world david thank you so much for taking us to the top thanks nathan it's good talking to you