How Passkit CEO Paul Tomes grew to $1.2M revenue and 550 customers in 2019.

hello everyone my guest today is paul tomes he's the co-founder and ceo of pass kit which helps powers connected customer experiences paul you ready to take us to the top let's do it all right so what does that mean connect customer experiences well i mean let's put it this way what twilio is for sms or mailchimp is for email passkit is for apple wallet and google pay passes and both apple wallet and google pay provide this incredible opportunity for brands to connect their customers digitally in their phone using mobile wallet to connect an online experience to an offline experience when you're in store so we provide a service for all of the brands across the world to ultimately create manage um and distribute passes into apple wallet and google pay okay sas platform it's a sas platform yes okay so walk me through on average what's the company going to pay you per year to use your technology i'm sure you have a lot of cohorts but what's your sweet spot on average uh sweet well average monthly recurring revenue is about 180 us dollars but but we've got a very bimodal distribution so you've got sort of mom and pop shops that are using us for sort of average around 25 all the way up to uh you know multinationals like best western jet star heathrow airport and they're sort of more around the 10 000 plus a month mark and so why do they need this why can't they just build this inside of the wallets themselves so you can certainly use um apple's api and google's api but you need an infrastructure you need a push server you need uh to continually be updating uh your your software and using those different apis so initially to be honest when we started pascat we thought the service would be mostly suited to small medium-sized businesses that don't have their own developers or certainly to have a don't maintain an infrastructure and a server proposition what we found is the larger enterprises found that it was easier and better more efficient to outsource wallet content management to passkip so they could focus on their core competences let's take an airline for example you know a core competence of an airline it's not a digital boarding pass an apple wallet or google pay a core competence of an airline is to make sure that you take off safely and you land safely digital boarding passes uh and the ability to access all of the capabilities of apple and google google pay is not something that's core but it's something that's really important for a consumer so they use our servers the same way you'd use mailchimp if email delivery is not core but your customers want to know that they've got the right email and yeah this is a b though right like we shouldn't think about you like a last pass competitor not not like a dashlane or whatever absolutely not no our users are all businesses now the ultimate benefactor is the consumer so the consumer has an engaging experience what's more frictionless yeah more no paper stuff in their wallet no plastic membership cards that are static and boring not thousands of emails not a new app to download okay i think i get it i think i get the product this makes sense here so put this on a timeline for me when you launch the company 2012 long time ago okay and and do you remember so like the first line of code when did you write that uh well actually my co-founder of the first line of code that was back in june 2012 pretty much the day that apple launched passbook which is the precursor to wallet uh during wwdc and when was the first dollar of revenue do you remember first dollar of revenue was october 2012. okay pretty good so how much did you guys think into the mvp before that first dollar revenue uh probably under a million us dollars okay no not not too crazy now did you i mean are you guys rich did you raise capital the beginning or what we did not raise absolutely to start with both nick and i we were in investment banking so we did oh that's probably an overcall actually that that number um but we yeah we basically have been building infrastructure on aws since about 2006 so when aws first launched we were building uh you know scalable content management products when we saw apple passbook announced we said hang on a second this is going to become the way that consumers use their phone to transact for credit card payments as you've seen with apple pay and google pay but there's all this other rich functionality in apple wallet and google google pay that allows for digitalization and membership cards boarding passes and gift cards what we saw is developers were actually struggling with apples and google's api but more importantly struggling with the infrastructure so we turned the infrastructure that we'd already invested in purely focused to service mobile wallet okay so you launched you get that going back in 2012 so how much money did youtube put in by yourself um it's probably a i mean if you take it it's it's a tough one to know actually if you if you take into account sort of lost opportunity costs no no no just the cat just cash cash i mean we we were pretty lean in terms of the way that we actually had to put into the costs around aws the cost that we put into uh hiring people we did raise a bit of have you raised capital 2.1 million okay so and it was any of that your guys capital or no you put in your own money before that we didn't owe money before that and then we raised from friends and family at crown okay very good so first customers 2012 timeframe how many today 550 paying customers we've had around 10 000 users in total we have a freemium model so for under a hundred cards or passes in an apple wallet google pay we provide it completely free so if you've got a small business that wants to get into apple wallet and google pay or a small to developer was looking at how you leverage those channels they can use our service for free up to 100 passes if 100 people hit that 100 pass limit in a month how many of them will actually convert to your 180 a month on average plan um so the 180 is just average our first plan starts at 40 usd my point is how many people convert that hit that limit small number small number at this time okay yeah i mean i mean we could just take the whole thing five fifteen to ten thousand right and get a percentage there but i'm just curious if you knew what that was on a monthly basis i don't know exactly that great question i don't know absolutely um that's okay so you're about five about which you're about 5.5 conversion rate today across the entire base around around that on the you know across the gamut when you get enterprise businesses coming in the conversion rate is significantly high for we've got a product called loopy loyalty which allows small merchants to digitize stamp cards effectively so getting rid of those paper punch cards um and the conversion rate is around about 10 to 12 on those ones okay very good now 550 customers on an average of 180 bucks a month puts you at about 100 grand a month right now on revenue is that right correct and where were you right where were you a year ago uh 100 less than that 50k so we've got a we've got 100 growth this year i mean well just be clear 50 less than that would be 100 year over year growth the 100 year on year exactly yeah all right now are you still you raise capital are you still burning cash today you're positive we're positive just okay that's good does that mean you're prepping for a new raise with i'm i'm debating it for mid-2020 okay if you did raise in mid-2020 how much would you raise and why i'd raise about 10 million us dollars and predominantly around minimizing the amount of system integration work that we have to charge for we cut so our model is 75 of our revenue of sas 25 is development into integration so some of the businesses ask us to do the integration work is the hundreds of pure second is the hundred grand a month is that the pure sass component or do i need a month okay 100k a month is psas um so what what i'd ideally like to do is that we offer businesses um our services to integrate basket into their business model because you know there's there's a long-term benefit for for their business it's a long-term benefit for their customers there's a lot obviously a long-term benefit for passkip um to do that would be worth raising we would also i'd also be spending more on marketing the majority of our um uh ongoing expenses is around engineering we have a small we spend a small amount on marketing what's your total what's your total team size today seven people yeah and how many engineers okay and any quota carrying sales reps or no uh no really apart from me just see you yeah all right so when you look at your fully weighted act like let's say to get you know are you happy with the 12 month payback period are you more like 18 24 months uh we're less than 12 months i would say okay i mean obviously it varies the enterprise business is quite a slow burn um and it does take a lot of meeting time and a lot of integration services and kind of mapping out their processes to integrate to someone like a best western or or a jet star airport or heathrow airport there's a there's a client on ours that to to actually get them revenue generating is is 12 to 18 months but the smaller businesses um they typically are using our um api and using our platform they're up and running within a couple of months and paying revenue within a couple of months after that now it's nice to convert them but you know making sure they stick around is even more fun right so when you look at gross revenue trend over the past 12 months what's that coming at um 12 months so gross churn nine percent okay that's annually right not monthly so monthly is about 0.78 yeah you're looking at your chart mobile dashboard it looks like uh i have it right here but i can remember all right nine percent gross revenue churn on an annual basis do you have expansion revenue that makes up that hole or no uh not on that not on that number no okay got it so your net revenue retention annually is about 91 okay very good um why don't you have any expansion revenue if you have contract values that are up in the 10 20 grand kind of range you should have expansion revenue right we do have expansion but i've taken that out of there because i see that as a current customer um so i'm when i'm looking at churn i'm purely looking at okay what are we actually losing rather than just looking at the expansion side of the business well no but to get to net revenue retention you take your churn but you add back your expansion so that's what i'm asking is do you increase accounts my net if i took into account of expansion would be positive would be a negative number yeah yeah do you know how that's what i'm asking is is how negative you know it's it's minus 4.5 okay that would mean that if you're churning nine percent of your revenue annually on the core that signed up exactly a year ago you're also expanding that same cohort by about 13 for net revenue retention of 104 percent or the inverse is net negative churn of negative 3.5 or negative four percent i think that's right yeah the based on the basic question is of the customers you signed up a year ago you lose nine percent churn we understand that are you generally increasing what they're paying per year by about 13 um yeah that's about right yeah yeah so then yes net revenue retention is about 104 percent that's how you're you know mr mathematician you know you know actually your podcast going how does this guy do these math so quick oh you listened to it yeah i did oh good i got to applaud you on your acquisition strategy to get me to come on the podcast and then i'm listening to all your podcasts i'm a subscriber now i'm taking i'm i'm using you're making me feel like a naked emperor or something you're stripping down all my strategies yeah they look by the way like my whole i think you know we have gotten so creative with strategies they work really well though and i mean my whole goal in doing this is to help founders get more leverage with benchmarks and so i feel good about doing it no no i mean i'm super excited to speak to you because when i was listening to it bloody how i i want to interview you well no this is this is good i mean this is interesting right so i mean let me ask you if you're going to try and raise 10 million mid 2020 right you're doing a million run rate today i mean you've got to really get your arr up if you want to make sure you don't get like super deluded what revenue do you think you have to grow to to raise 10 on a valuation you'd like my goal is 300k mrr by october 2020. so if we're okay we're looking at a 10 month-to-month growth rate so i've used the cummings formula um to get to around a 40 million dollar valuation so sort of the 10 you know 10 10 million eight to 10 million type of raise giving away 20 that that feels around the right number from from what what i'm sort of thinking about yeah so 300 000 an mrr target would be let's just round up to 4 million in terms of arr if you're going to sell 10 to 20 you're trying to get to essentially a 50 million dollar pre-money valuation which would be essentially a 10 to 15 x multiple on ar if you hit 300 grand a month that that's that's pretty much it yeah what will it take to hit 300 grand a month i mean that's you know it's 3x where you're at today over the over the next six to eight months oh that's a great question i mean so we are launching new product to make it even easier and quicker for businesses to get up and running probably the biggest challenge with mobile wallet is the integration piece to existing process so if you imagine like a membership card and when you digitize that and you want to use that when you're you know the cash point or you're at the the point of sale integration to existing systems is is a little bit has always been the challenge so we want to release new sdks makes it even easier for developers to integrate it to you know cloud solution pos um also launching pasca into those types of marketplace so you've got the likes of clover you've got the likes of square launching pass kits so people that are currently using uh modern point of sale can click a button and you've already digitized my membership card you digitize my coupons etc so i guess i would see that as channels and integration um and then we are releasing some new widgets from a product perspective so businesses can easily integrate it into their wordpress blog or they can put it into woocommerce so you could again easily sign up members so there's a bit of product um i do think there is is a fair fair bit in terms of marketing um so before the raise that's going to be very lean we're not spending a great deal in terms of advertising we are using some affiliates particularly on the loopy or two product that's early days yeah and hasn't proved to be um you know very successful yet so we're exp exploring the affiliate model yeah um we do pay 50 bucks away to to an affiliate to sign loopy loyalty customers so you know kind of those kind of strategies we're trying to leverage we're still i would say you know we're finding our way a little bit more in terms of how do you truly get to that next uh to that next level oh you're testing a lot you'll figure it out let's wrap up here paul with the famous five number one favorite business book uh seven habits are highly effective people by stephen covey number two is there a ceo you're following or studying right now um from a young age i've always followed richard branson just being a brit and i like all this stuff but to be honest at the moment i'm following jeff lawson who's the co-founder of ceo twilio yep number three what's your favorite online tool for building your company currently intercom it's fantastic for customer support love the metrics love the targeting love the segmentation the ui is cool yeah i really i really like it number four how many hours i sleep to get every night a sporadic six hours of sleep fair enough and how old are you i am 47 47 in situation married single kids i am married with one wife four kids one cat maybe a dog on the way wow you are busy all right last question what do you wish your 20 year old self knew um don't focus so much on career progression focus more about life progression yeah guys there you go and also i wish i knew keto keto diet at my 20 year old because then i wouldn't be eating so much carbs these days guys pass kid helping b2b brands power connected customer experiences doing about a million dollars a year right now in revenue up from about half a million just a year ago so 100 year over year growth rate 2.1 million dollars raised they're barely profitable which is nice team of seven people four engineers one sales rep in the form of paul here the founder nine percent gross revenue turn annually with 13 expansion for 104 net revenue retention spending less than 12 months to acquire these customers in terms of payback periods so healthy economics as he looks to scale hoping to maybe raise 10-ish million bucks selling 10-20 of the company in mid-2020 as he grows to about a 4 million run rate we'll see paul thanks for taking us to the top choose my man take care yourselves