How Onfleet Reached 900 Customers and $900 ARPU Managing Last Mile Deliveries (Interview with CEO Khaled Naim)

Introduction and COVID Tailwinds

Nathan Latka

00:00Hello, everyone. My guest today is Khaled Naim. He's the CEO and cofounder of a company called Onfleet, the world's fastest growing provider of last mile delivery management software. Alright. Khaled, you ready to take

Khaled Naim

00:10us to the top? Let's do it.

Nathan Latka

00:12All right, man. So this is a space people would think and assume benefited from COVID. People need more help delivering. Everyone's ordering online. Things are delivered. Are you seeing a spike?

Khaled Naim

00:24Definitely, yeah. I mean, as you can imagine, retail is going through a massive sort of transition to online delivery focused models. So yes, we absolutely are.

How Customers Use Onfleet

Nathan Latka

00:38So can you help people describe, like what has the use case been, especially over the past three months? How are people using Onfleet? Can you name a company?

Khaled Naim

00:46Yeah, so Drizly, we announced recently, they're an alcohol delivery service. They've always been focused on delivery. But many retailers are basically people use Onfleet to deliver goods locally. So our customers are companies that have some sort of a last mile delivery operation, and they use our software to help them manage their fleets of drivers, so routing, dispatching, real time tracking, analytics, proof of delivery, customer facing communications. Any retailer that's looking for new ways to distribute to

01:24get their goods out to their customers can benefit from creating pool of drivers and using Onfleet to deliver to their customers. Are the pool

Nathan Latka

01:34of drivers on your payroll full time? Are they contractors or on your... Are are they on your customer's payroll full time?

Khaled Naim

01:40Customer's payroll or they are contracted as a as a as a third party courier. So we also allow for businesses to work with third parties and use Onfleet as kind of a collaboration tool or orchestration layer to interact with that third party so they can pass the work over. The third party courier company executes the work, and then the retailer gets all of the data, the visibility as if it were their own fleet.

Origin Story: From Stanford to Onfleet

Nathan Latka

02:09You launched this company back in 2015. Were you delivering? Were you hustling and delivering yourself and had the idea? Or what gave you the idea?

Khaled Naim

02:17No, that's not how we got started. We got started... We were actually originally down at Stanford working on location based services technology. So we were targeting emerging markets at the time. This is back in 2011. Helping people that lack functional street addressing systems in their countries to communicate locations with delivery services. That's how we got started. So we created a simple web app that allowed anyone in the world to create a URL that represents a physical

02:45location. So that was kind of, we called it Addy. And Addy was the

02:53of inception of Onfleet happened. As we were building it, we sort of identified that these companies that we were talking to for Addy just didn't have any technology on the back end. They were managing their fleets with pen and paper, chat apps, phone calls, text messages. And meanwhile here, we were in Silicon Valley and saw all of these companies emerging around us that were basically just using smartphones to better manage fleets of drivers. And we saw

03:21an opportunity to build the infrastructure for that kind of emerging world. And

Customer Growth to 900

Nathan Latka

03:27walk us through customer growth. So I remember, I mean, you've been on a couple of times. Back in 2017, you shared you'd broken 300 customers. In late twenty nineteen or September, you said about 500 ish customers. That was about almost a year ago now. What do you got today?

Khaled Naim

03:43Today, we're close to 900. We're around 900 right now, actually.

Nathan Latka

03:48And they're all... Like, do they all fit the persona of Drizzly?

Khaled Naim

03:53Drizly, sorry.

Nathan Latka

03:54No worries. No.

Khaled Naim

03:56That's close.

Nathan Latka

03:57Come on, give me credit.

Khaled Naim

04:00Yeah. No, close.

04:02Definitely not. Drizly is, you know, kind of a modern, you know, new consumer facing, like direct to consumer delivery service for alcohol. But we have customers that are more traditional that have brick and mortar locations. Total Wine and More is an example in that industry. Total Wine and What? Total Wine and More. An alcohol, the largest independent retailer of fine wines and spirits in the country.

04:29Gap, more traditional retail Sweetgreen, the way we work with restaurants as well. Wait, how does Gap use you? So Gap, in some of their international markets, they actually have fleets of drivers that are doing same day deliveries. So they offer same day delivery in some of their international markets, and they use that fleet. And that fleet that they use to do those deliveries is powered by Onfleet.

Nathan Latka

04:54Interesting. Okay. So using the Sweetgreen example, I mean, I'm just thinking, well, wait, why the heck would Sweetgreen use Onfleet when they've got Uber Eats and DoorDash and all that? And the only answer is the margin profile using you is much better for them.

Khaled Naim

05:06Yeah, great point. So they do also work with Uber Eats and maybe others as well, but I know Uber Eats. They... So a lot of retailers, a lot of restaurants are adopting a hybrid model where they they're sort of omnichannel, right? They need to take orders in from however they can, especially now.

05:28But because of the margin profile of having their own drivers, especially if it's a larger order, like a catering order, then, you know, it makes sense to have their own fleet's drivers and to use Onfleet to manage those workers. The the cost is just... Is is a lot lower when when you're talking about a large order.

Pricing Model: SaaS and Task Volume

Nathan Latka

05:47So can we just role play for a second? I'm Sweetgreen. I have a new $100 order I'm going to use Onfleet. Can you sort of build a little mini P and L for us?

Khaled Naim

05:57Well, so the biggest cost is going to be the driver, right? So you have the driver on payroll, depending on how your location and how you pay them

06:09the driver is going to be the biggest cost. Usually they're bringing their own vehicle. In this day and age with the gig economy, drivers show up with their own vehicles, so you're not leasing or paying for that vehicle or dealing with maintenance. If you look at the P and L for the trucking industry, those are big line items. There's fuel costs, there's vehicle leasing, maintenance, etcetera. And the gig economy is sort of local last mile delivery.

06:40Typically, the largest cost is paying for the drivers, so say $15 to $20 bucks an No,

Nathan Latka

06:47I got that. But what does Onfleet take out of a $100 order?

Khaled Naim

06:50So we don't take a margin. So that's the nice thing about Onfleet is we charge you based on the feature set that you need within the software. It's a SaaS model. So we talked about this last time, but it's depending on the feature set and the task volume. So we do charge you based on the delivery volume, but we don't care if you're delivering something for $10 or $100

Nathan Latka

07:10Yep, yep, yep. I wanted to give you a chance to kind of explain that because I think that's a massive arbitrage play for anyone that needs last mile deliveries. You you do not... Maybe your VCs would argue you should, but you take no percent of sale. It's based off number of tasks processed through the system and a feature set.

Khaled Naim

07:25Correct, yeah. We're not driving the sales, so we can't really command a margin.

07:33And we don't even know the value of the items that are going through. All we care about is the volume of deliveries, the number of transactions. And when a driver starts a delivery, completes it, we say, okay, that's one task. And that adds to their task usage. And if they exceed a certain threshold, then they start paying on a per usage model. They have up to a certain volume that's included in base rate. Last September,

Nathan Latka

08:03you told me each customer was paying somewhere around $800 on average per month. Is that still about the sweet spot? That's the average?

Khaled Naim

08:10Yeah. That's about right. I think we're closer to 900 now, but in that range.

Nathan Latka

08:15And paint that picture for us real quick. If I'm paying you $900 a month, how many tasks are you you probably processing for me?

Khaled Naim

08:22So our average across all of our customers, paying about 20¢ a task. Okay. Interesting. Our our highest volume customers are all the way down to, you know, 10¢ a task, and lowest volume is a little higher than 20¢ a task. If you're below that initial tier threshold, you're going to be paying a lot per per task.

Nathan Latka

08:43Got it. So $900 a month at 20¢ a task or something like that. I mean, that's what, 4,500 tasks or about a 150 deliveries a day through Onfleet, something like that?

Khaled Naim

08:55Yeah. Yeah. That sounds about right. Obviously, you know, it's it's a... The distribution is pretty much across the board. Mean, we have customers doing hundreds of thousands of deliveries a month and customers doing hundreds a month. So it varies pretty dramatically across customers. But yeah, that sounds about right.

Tasks Processed and Scale

Nathan Latka

09:13How many across all your customer? How many tasks last month across the entire base?

Khaled Naim

09:18We are north of 3,000,000 now.

Nathan Latka

09:20Wow. So, you know, 100,000 plus a day.

M&A Interest and Breakeven

Nathan Latka

09:24So, I mean, at that scale, you have to have people that want an asset in this space calling you up asking to buy the company. You've obviously chosen not to sell. Why is that?

Khaled Naim

09:34We think we're just getting started. I mean, you know, this space is just really growing quickly. You know, we've achieved a lot over the years. We had breakeven a couple of years ago.

Nathan Latka

09:46You're still breakeven?

Khaled Naim

09:47Still breakeven, yeah. I mean, with the growth this year, our revenue growth has outpaced the ability for us to hire. We are hiring,

09:58yeah, we have been approached by a number of folks for

10:04M and A, but have decided to continue pushing forward.

Revenue and Growth Rate

Nathan Latka

10:07Yeah, mean, 900 customers paying 900 a month. You guys are somewhere around $800,000 a month in revenue?

Khaled Naim

10:14Yeah. That's right.

Nathan Latka

10:15Yeah. Which is double where you were twelve months ago about. Correct?

Khaled Naim

10:19Yeah. Yeah. This year, we're we're definitely, on track to double... Probably more than double revenue this year.

Funding History and Lighter Capital

Nathan Latka

10:25That's great. Okay, so what about funding situation? I I think last week you said you raised a total of $5,000,000. Is that accurate? In equity, yeah.

Khaled Naim

10:34And we raised close to 1,000,000 in debt. So mentioned that we work with Lighter Capital. So yeah, that's still the case.

Nathan Latka

10:44And when did you raise the million from Lighter?

Khaled Naim

10:48Over the course of the last several years in multiple tranches, we started with a revenue based financing vehicle. And

10:58then now we have a fixed term loan.

11:02And that was, I think, late twenty eighteen maybe.

Future Capital Plans

Nathan Latka

11:06Yep, yep, very cool. And so talk to me about capital needs moving forward. I mean, you see places you can invest to drive growth? Would you raise additional capital if you have that as an option?

Khaled Naim

11:15Yeah, so we're certainly looking at raising now. We wanted to get the business to a point where it could stand on its own two legs and we don't need outside funding, but we are at the point now where it looks like there's huge exciting market opportunity to go after, and we would raise some capital. We'll be announcing something in the near future to that effect.

Nathan Latka

11:45Uh-oh, that face tells me something's cooking. We'll look forward to that announcement. What's the right amount? I mean, do you have an amount you're targeting? Like if you're going to raise, you might as well have a target and have a plan for it. Is it 5,000,000, 10,000,000, 40,000,000?

Khaled Naim

11:59Probably in the 10 to 15,000,000 range. We don't need a ton of capital. We're a super lean operation, and I think we've gotten really used to this approach. And we don't plan to go back into heavy burn mode and spend tons of cash to grow the business. We think we can do it quite efficiently. So we don't need boatloads of capital, but a little bit goes a really long way with us.

Team Size and Sales Structure

Nathan Latka

12:25Yep, very good. What's the team look like today? How many folks?

Khaled Naim

12:29We're 40 people right now.

Nathan Latka

12:3140. And how many engineers?

Khaled Naim

12:34Of the 40, about 15. 15 to 17.

Nathan Latka

12:39Okay. And do you have any quota carrying sales reps? And if so, how many?

Khaled Naim

12:44We do, yeah. We have

12:48a few SDRs. We're like three SDRs, five AEs, something in that range. So yeah, eight to 10.

Nathan Latka

12:55Yep. And do you have... I mean,

12:58are you testing anything in terms of your SDR to AE relationship that isn't already common practice? We're always testing.

Khaled Naim

13:06I mean, you know, right now that is the kind of big question. As we grow the team, by the end of next year we'll be probably about 65 or 70 people on the team. And a large portion of that will be on sales. And so we are looking for folks in revenue ops, which is a new position we've never hired before, but they would help all the plumbing to make our reps more efficient. But then, yeah,

13:29we've only historically had one outbound SDR, one inbound SDR in that couple of AEs. So now we're thinking about, okay, what is the right ratio as we grow the sales team? And there's still a lot to learn. We haven't quite figured it out yet. But right now it's pretty close to two to one AEs to SDRs.

Churn and Net Revenue Retention

Nathan Latka

13:51Last question here. Obviously, unit economics related to churn are critical in a SaaS company. Now I think my notes, Khaled, might be wrong here. Did you tell me last time about a year ago your gross churn annual on a revenue basis was 72%, but your expansion was 90%? So net revenue retention was 110%?

Khaled Naim

14:09So the net revenue retention number sounds right. Right now, we're more than that. Our net revenue retention annually is about 115, 116%.

Nathan Latka

14:20That's a great spot.

Khaled Naim

14:21Gross. Yeah. I mean, a lot of that is obviously May, June, just crazy expansion across our existing customers, as you might imagine. Mean, people staying home, ordering their groceries, we do a lot of food and beverage deliveries. So a lot of expansion in our existing customer base. We did see higher than usual churn. So this year has been just across the board anomalous. The last few months have been more churn than usual, more new customers than

14:49usual, more expansion. But yeah, typically,

14:56gross annual revenue retention is around 85%.

Nathan Latka

15:01Well, that's not bad at all. That 15% gross churn then?

Khaled Naim

15:05Yeah, yeah. So I must have been must have been missing.

Nathan Latka

15:08Yeah, or I recorded that wrong. Okay, so 15% gross churn annually, you know, 30% expansion puts you at 115% net revenue retention, A lot of interesting dynamics at play. Anything that you want to touch on that we haven't already touched on?

Khaled Naim

15:24No, thanks for having me back on the show. Yeah, no, some exciting updates to come soon.

Why Khaled Shares Data Publicly

Nathan Latka

15:31I always wonder why founders like you decide to... I mean, you know the show is a lot about data. I do it because I want the audience to learn from real data and numbers. And it's, you know, I'm thankful that CEOs and founders like you choose to come back on. I have to, though, what's in it for you, Why do you come on the show?

Khaled Naim

15:45Yeah, just, you know, I've learned from a lot of people over the years and it's always nice to kind of give back. I mean, we don't really have anything to hide. Our investors aren't asking us to be super quiet about our numbers. You You can can kind of put the pieces together and see we've been on the Inc. 5000 and things like that. So we've had to disclose our numbers. Yeah, no, it's my pleasure. And hopefully

16:12your audience learns a little bit.

Famous Five Rapid Fire

Nathan Latka

16:14Alright. Let's wrap up here. Rapid Fire Famous Five. Number one favorite business book.

Khaled Naim

16:19I just started reading Meditations by Marcus Aurelius. It's not really a business book, but I think a lot of learnings.

16:26People would argue.

Nathan Latka

16:27There's a lot of people who would say that's a business book. You have to let me know what you think about Number two, is there a CEO you're following or studying?

Khaled Naim

16:35These days, Bill Gates. I guess he's still a CEO. But yeah, I've always been a fan of his and really interested in sort of how he views the world.

Nathan Latka

16:44Number three, what's your favorite online tool?

Khaled Naim

16:49Yeah, I remember this from last time. Last time I actually said Gusto, I think, and we are moving away from Gusto. We've just kind of reached the point where we're outgrowing them. Think favorite tool generally, I mean, these days it's have a good lawyer. That's been a really useful tool for us in the last few months.

Nathan Latka

17:09Number four, how many hours of sleep break in every night?

Khaled Naim

17:12Trying to keep it around seven or eight.

Nathan Latka

17:14And situation, married, single, kids?

Khaled Naim

17:17I'm married.

Nathan Latka

17:18Any kiddos?

Khaled Naim

17:19No kids.

Nathan Latka

17:20No kids. How old are you? 35. 35. Last question, what do wish you knew when you were 20?

Khaled Naim

17:29When I was 20, let's see that was, yeah.

17:33Invest in Amazon.

Nathan Latka

17:36Guys, there you have it. Onfleet.com, helping folks that have some sort of delivery component as part of their business. They help them make that happen, providing them software. They processed over 3,000,000 tasks last month. They now have over 900 customers that pay on average $900 a month. So call it 8,000,000... Or sorry, 800,000 in MRR up from 400,000 just a year ago. Healthy growth, about almost a $9 to $10,000,000 run rate right now. $5,000,000 raised, looking at potentially

18:00raising another 10 to 15,000,000 here shortly. We'll see what happens with our team of 40. Khaled, thanks for taking us to the top.

Khaled Naim

18:06Thanks, Nathan. My pleasure.

Nathan Latka

18:10One more thing before you go. We have a brand new show every Thursday at 1PM central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU, CAC, LTV, you name it, they share it. And the buyers try and make a deal live. It is fun to watch every Thursday, 1PM

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