Moz Revenue, Valuation & Funding (2020)

hello everyone my guest today is sarah bird she serves as the ceo of moz the most trusted authority in online search with powerful seo and local search platforms that improve the position of your brand locations and competitive rank in search results before ma sarah practiced law and traveled the world she regularly speaks about entrepreneurship business models search marketing women in tech and fostering and inspiring company culture sarah are you ready to take us to the top yes let's do it all right so um for people that are not familiar with moz help us understand what you guys do and then are you guys still pure place ass yes sir that's great and tell us what you do just a high level in case folks don't know absolutely moz is an all-in-one seo platform we help you win at organic search there you go all right now customers and they're paying for this and they have a lot of different cohorts but on average what are they paying per month to use the tech yeah you know we do have a lot of different cohorts we have over 34 000 different customers so we could go into a lot of micro segments but we won't today so i'm going to roughly lump it into what we would call our smb segment what we would call our mid-market segment and on the smb side people are paying about sixteen hundred dollars in a lifetime on the enterprise side they're paying about 200 000 in a lifetime okay and can you can you just because there's a lot of things that go into lifetime right for example if you're translating a lifetime could be 100 years or it could be one year returns really high right can you help us understand what that means on a monthly level so an sm is going to pay what 10 20 bucks a month on average yeah i know an smb is going to spend about 140 a month on average and that what's really important about that s p side of the base at moz is that we have a very organic funnel we practice what we preach which means we get all kinds of people coming to our funnel the good news is we don't pay a lot of money for those folks right our customer our cost of customer acquisition is so low that we have a 5.5 times lpv to cap ratio on that smb side of the business and we get full payback including costs in month three okay so so basically a 5.5 l2 day cac ratio if if ltv is 1600 it would mean cac is about 290 on 140 bucks a month so two to three months payback period yeah so it's a very very profitable side of the business but it's a very noisy side of the business what do you mean and what i mean by that is we have a lot of customers to come into maz and uh for example a lot of business owners who think i'm going to do my seo this month and they don't understand it as a as a job as a professional marketer's job that needs ongoing care and support and that actually blends art and science and you really have to be quite technical and have the ability to make changes to your website so often they will come in they will play around and they'll quickly discover oh this is a real this is a real job and it's not really for me and so they'll turn out the good news is we haven't actually paid um i haven't paid any money for those folks right they found us so what's interesting is the turn curve on those first like three four or five months is really really high a lot of people turn out but what is that like eighty percent forty percent yeah it's closer to that eighty percent right but and it and it's it's it drops off quickly each month right month one is real bad and then two minutes and then four should flatten right yeah and then it goes to a beautiful long tail so much so that when you get past month nine we have an annualized turn rate of less than five percent yeah so this is the first i love that you break it down this way because a lot of people just look at churn like it's equal every month and it's actually just not it really isn't right so like if you have five percent in our funnel yeah yeah most fast companies qualify their customers or they're buying customers that are already qualified and because we're not buying the customers and they're you don't talk to a single human being right you just sign up you just put your credit card in that for mods that means we have more unqualified customers than i think the typical staff company and a lot of people say sure you've got to fix that you got it like wow that's a big problem and which i remind folks it's only a big problem if we were spending a lot of money to acquire them if there was a heavy cost of service or a heavy distraction of which there really isn't because there's very self-service right or if you're relying on a big valuation because you have to do the next round and not have to be a down runner you need healthy sas economics right exactly but we're even a positive right we're even a positive we're cash flow positive so how much last year were those numbers um how much last year were those where the with cash flow or yeah either one well so last year what do we focus on this year is that all right yeah so this this year we're about um 60 million in revenue last year just five million review okay that's ebitda 15 you said revenue okay got it so 60 million in terms of run rate so december basically of 2018 you're saying you ended at a 60 million run rate or right about there and you plan to go to about 70 million right by the end of this year so about 10 million new ar bookings this year yeah that's that's the goal that's great okay so so help me understand how you break down these two very different cohorts so people find you i want to understand how your sales team is operating so let's start with your total team size how many people on the team today we are about 180 people okay and how many of those folks are quota carrying oh my gosh do you know six okay so six are quoted no that's good so how do you model out right there's a lot of people that have this kind of these two separate cohorts and they always wonder well if we have sales people and they're harvesting from these these these kind of closer to free tiers called 140 bucks a month right what do we what do we put out in terms of their quota versus their total pay so some a lot of people say five to six to seven x some push it as high as 10x in terms of again total sales comp relative to the ar target right the new bookings target for the rep what do you put your ratio at yeah so we are targeting a 5x um and and just to be really clear right like we the the self-service side of the business is so different than what we often say with edward enterprise internally but really it's mid-market for i think how most task companies think about it so if you hear me use the word enterprise it's really mid-market by how most people would think about it right but we treat those very very differently and we're relatively new to the direct sales channel i would say maybe in the last three or four years and we acquired a company last year that is all direct sales that company is called stat so that part of the company that channel is run very differently and the economics look very different right yep can you break down the the so 34 000 total unique customers how many do you put in your enterprise court versus your s b cohort the enterprise customer cohort is about 600 of that total okay yeah interesting so you definitely see kind of 80 20 rule yeah absolutely yep that's right and there are about 30 of the revenue yeah oh okay good okay not as much as i would have thought that's good nice distribution so 34 000 customers total again doing about and just to put a fine point on that right that is one of the reasons moz is so profitable it's because the self-serve side of the business is very profitable and then we can use that cash to cover the cost of acquisition so other startups and they're growing their enterprise business their direct sales channel they need to take outside funding to cover the cost of customer acquisition as they're building up the business and we use the cash generated from the self-service side of the business to fund the cost of acquisition and for that more stable enterprise customer base which is why we don't need funding on the horizon yeah how much have you raised a date about 30 million why so you guys but you haven't when was the last raise what year oh gosh what year was our last race 20 20 16 i see 2015. yeah have so you guys it's harder for you to pull like i'll call polo wistia because you know they only raised less they could use debt to buy out the investors if you guys try to use it to buy investors you'd have to i don't know probably raise like 90 million they want a 3x minimum um i mean have you considered that is it something doable or no no we have not considered that at this time we're not really focused on that they're not there's no pressure from those early investors to get liquidity no i wouldn't say pressure to get liquidity i mean the business is healthy the business is stable i mean it's also a great it's a great time and market so i would say it's a conversation we're always having and in fact we have a lot of conversations you know ongoing from people who are interested in the business and interested in this kind of business i think as attention grows for seo and as the tension grows for the smb side of the um side of the market you know moz is on a lot of people's mind so i wouldn't say there's pressure but if there's always a hey is this a good time is now a good time yeah yeah i mean well you have put yourself in a range where you now you don't just have strategic buyers as options but you definitely have the pe folks attention as well if you're taking 15 percent of 17 million to the bottom line or about 10 million bucks a year or about what is that about 800 000 a month free cash flow yeah yeah there's a variability in there but yeah yeah yeah of course and um okay good so so 180 folks now how do you think about i want to talk about the retention curve you talked about earlier um how do you i mean if you add three percentage points before that curve turns flat that's significant in terms of future cash flow yeah so so you spend i hope probably spend a lot of time on this what do you know you have to get a new 140 month user to do in the first week to drastically increase the likelihood they stick yeah absolutely you know first of all there's a big increase if they set up a campaign what we call is a campaign which is you have a website that you're tracking over time so moz has a series of use cases sometimes you're in there you're just doing research for a quick project and sometimes you're tracking a campaign over time we find if you're tracking over time you're more likely to stay and so we spend a lot of time getting people to say hey you know don't forget to set up a campaign you want to look at this um website and how it's changing and how the competition is changing you know we don't want to have to rely on the user to come back and remember to run an independent one-off report sarah are these like life cycle emails though or in product notifications you can't afford to put touch on 140 bucks a month no although um so yes we have in product notifications we use intercom we also have you know emails we use um hubspot for various other kinds of life cycle emails and and also we offer one-on-one walk-throughs to any customer that wants it and there is a wonderful um selection bias that happens so people who are more likely to say yeah i want to walk through are people who also tend to be more heavily invested in marketing and marketers so it's not like we we don't try to touch customers right if customers want help we are there for you um but we do find that people who tend not to ask are also attended people who are less invested yep yep when you look at um so we can ignore the two cohorts with this question i think um when you look at revenue churn right across the base over the past 12 months what was gross revenue churn and then the second question is did expansion more than make up for that so we don't have a lot of expansion dynamics like other businesses people tend to come into that sort of middle tier pricing where the free trial is they tend to stay there um that is not true for the sub-segment of our customers that are agency customers we find that agencies will grow with us over time and more than just grow within one product line you know they might they might come in at our our flagship product called moz pro at that 149 price point and they might stay there for a year or two as their agency doesn't grow that quickly but they'll buy more products from moz right so they'll the expansion dynamic we see is more cross product than within products they'll buy fat from us they'll buy our local products from sarah i consider that expansion revenue i mean you're getting more wallet share just instead of upselling seats you're upselling product yeah it's true it's true i'm just i'm trying to make the distinction between the different kinds of in-product dynamics that we would have because the motion is different across the order yeah so what would the actual figures there be over the past 12 months what was gross churn yeah i don't have the actual numbers off the top of my head for that do you know if net you're above 100 percent in in certain segments absolutely 100 other segments absolutely not so it's there's a lot of variability in there um and it also varies by product and so it's hard to say across the board for example in fact yes absolutely most of our growth in the business is from expansion revenue so i'm not i'm i'm being cagey but not on purpose right yeah i mean i'll tell you the reason the reason the reason i'm asking about it really is because i mean you told me 1600 lifetime value on that 140 a month cohort earlier which implies an 11 month basically life which is i mean essentially 9 monthly churn right which is really really high but to your point because your cac is so efficient it's fine but now the problem with that is again i'm going i'm expecting this is pure speculation here if you if you if you're having conversations whether it's going public or you want to buy companies and you're trying to get the company to take some of your equity instead of you have to put out cash or you are trying to sell a private equity firm like these kinds of economics will essentially ding your valuation or the value in my opinion the value of the stock i'm just curious how you talk around that and by the way that sounds bad but i'm curious how you position around that yeah yeah yeah so um i gave you the gross number and i as i headlined at that time right there are many many psych there are many many micro segments within that and so we don't consider that full base all of them qualified we when talking to an investor explaining to our business or why you should be debt or when we're acquiring people we do this more micro segmented approach and we focus on hey if you take out this unqualified customer segment right this whole segment of people who are paying us and we make fun money from them and you only look at the qualified customer segment you know two-thirds of our customers are unqualified at a gross level just if you look at how the funnel dynamics work but a two-thirds of the revenue are coming from our qualified customer this is on like an aggregate cohort basis so that what that looks like is our revenue is incredibly stable and growing right that we have this beautiful beautiful long tail that we have qualified customers have a 10 year of up to 10 years and an average return rate of less than five percent annually or monthly yeah annually annually right so that's that is the kind of turn rate that is um that is enviable of an enterprise company let alone an smb company so if i was role playing though with you right now let's say i'm a big mean private equity firm sarah you're exactly right we love that you're segmenting this way so basically what you're telling me is two-thirds of your revenue is real revenue the rest is kind of fluffy revenue you don't actually deserve because they're not activated customers so really you're not a 70 million dollar company you're actually a 50 million dollar ar company so we'll pay multiple 150 not 70. yeah you could and you could also say hey those customers are paying me to qualify all your other businesses you are paying to go qualify those customers the money that we make from the unqualified cohort covers not only their own cost of customer acquisition but the whole qualified cohort as well and allows me to cover the cost of customer acquisition for these whole other customer segments right that mid-market enterprise customer segment so again i think i think it does require a special investor who looks at this very holistically as a wow i could go leave that money on the table like other businesses do they do other businesses leave that money on the table because they aren't as efficient as acquiring customers as we are or i can say hey that's great they're leaving and they're not leaving with a bad experience most of them leave with a positive experience just say hey i'm not going to get enough value out of this because i'm a business owner i need to go hire an agency um and then we get enough value to go and grow the business and these other segments that are more stable yeah is the company growing too slowly to truly consider a blockbuster like an ipo that would be effective for everyone or is kind of ipo off the table yeah it's a good question i mean i don't think ipo is a likely outcome with the growth rates we're seeing right now in the market uh i think that you're right sort of a a more cat a financial model that priorities cash flow i think is a better fit for us um and that certainly you know plays to the strength of our business model there are many different ways to grow a company right and i don't have a judgment about it like a lot of these companies that are ipo and like they're losing so much they spend so much money right and it's hard to see when are they ever going to start making enough money to justify those values i love that you make money right i think it's a great thing right and and and it's fine that there are that there are markets out there and companies that are growing that way this is not about judgment for them and and also there are other kind of ways to grow a business right and ours is much more focused on fundamentals and cash and stable growth and creating what i consider to be a real business whose per customer economics are fantastic right yeah are you in acquisition talks right now with vista equity yeah no no do you like those guys um i don't i don't really know them personally well enough to say literally they seem fine right they see they seem fine yeah very good last question on expenses you put out a an annual report with all of your character which i loved rapping out 2017 which by the way you didn't do for 2018 when's that coming for 2018. you know what it just ended up being not that important to me but i appreciate there are some people who enjoy it right you're the only the second second person who has said that they missed it but um it's two people enough if enough people tweet at me to say that they really really miss it's been two it's been you and um one of our competitors the company it's like okay this is not the most important work you're gonna do right now let me wrap up with one question here this industry kind of seo in general can be very um um incestual in terms of who who's providing true original sources of data versus who you're buying data from to bulk yours up in 2017 you spent about 3.5 million on third-party kind of data providers where you know is that is that still about the same in 2018 and this year and if so what kind of data are you paying for to make your product it's a good question um so there are data that we data that we acquire some of the data that we acquire is part of why my ebitda is higher this year right my ebitda has grown this year because we are so much better at acquiring data more efficiently like cheaper and there are other parts of my of my business line where the cost is going to go proportionally to revenue growth so on on on total i'm gonna be spending less money on data and data acquisition but there are there are lots of segments within there so yeah well like i'm just curious to what it actually like what that data actually is who are you buying from like what are some of the companies you pay to get data i'm not going to name every single company like name one yeah for example um we buy we have a we have a data partnership with um data aggregators like axiom and info group and factual and they are part of this distribution system of getting your data out there and we've recently partnered with a new platform called uberall and so we are you know we're spending money there as well so um yeah that's helpful that's helpful all right you've got a conference to wrap up so i'm going to wrap up here with the famous five number one what's your favorite business book oh my gosh i was just thinking about can't be lost and founder yesterday yeah radical candor is a really as a really a good one you have to come back to time and time again number two is there a ceo you're following or studying oh wow um you know there are a lot of leaders i'm following i was just listening to jerry jerry colonna again today um on one of his podcasts i think he's he's um which company is magical and thoughtful he's doing like the reboot work but so he's he is you know he's not a text you're looking for more of a tech no no any ceo you're studying yeah jerry colonna oprah winfrey yeah i love her no number three what's your favorite besides you're on what's your favorite online tool for building moz oh wow um you know what we are we are big fans of we're big fans of hubspot because i think email still works email still works great number four how many hours you sleep to get every night oh six seven seven okay that's good and can i ask you how old you are yeah i'm 40 years old i love that 40 years young 40 years young all right and what's your situation married single kids um singles and a kid oh good okay last question what do you wish your 20 year old self knew [Music] oh uh what i wish my 28 year old self knew um yeah i think that um to really trust the journey to trust the drink i my 20 year old self would never have guessed what's happening in my life now i would never have thought it was possible for her and i think what i've had and had some sense of like hey where am i going what am i going to do with this and i want to tell myself to trust the journey i think that's what i tell my 40-year-old self too right i think that's timeless advice journey moz.com almost at 60 million bucks in terms of run rate in 2018. we'll hit 70 million this year the nice thing about that ebitda is improving 15 percent ebitda margin so call it 10 million free cash flow the bottom line 30 million raised last one in 2015 again they got a sustainable business a team of 180 people as look to continue to scale and grow helping people do a much better job at their seo works and grow their companies sarah thank you so much for taking us to the top thank you so much have a great rest of your day