How nQ Zebraworks Reached 500 Customers and 18% Growth Through a Legal Tech Merger (Interview with CEO Bill Bice)

Introduction and Company Overview

Nathan Latka

00:00Hey folks, my guest today is Bill Bice. He's the CEO at nQ Zebraworks, is tackling the challenges created by work from anywhere in legal organizations. He started his first software company at 18 and has since been on the founding team or a seed investor in over 27 startups. Bill, you ready to take us to the top?

Bill Bice

00:15>> Absolutely.

Nathan Latka

00:16All right, very cool. So jump into this, nqzw.com. So are you selling directly to legal firms? We are. Okay, and I assume that would you build this for yourself?

Bill Bice

00:26>> Well, no, it's coming back to my roots. That first company you mentioned that I started when I was 18 was in the legal tech vertical and I've kind of circled back around and come back into that market. And it's actually a pretty exciting time to be in this niche. So we're having a lot

Nathan Latka

00:43of fun going after it. What are some of the issues that legal firms have when there is no central office and everyone's remote?

Bill Bice

00:50>> Yeah, sort of the issue that everybody's tackling, but law firms and legal organizations, government agencies, corporate law departments, it's a pretty conservative bunch. And the pandemic has been this outside force that has suddenly caused change to occur. And I really don't look at it as a change agent. It's more like an accelerator. It took things that were already happening, and now instead of taking a year, ten years it's all been compressed into one year. So all

01:22>> these issues of flexibility and hybrid work have sort of been forced on law firms where they really didn't have to deal with them before. And it's an environment where security is really important and being able to extend your infrastructure and support work from anywhere is tough for them to do. So that's what we've been going after.

Nathan Latka

01:43Interesting. And when did you launch the business officially?

The Merger of nQ and Zebraworks

Bill Bice

01:46>> Well, this came out of a merger. So the nQ portion was launched in 2003. I started Zebraworks in 2019 to get back into the legal market. And so we merged the two together last year.

Pricing and Average Contract Value

Nathan Latka

02:00Help me understand what firms are paying on average per month to use your technology.

Bill Bice

02:04>> Well, it's pretty cost effective. So it's in the $10 per month per user kind of range. And these are typically pretty large firms with large user bases.

Nathan Latka

02:15So instead of looking at it on a seat basis, though, what's sort of the average firm? Like, so you basically have the average number of seats they're paying to start with, are we talking like a thousand bucks a month or like $10 a month?

Bill Bice

02:25>> Well, all the above. So we work with the largest firms in the world down to mid sized firms. So it could be 50 users at a firm down the street from you, or it could be a firm that has several thousand users.

Nathan Latka

02:40I know it's hard to do, but if I did sort of force you into an average, what would you say your sweet spot is? What's the middle?

Bill Bice

02:46>> The middle is probably 100,000 to $200,000 annual recurring revenue projects.

Nathan Latka

02:53Okay, fair enough. $150,000 a year. And that's, if legal firm is paying you $150,000 a year, how many seats are they probably using?

Bill Bice

03:01>> That's in several 100 seats. Several 100.

Target Market and Firm Size

Nathan Latka

03:05So how many law firms have several 100 folks that they could pay for seats? Like, do think the total amount of legal firms you can sell to is?

Bill Bice

03:12>> Well, it is a niche market. So we talk a lot about the Amlaw 1,000 in The US, which are sort of those firms that gets you down to about 200 attorneys roughly. And most firms have about twice the staff of the number of attorneys that you see.

Capital Raise and Merger Structure

Nathan Latka

03:30Okay, interesting. So you launched this in 2019. You're obviously scaling nicely. Have you done this all bootstrapped or did you raise capital?

Bill Bice

03:37>> No, so part of the merger was a capital infusion that let us go out and grow like we want to.

Nathan Latka

03:46I don't know that I understand the whole merger thing, right? So when did the merger happen and why did you do the merger?

Bill Bice

03:51>> Well, so we did that in 2020. So we were out looking to raise the Series A for Zebraworks. So we built our very first product and it was time to go to market. And the route we ended up taking was merging with a well established legal tech company, nQ. And as part of that, funding was part of the deal. So it kind of a twofer. Let's put more mass behind it and bring the funding to the

04:19>> table at the same time.

Nathan Latka

04:21I want to try and simplify this, but we don't have tons of time, right? So you're saying nQ at the time was doing more revenue than Zebraworks, correct?

Bill Bice

04:28>> Absolutely, yes.

Nathan Latka

04:29You're now leading though as CEO as the resulting organization, right?

Bill Bice

04:33>> Correct.

Nathan Latka

04:34And so, I mean, from like a cap table perspective, do they just own like 80% and you only own 20%? Like, how did you work for some of those economics?

Bill Bice

04:42>> Well, was a little bit of a reverse merger in the sense that part of the attractiveness in doing it was the management team that we had created with Zebraworks. So what we did when we put Zebraworks together is we brought the original team of that. That first company I started when I was 18 was called ProLaw Software, and the genesis of Zebraworks was to bring that management team back together. You know, we spent a ton of

05:06>> time in the legal market. We know this area inside and out. So it was that expertise that we were really bringing to the table. And we built a cloud platform. We tie that to the existing on premise technology that we have from nQ. And you know, it's kind of a joke in the legal market that the way you be successful in this market is do things today that everybody else was doing ten years ago. So right

05:32>> now we're moving to the cloud. And so that's sort of the logic of the combination.

Nathan Latka

05:39Yeah. Okay, that makes sense to me. But what, I mean, I know you can't share a lot of this, but like the cap table today, is it basically like anyone that invested in nQ sort of sits as one sort of SPV on your cap table and then you have a portion and then you have an employee option pool for the rest of your people at Zebraworks?

Bill Bice

05:54>> Yeah, it's even simpler than that because nQ had been bought by a company called Reckon that is a publicly held company in Australia. So have sort of one piece that comes from the Reckon side and then the other piece from from Zebraworks.

Nathan Latka

06:12That publicly traded company owns a bit of your equity?

Bill Bice

06:15>> Exactly.

Nathan Latka

06:16I see. I see. Very interesting. Okay, and how much what was the cash injection component of the merger? How much?

Bill Bice

06:22>> So the original goal when we were going to do the Series A was to do a $5,000,000 raise. And although we didn't announce it, inherent in the deal was exceeding what we were looking for in funding.

Nathan Latka

06:36That's great. What were you targeting valuation wise when you were going out for the $5,000,000

Bill Bice

06:41>> So we were early stage, so that was one of the attractive elements of this is that it was really good for everybody that was involved. So our goal when we're just raising the series A was to get something in the 8 to $10,000,000 pre.

Nathan Latka

06:56Yep. Okay. 8 to 10 pre, which would put you out with like 12 to 15 posts, something like that, selling 30% of the business. Exactly. And what you're saying is through this new deal, basically were able to get actually more than that, plus a great new partner and plus the customer base that you can move from on prem to cloud at Zebraworks, increase ARPU, upsell the cloud instance.

Team Scale and Headcount After Merger

Bill Bice

07:15>> Yeah, we instantly went from six people to 60 overnight with a really experienced team that lives in this market. And so our ability to scale just put us in a different league day one.

Nathan Latka

07:27Fascinating. Okay, now how many customers today total?

Bill Bice

07:30>> We've got about 500.

Nathan Latka

07:31Wow, 500 law firms. And then add up all the seats, how many attorneys across those 500 firms?

Bill Bice

07:37>> That's a great question.

07:39>> I haven't actually added it up.

Nathan Latka

07:41Oh, I thought you would be like tracking that number every day. That's the exciting number.

Bill Bice

07:45>> Well, it is, and I know it better for the newer things. We're also doing the transition from the traditional enterprise sale to subscription model. So that's a difficult thing for any software company to go through, but it dramatically increases the value of the company to do that. So I don't have the same standard SaaS metrics because we're right in the middle of making that transition.

Nathan Latka

08:15Yeah, what is the split? So how many customers are on prem customers only and how many are Zebraworks cloud customers only?

Bill Bice

08:23>> Well, so the cloud products are brand new, so that's not a ton of firms that we have sold only new. But frankly, really what firms want is that sort of bridge to the cloud. Small firms have migrated and you can find small firms that are 100% cloud, but the rest of the market is this sort of hybrid model between on prem and cloud.

Nathan Latka

08:49And so if I asked you, like, what is your monthly recurring revenue today? Would you include all like the SLA and maintenance agreements that came with the nQ, the deal there? I imagine that was their recurring revenue stream as maintenance.

Bill Bice

09:01>> Yeah, absolutely.

Nathan Latka

09:02Okay. And are they still pretty sticky? I mean, or no?

Churn Rate and Customer Retention

Bill Bice

09:05>> I mean, they're churning like crazy and all are moving to the cloud.

09:09>> No, one of the great, one of the things that's really nice about legal is if you do a good job of taking care of your customers, you can have an extremely low churn rate in this market. It's a very interesting vertical because companies coming from outside who don't understand legal often struggle for years to really get the value proposition here. But if you understand it and you're really good at it, then you can keep your clients

09:34>> essentially forever.

Nathan Latka

09:36What is your churn today?

Bill Bice

09:38>> It is on an annual basis, less than 3%.

Nathan Latka

09:45On a revenue or a logo basis annually?

Bill Bice

09:48>> Logo. Logo base.

Nathan Latka

09:50Okay, I mean, that's incredible. Now what's the expansion revenue look like? I imagine you're way above 100% net dollar retention.

Bill Bice

09:55>> We are, and I specifically look at logo retention because it is very deceiving to look at the revenue numbers. And that ability to hold on to firms and then have that client base to upsell in is crucial to the whole strategy.

Nathan Latka

10:14So do you know what your expansion is on the historical base past twelve months?

Bill Bice

10:18>> I don't.

Nathan Latka

10:19But you know you're above 100% net dollar retention?

Bill Bice

10:22>> Yes.

Engineering and Sales Team Breakdown

Nathan Latka

10:23Okay, so at least 3% expansion then to make up the 3% churn?

Bill Bice

10:25>> Absolutely. Fair. Okay, interesting. All right, very cool. You mentioned 60 people today. How many of those are engineers?

10:33>> We've got 24 people in engineering.

Nathan Latka

10:36And I imagine you

10:38probably have quota carrying sales reps at this ACV.

Bill Bice

10:41>> We do.

Nathan Latka

10:42How many?

Bill Bice

10:43>> Sales team is 12.

Nathan Latka

10:44Bill, you've done this a ton.

Sales Quota Structure and Compensation

Nathan Latka

10:48A lot of first time founders struggle with how to set comp structures for their first account executive. Right? How do you structure that? What's the quota target?

Bill Bice

10:56>> Well, it is tough, particularly when you're not totally sure you've got product market fit. We have a huge advantage here and that we know this market really well. We're working with the sales team and the sales leader that, so our CRO was the sales leader at ProLaw, that first company. So it's such a huge advantage to come in with that knowledge of what it takes, but I always build from the ground up and say, okay, well

11:26>> how many? It's so tempting to take the numbers and go into reverse. We need this revenue, we have this many salespeople and we're going to divide up the quota, but that's really meaningless. I much prefer the ground up route of saying, okay, here's the activity that I know a sales rep can do, here's what that's going to translate into a realistic number of deals per month, here's what that turns into revenue, and that's what creates a

11:50>> quota.

Nathan Latka

11:51And so what is that today?

Bill Bice

11:53>> So the quota for a sales rep is, and this is based on multi year deals, so it's three to five year deals and depending on the region, it's $600,000 to $1.2 million.

Nathan Latka

12:09Interesting. And let's say that you hired me six months ago and I'm on track to hit my $1,200,000 quota. What will I earn full on target earnings, base plus commission?

Bill Bice

12:20>> So this is a,

12:24>> you're probably not going to do that well if you're coming in from outside the market, This is a place where having the experience and the connections is really valuable. And so a good salesperson in this market is to make 120 on the low end and 180 to 200 sort of the norm and a top performer can hit $250,000 to $300,000. Base plus commission.

Nathan Latka

12:50Yes. Yeah, interesting. Okay, very interesting. Okay, cool. Let's talk about growth, right? So when you look at obviously just like your revenue numbers past twelve months, the merger happens, that. What you grow by the past twelve months?

Growth Rate and SaaS Transition

Bill Bice

13:03>> So we will be at twelve months next month. So we're at eleven months as we speak today, eleven months and a handful of days. And so with the conversion from maintenance, we're running at about an 18% growth rate, which we expect to accelerate coming into the year as we have more cloud products that we're taking to market.

Nathan Latka

13:32And so what does that mean? Mean, do you think by December this year you can break a $2,000,000 run rate?

Bill Bice

13:38>> We're going to next year. It's all about getting to the SaaS business model.

Nathan Latka

13:47Yeah, yeah. I mean, do you feel confident about passing a million dollars in terms of revenue this year?

Bill Bice

13:52>> Yes, and the

13:57>> beautiful thing about this market is if you're really good at it, it is a very strong referral market. So that's one of the reasons I really like this market because there's such a great payoff to actually focusing on your clients and taking care of them. Like the core principles of the business really pay off.

Nathan Latka

14:16Yeah, help me understand real quick. I'm missing something here. So you mentioned earlier 500 customers and you mentioned average ACVs between one hundred and two hundred thousand. Now, obviously you and I can both do math, that would put you at like a 50 or $60,000,000 run rate, but you're at more like a million to two today. Do all those 500 not pay those bigger contract values yet? Is that what happened there?

Bill Bice

14:35>> Well, it'd be great if the entire history of the company were on the SaaS business model, right? Because that's how it would translate.

14:46>> So you're making

Nathan Latka

14:47more revenue than a million or 2,000,000. That's just the SaaS portion.

Bill Bice

14:51>> Well, it's the multiple factors. It's the history of the enterprise sales. So you're only getting the maintenance revenue from those customers. But it's the reason why everybody who ever built a SaaS company or a software company twenty years ago wished they had built it as SaaS because of course the revenue and valuation today would just be completely different.

Nathan Latka

15:14Yeah, let me ask this differently. What revenue do you think you have to hit to go out and raise a competitive Series B?

Bill Bice

15:21>> So

15:24>> this may sound a little nuts given the economics of how SaaS businesses work, but we believe we have a long runway without having to go to a Series B.

Profitability and Capital Deployment

Nathan Latka

15:37Are you profitable today?

Bill Bice

15:38>> We are.

Nathan Latka

15:39So how did you reinvest the 5,000,000 cash injection you got? Is that all still sitting in the bank?

Bill Bice

15:44>> Well, we're still investing. That's the beauty of having such a strong foundation. It's why this made so much sense for us because we take a great profitable business, add the SaaS extensions to that. So the investment's really building out the platform.

Nathan Latka

16:04Well, I guess that's my point is if you're taking in 5,000,000 of capital that wasn't revenue, right? It was an investment, you're spending it. You're going to be burning capital for a while while you invest, but you just told me you're profitable.

Bill Bice

16:16>> Yeah, because we start with a very nice profitable base that gives us a foundation to run off of. So we have quite a bit of investment scheduled for next year we build out the engineering team, build out the sales team.

Hiring Philosophy and the Mythical Man Month

Nathan Latka

16:32I see, I see.

Bill Bice

16:32>> I think it's

16:33>> one of the core mistakes that so many founders make, which is you raise money and then you do everything at once at the same time. And you think about building an engineering team, like one, it's really difficult to recruit great people today, but two, the mythical man month issue has never been solved. We're not going to get twice as much product built because we go from 24 into, you know, a team of 24 to 50. That's

17:02>> just not going to happen. So what we're doing is building all of the core platform with a really experienced senior team, And then once we have that, then we can more effectively put money to work.

Nathan Latka

17:17You might be burning next year at some point as you reinvest in growth once you're ready for it. I see. All right, Bill, good stuff. Let's wrap up with the famous five. Number one, favorite book.

Famous Five Rapid Fire Questions

Bill Bice

17:29>> I

17:32>> was literally just looking at the Mythical Man Month because of this issue. So I'm gonna take that as the all time because The Mythical Man Month? Yes.

17:40>> Okay.

Nathan Latka

17:41Number two, is there a founder you're following or studying?

Bill Bice

17:48>> To pick one, I don't know. Let's go to the next question. Let me try to come up with something that seems semi clever.

Nathan Latka

17:56Number three, what's your favorite online tool for building Zebraworks, besides your own?

Bill Bice

18:01>> Well, mean, it's got to be LinkedIn. I mean, know that that's not at all unique or special, the fact

Nathan Latka

18:09That's that the lawyer answer. That's what I would expect from a lawyer, you know?

Bill Bice

18:13>> Well, this is what's so great about going after niches. It's like you can get to exactly who you need right now in an amazingly efficient way.

Nathan Latka

18:22Yep. No, I totally agree. If you can define them, you're good to go. Number four, how many hours of sleep do you get every night?

Bill Bice

18:29>> Eight and a half every night.

Nathan Latka

18:31That's great. And what's your situation? Married, single kiddos?

Bill Bice

18:34>> Married, four kids.

Nathan Latka

18:36Wow, how old are you?

Bill Bice

18:38>> I'm sorry?

Nathan Latka

18:39How old are you?

Bill Bice

18:40>> 52.

Nathan Latka

18:4152, last question. What's something you wish you knew when you were 20?

Bill Bice

18:46>> Wouldn't we all love to go back and apply everything we know now to doing it then? I mean, my biggest mistake when I was 20 was thinking that I knew it all and not being willing to accept help.

Nathan Latka

18:57Guys, good stuff. NQ ZW, again, software for legal firms to manage their now newly remote teams. Did a merger last year, which came with a cash injection. This was a publicly traded company with essentially a spin out. Bill is now leading it with his great management team that has deep expertise in legal. Their call it sort of between and floating with a million dollar run rate, hoping to grow up to 2,000,000 next year as they transition

19:18on prem legal customers to cloud customers. 500 customers today, are profitable being patient before reinvesting that 5,000,000 that came with that merger. Bill, thanks for taking us to the top. Thanks, Steven.

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