How Paloalto CEO Sabrina Parsons grew to $15.6M revenue and 100K customers in 2018.

hello everyone my guest today is sabrina parsons she is the ceo of palo alto software the company behind the best-selling business management software live plan the company is dedicated to serving the needs of entrepreneurs and small business owners and offers an entire suite of software and tools to help startups plan manage market and grow their businesses sabrina's overseeing the transformation of software from a desktop software company to a cloud-based software company sabrina are you ready to take us to the top absolutely all right so tell us what tell us what the company does and today are you 100 pure play sass or is there still some desktop software stuff there's a little tiny bit of desktop software left about i don't know two percent of our revenue okay um but for the most part we are a hundred percent sas cloud palo alto software has a mission of helping people succeed in business that's our mission we're very mission driven um and the products and content and online tools that we develop are all about helping small businesses and entrepreneurs do better strategic planning strategic forecasting and financial management and particularly the financial management issues that most small businesses have surrounding cash flow understanding cash flow forecasting for it and being more strategic about their financial drivers in their business so that they are cash healthy and they grow and as they grow they understand the cash needed to grow their business that's great and so what do these smbs and mid market companies pay you typically per month to get access to all this technology so we a couple of different ways that they can interact with us we've got an online content site bplans.com and that is completely free and it's got thousands of articles free downloadable templates 500 free sample business plans the entire business plans that people can look at and that's all free and we are big believers in educating and we think that when we put out really high value content and we educate people for free eventually some of them will come back and they'll buy our products and most of our products are in the range of about 20 per month for two active users so we really try to focus on pro products that help make a difference for small business owners but you know it's about the price of a latte a week that's great well it's hard for them they have a lot of things they have to deal with so 20 bucks a month is a fair average then huh yes that's about when did the company launch what year so the company's been around for a long time the windows software business launched actually in um 1987. i took over the business in 2007 and that's when we really switched strategically from developing windows software to developing online sas software and we expanded our reach from just being a business planning company and providing business planning content and tools to actually providing online strategic financial management tools so that includes business plans but also strategic forecasts and really focused more on a modern lean approach to business planning and financial management totally get the product i think it makes a lot of sense so since 2007 when you jumped in how many small business customers have you scaled to oh wow since 2007 we've had over 2 million customers which is great just be clear sabrina those are 2 million still actively paying today so in different ways and forms not all in the same product so um some of them have come in in you know one side of the business and bought one part of the product and come in on the other side of the business and then we have some new products but yeah so um and then on the online content site which is all free we serve even more we serve two million unique small businesses every month on vplans.com yeah yeah hold on serena sorry i don't mean to cut you off but i want to make sure my audience clearly understands this because i want to get to your free model in a second but first going back to the paid channel for a second so just to be clear you've got two million small businesses paying you per month on average 20 bucks a month for the software so roughly that depending yeah roughly that okay so that would be that would mean you're doing about 40 million dollars a month so we don't disclose any of those numbers but you can do math and you can do you know separate things but yeah so we are well sabrina hold on hold on hold on something's not something's not matching up there i mean that's not just a math error that's like off by a factor of a big amount so so what's wrong there is it you don't actually have two million paying customers or it's a higher or lower price point we've had over 2 million paying customers in terms of active customers at any given time the average is different so it's not necessarily 20 but i don't want to i probably shouldn't go down the path of lots of numbers because being private we don't disclose all the numbers so we don't want people to do backwards math and get to any numbers so in a given time in um say live plan we'll have over a hundred thousand paying subscribers but then we've got uh um some other tools we buy center pro and outpost and so we've got a variety of tools and the live plan on average is 20 a month on some of our other tools it's more expensive and we've got um other trainings and packages that are in the thousands of dollars and we've got other things that are upgrades and they're five or ten dollars and so we have a variety of offerings so it's not an average of 2 million but we've had and we've had over 2 million customers in the live plan cus uh product they're not all actively paying us right now yeah so why have they so why you said 100 000 active right now why you know the reason i'm asking this sabrina is because we've seen a lot of really great smb companies i think gail at constant contact built an incredible business but she never got the respect of public markets in terms of her her evaluation because churn was so high and it's hard to build a sas company in the smb space because smbs go out of business so so you've had two million come through your system there's only a hundred thousand active today are you what are you doing what has been the most effective thing you've done to decrease churn and a hundred thousand in the live plan product but more overall so in terms of trend you write customers are going to turn out because of survivability right so the average small business starts today and more than 60 percent of those small businesses that start today will be out of business in five years so there's going to be a natural turn in survivability um in terms of how we address it um if you are actively financially managing and planning your business you have a better survivability so anyone whether they use our tools or not if you actively engage in planning and financial management you will grow 30 faster according to a research report by cranfield university professor who did a 10-year cohort there's other research reports like that that if you actively plan your survivability is better so that helps us in terms of overall churn when you compare to say any small business tool provider who you know constant contact is a utility tool they're providing an email marketing tool but they're not necessarily dealing with the financial management side which is usually why a business goes out of business so our small businesses have a better survivability and then overall well sabrina let me stay on the smb here for a second so gail on the public cause there they were turning about anywhere between you know six and seven percent of their customers in terms of logos per month what you're saying is you're below that figure because you're financially essentially what you're providing is more it's more necessary than email marketing so yes absolutely it is um but there's different cohorts so the planners who come in and they're just doing planning they're gonna turn at a little bit higher than that five to six seven percent the people who come in which we call small business management dashboard first because we have uh part of our tool is called a dashboard they're actually turning out at much lower than that because they're coming in to actively manage so we follow different cohorts because of the device people find us and it depends on what cohort you're in and that's where we're actively trying to manage our business to get more people into that management space because our turn for that cohort is way better um because uh you know a monthly turn of say six percent is actually an annual turn of over fifty percent yeah seventy two percent yeah yeah i mean yeah so when you say that your management tool is lower i mean are you talking like sub two percent per month like how low can you get it so our management tool depends if so lots of different factors if you connect an accounting solution then that turn is getting down there it's not quite two but it will hover somewhere between three and four if you connect an accounting solution if you don't connect an accounting solution you're still below that you know five to seven percent so we're better than the 50 annual turn if you come in and you're a startup and you're wanting to um get access to capital and you're looking at our tool for just that purpose so we call that you know an event driven they're not really thinking about running their business better they just want money they want capital whether it's an sba loan or an angel investment those are people who come in already knowing that they're going to use the product for a short term so some of those we will transition to a different cohort and some of those we won't so that turn is probably more at the you know six to eight percent turn so how do you serena how do you know how because you could slice and die with a with a sample size this big of millions of users on a free plus paid thing you could slice and dice data all day long and get nothing done i mean how do you decide what cohorts to slice and what not to slice we're really looking at what we call the golden path in the software that then drives to more usage so we know that if you can connect an accounting solution you are worth more to us so we are looking at the cohort of people who connect accounting solutions and we're looking at their golden path what do they do what drives them to connect the software so we're not you're right because you can get mired in data so we're trying to focus in on the users that we're seeing have the longest lifetime value and then understand what did they do and how do we encourage other people to do the same thing so we try to be mindful and then over the course of the last six seven years that lifeline has been allowed around you can also strategically say this quarter we're going to focus on this type of user and we're going to dig into that data and we're going to do some tests and we're going to see if we can move the needle while watching another cohort that we've already put in motion and put some tests in place sure and let them run for a little bit to get some data talk to me real quick the cohort that has the highest lifetime value i mean what what does that lifetime value look like does it push into the thousands or no the thousands of dollars yeah or the thousands of people no no does it push into a lifetime value dollars oh yeah absolutely when somebody's in there they've connected an accounting solution another indicator of long lifetime values if you've connected a county solution and you've invited your accountant into live plan um so if you're actually using not just connecting your actual results but then you're engaging with an accountant particularly because our target market is a company that can't afford a cfo so that's you know when you say small business that means a lot of things if you look at the sba they say small businesses 500 employees yeah less totally the reason i'm asking israel i mean you said earlier you know churn on some courts or sub two and some are six to seven depending on what they want i mean so if you if you go in the middle and say somewhere like four or five percent that puts ltv at like call it 20 or 30 months and at a 20 price point that means dollar value it's 400 to 600 bucks so that's what i'm saying is like when you look at your your kind of base and you look at lifetime values in your highest cohort you're saying some of those cohorts do get into the thousands pretty easily absolutely and some of them are adding on more than just the monthly service we offer plan writing um so yeah i'm just talking sass sorry sorry just because i'm just talking sass yeah yeah predator arpu because we can so we can say a certain type of cohort will have a higher lifetime value because they will add on some additional services even if they're one-time services so as we look at the lifetime value certain cohorts are more likely to get different add-on services that bring up their lifetime value not necessarily their arpu but their lifetime value totally we're running out of time but i want to get a few other quick things in here one of the things about adding one-time services on top of a plan is it helps you get your payback much much faster right so cash comes in quicker um to get a new 20 a month customer today what's your fully weighted cache and what payback period you like to optimize for oh gosh again you're going into different cohorts because our planner is because of just live plan just live plan 20 a month customers well to keep us focused it is not your cac that you're going to see in the hubspot it is a sub 100 dollar cache okay so some five month payback it's yeah so it and it's a great hack and part of it is our strength in our online content funnel and the amount of time and energy we've put into bplans.com and the number you know we don't pay to drive traffic to that website it's all free yeah yeah it's a smart play what's the team size today how many people so we're approaching 80 people that's great and where's everyone based so for the most part we're in eugene oregon not in palo alto we started in palo alto by the way paolo alto must hate you you took their domain name oh you know we have we know the people at the city because every year they try to buy the domain name from us all right 80 people in oregon where else um so eugene oregon is our headquarters we have a few people actually uh in portland we have a few people in bend we actually have a couple designers in europe because they're just fantastic ux ui designers and those are hard to come by but for the most part we aren't distributed we're hearing eugene oregon we like everybody being at headquarters and we run a company where we like people to collaborate in person so we haven't done a distributed workforce and it turns out eugene oregon has become more and more popular for people to move to when you look at you know cost of living in the bay area seattle it makes perfect sense sabrina talk to me about capitalization have you guys done this bootstraps you know even back from tim's day or have you guys raised capital no it's bootstrapped we are a hundred percent uh privately owned no debt uh ah we are we run profitable cash flow prof uh positive that's great so casual positive and i would say like a healthy bootstrap kind of casual positive company would be growing at like 30 percent year over year is that kind of the range you're in so for the live limb product it's been we're at the point where we're probably at somewhere between 20 and 30 percent obviously in the beginning we were growing you know a hundred six oh yeah small numbers are easier exactly exactly um we got a couple of new products that were back up on those you know because we're starting from scratch so those products are growing at a higher rate overall and it's a focus that we have we really we we took the cash from our windows products and that was what we used to invest in our new cloud products now that live plan is doing really well we're using that cash to invest in new products as well so we really try to think about it and we'd like to remain privately owned um we'll see whether you know opportunities arise to do something differently but so far we've appreciated using our own success to finance new growth what's the next big revenue target oh stretch goal one that makes you uncomfortable um well it has to do with our new product outpost we had a product that kind of was a forgotten kind of you know stepchild product called email center pro it's a great product we have very loyal customers we got so focused on live plan we weren't doing a lot of development we're a smaller company we didn't want to take on investment or debt so we kind of put ecp on the back burner we have redone that product and it's in somewhat of a beta right now but the ecp customer base has a churn of less than one percent and lifetime values in the five thousand dollars and it's just a really solid product that we just didn't do sabrina sorry i don't mean but we're totally out of time i just want to get this answer right so when you add all your products together right next big revenue target for you is what 40 50 60 million aor what are you aiming for so 50 um but that it's not just live plan that's adding this outpost product to it and that's you know the five-year goal my big stretch goal that's where i would like us to be what would what's an uncomfortable stretch goal for the end of next year oh gosh like 30. yeah um it's hard you know if you talk to our co who's also my husband he'd be like no 19 25. yeah our glasses have full glasses half empty well you guys passed 14 though in 2012 right you gave an interview where he said your goal was to hit 14 million in 2012. did you guys pass that yes yes and that i say my glasses half empty husband is very conservative and i'm like oh no 50 million in two years yeah i was gonna say going from 14 million in 2012 to 19 million in 2019 is not a lot of growth yes exactly so he's you know it depends on how you look and the other part is the place says we've been more successful where the two of us struggle because we're privately owned company with no debt is it's it's hard for us to be unprofitable we don't have a management style to be unprofitable even though we could invest more and so we're we're working on that right now of being comfortable with having a couple of years where we're not profitable because we can afford to do that so yep very good sabrina quick and we're going to wrap up with the famous five one word answers if you can number one what's your favorite business book radical candor right now number two is there a ceo you're following or studying oh gosh there's so many because it depends on pick one but pick one that's a i haven't thought about that can i come back to that yes we'll skip that we'll say we'll say none number three what's your favorite online tool for building the company besides any of your own besides any of our own well i guess i have to go to base camp because we've been using that for so long and it's held you know it just holds up number four how many hours of sleep to get every night oh gosh i am i need to get eight hours or i am a mess and what's your situation well obviously mary didn't know any kiddos yes three three kids and how are do you mind me asking about how old you are yeah i'm 45 45 last question what do you wish your 20 year old self knew i wish my 20 year old self knew that risk is so much easier when you're younger you have less to lose when you're younger so i wish i took more risk in business when i was younger um guys i think there you have it from sabrina take more risk when you're younger the company palo alto software launched back in 1987. she joined in 2007 now on their live plan product more than 100 000 customers doing somewhere between call it 14 million they broke back in 2012 to kind of their stretch goal 1925-ish coming up here shortly so somewhere kind of in that range what's nice about it is they're totally bootstrapped privately owned cash flow positive which is great using a free tool basically a site with a bunch of organic inbound driving a lot of their growth call it less than two or three percent logo turn in some cohorts other cohorts that's more like five to seven but the payback is healthy as well 100 calc on a 20 account so five month payback there a team of 80 in oregon sabrina thanks for taking us to the top thank you