Parrotqa Revenue & Valuation (2018)

hello everybody my guest today is jake kring he is a jack of many many trades a master of couple he's a builder by instinct manager by heart and a marketer by necessity he loves writing code assembling teams and measuring growth he built his current company parrot qa to scratch an itch functional testing is a headache and customers hate bugs there has to be a better way jake are you ready to take us to the top sure yeah all right how so tell us how the the tool actually works people are familiar obviously with other tools in the space like let's call it a user testing or rainforest qa how do you differentiate yeah so uh as far as i know there's nothing else in the space that allows you to do the full test setup test management test running without writing any code uh and it's all cloud you don't have to install anything uh on your desktop you don't have to install an extension uh you actually just you start by just typing in the url to your website and from there you just sort of click through our cloud portal and build uh build tests um as far as i know there's nothing else that offers a totally codeless solution interesting and is this is your business model pure place ass okay great so give me like give me an example what's the average customer pay you per month for this uh hundred bucks 100 average revenue per user we have a 49 tier and a 199 tier and we sort of split between those and then we've got a sort of high touch model but but most are most are in the 49 to 199. tell me i know you're not a sales guy you do because you have to but sell me on 100 what i mean what do i get for 100 uh so there's it's actually isn't a 100 that's the average but yeah there's a 49 and a 1.99 for uh 49 it's a it's a starter pack um and so it's basically you get one user uh one one seat you can set up a suite of tests you can actually set up a couple suites of tests and you can run them once a day but if you're running tests on every deploy if you've got a team um uh it it it makes sense to bump to the 199 tier interesting so when i try to like test one of my sites getlocker.com it says hey it's not available is it behind a firewall it is it does have an ssl security like a certificate on it does that prevent your tool from working uh sorry you cut out for a second that's okay yeah yeah so like i when when my research team was testing this just so i could ask better questions on gitlacka.com one of my sites uh they said they got it basically an error back that said hey that site's not available is it behind and you asked is it behind a firewall um is that is that obviously it's different than an you know an ssl certificate or are they do they both prevent you from working no ssl does not uh but yes uh if it's on a uh private network if it's on a behind a firewall uh as long as there is an easy way to off through the firewall so like a lot of folks will set up a uh like a basic auth firewall in front of their site uh as long as there's a way to get through that we can if it's uh on you know like a um like a private network that you have to tunnel in to get to it gets a little trickier we actually have had customers uh set that up but it takes a little more configuration interesting okay and when did you launch company what year jake when did you launch i was it was uh uh sorry you're cutting out i'm losing you that's okay yeah when did you launch what year uh 2016. 2016. okay cool and i mean give me a little bit i mean where from from a kind of life perspective where were you in 2016 you quit your corporate job or i mean what was going on no i have i it is uh it has always been a side project it has been a side project the the whole time i was building uh the tech so from 2016 until now it was uh i i was actually running a startup at another startup another sas startup at the time and built this uh you know on the side what happened to the other one sold it to a private equity firm uh okay very good what was the name of that company uh scripted.com uh very okay so did i mean did you work uh did you work directly with ryan yeah yeah i know ryan very well interesting okay so he always mentioned kind of the business the other half of his team you must have been like the business guy he was a developer on scripted so yeah so uh ryan and sunil started scripted uh and right around let's see right around the time we sold to private equity you're talking about it to jonathan to xenon yeah exactly yeah uh right around the time we sold uh ryan moved on to to uh to go basically full time on on twofer yep and i went to xenon to run scripted oh interesting okay and then what obviously we just had this the current scripted ceo on actually two weeks ago so when did you leave breaker yeah okay yeah so then i so i left scripted about six or so months ago no earlier than that no because i left in i left in february so whatever that was seven or eight months ago okay and why i mean jonathan's an intense guy is he tough to work with no i think honestly after seven years of working on scripted i just wasn't bringing new ideas to the table anymore i wasn't i wasn't sort of proud of my work um i we had a really good year in 2017 we grew it two and a half x it got profitable under xenon um for really its first time in in scripted's history so i felt really good about the work i'd done but i also didn't feel like 2018 i was going to bring new ideas and continue to solve problems sort of felt a little burnt out on it um and jonathan as soon as he gets the sense that he's holding someone back he wants them to he pushes them out of the nest and wants them to fly on their own and i think he got the sense and i had the sense that uh you know [Music] i was going to flatline even if even if the business was doing all right um well good to go to close out that story yeah doug came on a couple weeks ago and the company's doing well they just passed about between 500 000 customers 250 grand a month in revenue that's almost it's more than doubled from when jonathan bought the company so healthy growth there and churns down to sub 2 so lots of nice changes happening there uh according to doug let's focus back though on on you jake so this was this was a side project you were using it to test scripted exactly that's exactly right okay got it so then you said okay i'm going to leave kind of xenon jonathan it's been amazing i've learned a lot but i'm going to go build this full time that was in 2016. no no so 2016 uh was when i started on parrot uh 2018 is when i left scripted but actually i've left uh i'm still running it as a side project so i i am also running another business uh that has a sas component but is largely e-commerce um and that one i'm running with a friend of mine from high school and i'm you know that's really what i left to go full time on what's that other thing what's the name of the ecommerce site so the ecommerce site is skylightframe.com skylight frame skylight frame and we also have skylight cal we sell the we sell the uh hardware we also sell a subscription software on top of that uh that allows customers to update their frames with videos and and uh do it you know from a mobile app uh so that's a combined e-commerce sas business uh the sas component we just added since i started so that was something i built out with my partner uh in the last couple of months let's let's stay focused on parrot qa it's nice to get context though about these other things that are in your world so you you kind of side project 2016 2018 you really get going here on parrot qa what have you scaled to in terms of total customers just on parrot only five okay five customers yeah okay so five customers paying about a hundred bucks a month you got about 500 bucks a month in revenue here i mean so why not i mean this is a hot space i mean user testing is hot i mean i've had a bunch of these companies on they're all growing really quickly this is i mean this is interesting why don't you have the confidence to go all in on this that's a good question uh well for starters when i left scripted it wasn't making any money so it's it's really in the last couple of months that it has actually you know started to find product market fit and so i didn't have confidence when uh i was sort of making a life choice about what my next role was um and the reality is that the the full-time job now just has so much promise and so it's so obvious that it's uh that it's working at that and that there's product market fit that it's tough to justify the opportunity why is that by the way so like i don't know a ton about skylight i didn't do research on that before this is a new news to me now but i'm doing research as we talk i mean as you see facebook launch portal right and and amazon launched these things with screens to put in your kitchen i mean that seems like they're just gonna knock the hell out of this product totally and i think i think that's a real possibility i mean we've talked about it as sort of a you know we're in a little raft surrounded by sharks right now uh but i think uh we just have a very narrow uh market that is uh big enough for us but not big enough for the big dogs to play in sure so uh you know we we are focused on a very simple set of series who's the customer uh mothers and grandmothers largely uh it's older generations so grandmas that don't even know what amazon is so amazon can't be a threat those of you that are wondering what is skylight it's essentially you walk in it's a real quick sorry jake just to give audience context skylight essentially a frame it's a digital frame so you can kind of put kind of pictures in there but it looks like a regular kind of picture frame and it sounds like there's software behind it you guys are now selling so give me a general sense jake over the past 12 months like what does revenue look like on this tool that'll help me understand like maybe why you're not going all in on the sas product yeah uh it's millions okay millions but but margins are good yeah i mean they're e-commerce margins they're not sas margins which are what are e-commerce margins um good e-commerce margins are in the 30 to 40 range okay um margin or gross uh yeah i'm talking i'm talking ebitda yeah yeah yeah okay well look i mean that makes sense yeah and and but at the same time like i i think there's a lot of promise in parrot i just think um happy to grow it slowly i'm not in a you know i i've sort of been through the the vc ringer at this point and i'm happy to have a thing that that um gradually becomes a nest egg i'm not really in a rush um and so uh yeah i i haven't really had the impulse to like double down i certainly haven't had the impulse to to raise money for it yeah well i mean and by the way there obviously you had kind of vc ringer you also had the the venture debt ringer uh on top of scripted so like you you had it you had it double bad um but but you can still grow i mean look you can still grow this faster than what you're currently growing it if you if you spend all your time on i'm just trying to understand i want to get in your head and understand like how you balance your time and how you convince yourself that it's okay to spend one day a month or one day a week on parrot versus going just all in on like i could ask the question the other way why not go all in on skylight yeah yeah and i think honestly you know i think it gets it's it's sort of spiritual to some extent my my uh sort of need to be working on a lot of different things at once and and my inability to to pick one thing and pour all of my my eggs into that basket i think to some extent uh uh i felt like i i've worked on projects before where i felt like i put all my eggs in the basket and when they fell through i was devastated so it's sort of like a breakup thing it's like uh you know after you've been in a long relationship you want to date around a little bit yeah some parents break up sex is that what you're saying i wouldn't i wouldn't go that far that's that's roughly the logical extension of my apology sure interesting okay um let's see if i can pull some more lessons out of parrot here for a second how did you get the first five customers where'd you get them uh facebook largely is the acquisition channel it cost me about a thousand dollars to acquire a customer on facebook i think that's part of the other reason is i don't i don't have you know hundreds of thousands of dollars to throw at it um so just to be clear a thousand bucks to get a new hundred dollar a month customer so it's like 12 50 year long payback yeah and i haven't had any churn yet but presumably churn is going to be fairly large because it's small businesses um but it should certainly be they should one would stick around longer than 10 months yeah just you on the product or there other people on the team uh yeah i mean it's it's mostly me i work with my my cousin my cousin's husband has been sort of helping me on the sales side and and taking a bunch of the calls with me um but in terms of development in terms of of uh support and uh yeah and a lot of the sales i'm doing most of it myself yeah interesting and then uh bootstrapped i assume correct yeah yeah because you've kind of i mean so what learnings did you take from scripted and i got doug's perspective i i'm close with jonathan i got his brother i have everyone's perspective you're actually the only person i would say that probably i haven't spoken with um i didn't actually i didn't know about you until you mentioned scripted i just knew sunil and and ryan so yeah i mean what lessons did you take from that did you raise too much too soon or what no i i mean i don't know i i i won't speak to that i think that um let's see i learned a couple of things one is retention is just so so so important and and you can uh it it doesn't necessarily matter in the early days because you can pile enough onto marketing to to to sort of outpace it but it just keeps eating away at you um and that was i think my biggest failing when i was running it was that i didn't fundamentally solve the retention uh problem um and you know when i started running it when i ended it the retention was roughly equal um and so that was that was one big learning i think another learning was about venture capital was just that uh venture capital you guys took in 15 from bessemer or andreessen no no it wasn't it was uh we took some from crosslink some from red point and some from storm and then some ventured dead on top of that yeah uh i think what i learned there is that um uh it's actually fairly rare that entrepreneurs and and vcs are totally aligned uh in that entrepreneurs can have great outcomes with five to ten million dollar businesses and vcs can't and that's not their model and the second they get a whiff that's something that something is moving towards that model it's not that appealing to them and that's you know that's totally fine that's their line of business it's a completely rational line of business makes a ton of sense um but um as an entrepreneur you actually don't need to swing for grand slams um you know singles doubles triples home runs are all are all great hits um and are all much more likely and there's a lot of great businesses that and this is jonathan's whole model right there's a lot of great businesses that get that are sort of the exhaust of the vc ecosystem that get left in the dust because they don't fit the the unicorn mold and that's too bad because because a lot of that value gets lost um and so yeah i mean a lot of what i'm thinking about now is how do i bootstrap and grow slowly and and and carefully so that at each step um the the customer base can can cover all our costs any plans to exit skylight are you an acquisition talks right now with anyone right now it's you know we saw 3x growth this year if we do that again i mean this will be more than double-digit million business um uh uh and you know run by a few people so it just to us it sort of heads down until uh until at least mid late next year very good all right let's wrap up here quick with the famous five number one what's your favorite business book oh man uh good question uh how about the the book behind you how to be a capitalist without anything hey i'll take it all right number two uh nama name a ceo you're following or studying um good question uh how about uh howard schultz he's maybe no longer a ceo but but he was and i think a visionary in in that role number three what billing tool are you using on parrot striker number four how many hours i sleep to get every night uh try to get uh try to get a full nine so jake what do you get how many hours nine oh you do get nine okay good and what's your situation married single kiddos married married as of uh about a month ago oh exciting very good no kids no kids all right how old are you uh 30 30. last question what do you wish your 20 year old self knew uh slow down guys slow down and enjoy the ride he was that scripted for seven years before ultimately selling that company to jonathan and xenon ventures he called kind of mini private equity now focused on kind of two companies one is parrot qa basically testing you know done in a more easy way they've got about five customers paying 100 bucks per month so 500 bucks a month there got those customers by using facebook ads spending about a grand to get a new hundred dollar a month customer uh just him really focused on it mainly with with some other family members uh based obviously in california but also building skylight which is a multi-million dollar kind of e-commerce business with a software component they just added behind it so we'll see which skills faster jake appreciate you taking us to the top thank you