Plannuh Revenue, Valuation & Funding (2019)

hello everyone my guest today is peter mahoney he's the founder and ceo of a planner and has more than 30 years experience in technology marketing development and general management peter has run businesses up to 650 million in annual revenue and has been the top marketing executive for companies from startup phase to multi-billion dollar public companies peter you ready to take us to the top i am ready nathan let's go all right this is planner p l a n n u h dot com with that good old boston accent right that's exactly correct well done what's the company doing how do you guys make money well we sell a marketing planning and budgeting platform uh and we make money by licensing uh this to companies from very small companies up to departments of large enterprises uh in with annual license contracts okay interesting so when you use the word license i want to make sure i'm clear you're you're going dart to consumer you're not going through yeah yeah there's no value added you're not in other words you're not white labeling it to agencies and then the agencies are licensing it to end customers you have the direct relationship that's exactly right it's a it's a classic sas direct to customer uh and the customer is anyone from a uh relatively small size company all the way up to i mean we have michelin you know a small department of michelin in australia uses our software and this it looks like it's hyper focused on marketing budget is that right that's exactly right very specifically on marketing because they have some very unique actually that's uh not correct there's no such thing as very unique they have unique requirements for the way that they uh they plan their uh their budget and spend well we'll learn more but i was gonna one of my first questions gonna be this is a very competitive space you know zero is growing extremely fast there's a lot of companies in the space but but you have hyper focused on one specific expense line item and i'm sure that's giving you a competitive advantage where others might see a weakness that's right in fact uh budgeting in general may be a relatively crowded space marketing budgeting is not uh and uh because it's very specialized uh and in fact i was the cmo of a company called nuance a two billion dollar voice recognition leader i went out to look for solutions and it was very very little out there there were some very high-end very expensive things but nothing that was what i expected to see which was more like a typical sas model like a slack or an asana that i could just start and get going for cheap and easy and grow from there so i saw a huge opening in the market for doing that that's why we built planet that's great okay so what is cheap and easy what's the average kind of company paying you per month to use the tool yeah so right now we've just launched at the end of december i mean the very end of december i think the 28th was the first paying customer of 2018 right of 2018 exactly so there are 18 customers so far the average annual revenue right now is about uh 2700 to be pretty precise okay and you're selling that all up front pretty significantly in fact if you look at the last five it's more like 4 500. okay that's great sorry i didn't mean to cut you off there peter so are you selling that full 2700 per year contract they're paying it all up front or they're paying about 230 bucks a month monthly all up front all upfront cash upfront that's great okay so 18 folks at that rate you just passed about kind of caught four grand in monthly recurring revenue something like that yeah exactly and we we think arr but obviously translate to mrr it's about 4k it's uh arr is uh you know 49.50 just under 50 000. i love that you're so comfortable coming on talking about those numbers because most people especially if they've come from a place where they're like listen nathan i've run a multi-billion dollar company don't don't grill me on my freaking 40 000 bucks in arr right now but everyone has to start from nothing right nathan this is your show i'm a listener of course oh you listen i love that i love that that's great so tell me tell me real quick because i want to get in your head a bit you you've run like massive companies before so what like life event happened where you said you know what i want to get back and dig in the weeds and put on my patagonia you know sweatshirt and go at it again so i it's like always wanted to do this nathan and uh and it's been way too long in fact i'm i'm the son of an entrepreneur and unfortunately my dad died a few years ago before he could see me do this i wish i did this first because he'd be thrilled to participate in it and and i always wanted to do it i always had an excuse and i had the perfect opportunity i had a 13 year very successful career at nuance uh it was very good for me and it was the right opportunity to uh to to take the plunge and do it i couldn't come up with any more excuses so what year was that when did you take the plunge when's the first line of code so 2017 april of 2017 is when we incorporated the company okay and where yet today in terms of team size so we've got five full-time people right now we've got a couple of part-timers and then we've got a team of seven in ukraine uh doing the hands-on keyboard coding okay so five full-time and then seven contractors in ukraine yep okay so calling me 12 there total how did you spend a lot of companies when they're launching they've heard about these big cost savings in ukraine and argentina and some places in india but they go i don't know anyone over there how can i spin up a dev team how did you do it how did you find your point person in ukraine it was an interesting journey so we actually started with a team in india and we found them through a local connection here in boston that we had some experience with and they were great for our early stage but then when we needed to start to really harden and get the system ready for a different kind of scale because this is a system that's going to need to support a lot of a lot of users it's intended to be quite a large scale system and we need the right sort of privacy and security stance we needed a different level of team and our head of engineering uh was the head of engineering for uh a team called a company called jaibo that made the the uh the robot uh sort of an emotional robot thing great experience with this company we had in the ukraine so that was our reference in and that's how we found them interesting okay very cool now how have you funded this are you bootstrapped or have you raised so we've raised some cash uh we've raised uh about two million dollars to date uh be all via a convertible note uh it's primarily angels including me i'm our biggest angel that's the best place to be yeah absolutely and and we've got two uh boston-based vcs who've got sort of small placeholder checks in this glasswing ventures and accomplice okay very good and and um okay glass one compost uh did either of them have to like leave the convertible loan or did you did you lead because you took you know the majority of it yeah i i did it first you just set the terms i i set the terms up front uh and then they begrudgingly joined me very good all right and then obviously it sounds like you just launched so revenue 12 months ago was zero can't really calculate a growth rate yet at this point you're too early that's exactly right unfortunately we can't uh we can speculate but that wouldn't be too useful yeah tell me how a company like yours um thinks about kind of onboarding and churn and how strong is your bucket you know you don't have a big enough cohort yet right to really have like gross churn and expansion revenue data but you still have to think about keeping customers and getting them activated so how do you balance that yeah absolutely in fact it was an interesting journey nathan because when we started the original thesis was we wanted to go out really wide and have a real freemium model because we thought it would be great to have lots and lots of people because this is a data play for us my cto is a data scientist the idea is to build sort of ai based recommendations to not only build the plan but actually help people understand what they should do with their plan uh and so we originally said let's go out in a freemium model we decided that one the product wasn't quite ready to be magical to get people up and running and do that coaching up front so we decided to focus on on really getting sort of the paid customers up and running and successful uh and and to do that we provide uh we provide uh onboarding services to to get people up and running so we we white glove them everything from we take all their data we set up their budget we train them we do all these things uh we initially did that for free uh and and we're now uh moved to charge for that so it's a thousand dollar charge to get people up and running uh with with the system and people are happy to pay that because we not only provide the services but we actually give them some expert advice on what they what their budget is you know what are they are they doing the right kinds of things so it's it's a super valuable service for them to get up and running well you the price point you've chosen is a tricky one so when i look at i've interviewed about i want to say maybe 24 ceos that have more than 100 million bucks in arr and you obviously have run a company at you know way north of that as well but when i looked at the data around pricing the average acv of those guys there was no one yeah you know the gap right so like how do you now maybe you could say well nathan we're early so it's okay for us to play in that gap where acvs are between 500 bucks and five grand but you're putting a lot of touch on those things and and at some point either have to go up more or down more what is how do you figure that out when's it when's the timing right yeah so we're we're absolutely going up yeah and we're going to go up as we deliver more value in the product in fact from we started the first few customers they they were a thousand dollar acv the largest ones to date or about 9 600 is the largest uh and and we expect our acv at the end of the year is going to be you know somewhere between uh seven and eight thousand dollars based on our current projections yeah so you're moving up pretty rapidly yeah in fact we've raised our prices twice already uh in in the first period of time because we were super early at the beginning we're trying to iterate very quickly uh and as we deliver more value to our customers uh they're willing to pass more and and that's that's been a good model because we absolutely believe the uh that sweet spot of revenue we use hubspot as our model uh and hubspot is uh they're about a ten thousand dollar average customer value per year uh and and we think we'll probably be a little bit north of that with the approach that we're taking uh but uh we're we're not going to be a hundred thousand dollars because we want an inexpensive velocity-based sales team yeah that's interesting um do you have anyone on your team right now that is sales focused yes yeah we just hired our first sales rep which is super exciting uh he started about six weeks ago he's already drawn his first blood meaning that he not only put something in the pipeline but took it back out and and sold his first contracts uh within the first six weeks so that's amazing so it's yeah getting that first non-founder-led sale is really important yeah peter yeah that is a critical moment so like there's a lot of you know some people like mata yesware who's also up there and your neck of the woods would argue in a new york times piece that the best you know you don't want to hire your first sales rep until the founder has closed at least a million bucks an ar him or herself um the the flip side to that is hey let's get started now throw them in and kind of you're going to build a pro you're going to learn about a pro forma that you think might be accurate for salesperson onboarding through this first guy you've hired and you'll edit it based off what he does is that kind of how you're thinking about it it is in fact i got a great piece of advice from david kentzel who's the ceo of drift uh and david said to me he kicks himself every time he says i'm going to next time i'm going to hire my first sales rep even earlier i and and i think it's a really important uh really important to get the understanding of what that sales motion and that sales process looks like as early as as possible uh and because that helps us that helps us figure out how to build a real scale into the product very early uh so that's that's what we're that's what we're focused on at this point and and it's been amazingly helpful i also found that while there are great things that a a founder and ceo can do has great value in the sales process this 29 year old sales rep is amazing and he's teaching me things already i started my career in sales and apparently it was a very long time ago because he's much better than i am that's funny all right and and talk me through the first 10 customers i mean how did you find them where were you hustling what are the weird things you did to land them yeah so the we started with this idea that we could build build opportunity from uh from digital marketing uh because we thought that that was the way to build scale like build uh prospects in there's a huge market basically every marketer every marketing organization uses a spreadsheet to plan with the exception of a handful of hundreds of people literally it's the penetration of of purpose-built systems is very low in this marketplace so it's a wide open market so we're trying to prove the thesis that we can identify opportunities through digital marketing and content marketing kind of approach the first 10 uh four of them were people in my personal network because i've got a great personal network especially in the boston area but in uh in marketing people in general six of them though are people that we got through digital marketing i mentioned michelin they found us through a uh uh adwords ad uh there are some other people who found us through instagram i mean it's it's been uh from very early on we wanted to approve that we could put people into the pipeline and get them through uh through those kinds of techniques uh to uh to to grow the business what are some adwords you're bidding on so it's it's marketing budget software marketing planning software are the the key ones that we look at interesting and i mean how did you come up around those how did you pick those like in other words i mean i it might sound obvious but you want to make sure obviously there's enough search volume where someone's going to see it but also not enough competition where the the cost per clicks are through the roof yeah in fact and we do a lot with negative keywords as an example to to make sure that so we're we're we're not uh a media planning tool uh we're a total marketing budget tool so we want a census view of the whole budget in fact we know great things because we can get a full view we can tell people strategy by looking at their budget as an example a lot of people thought early on that we're a media planning tool so we did a lot of experimentation uh with the adwords tools that are quite robust uh to help us hone down on a set of words we've we've got uh about 50 different variations right now that we're we're running but the high runners are sort of the obvious ones around marketing budget software marketing budget marketing planning and how do you peter in these early days how do you manage something like burn right so you have two million in the company most that is your money what i mean how comfortable how aggressive are you being in these early days to build yeah it's a it's an important balance of course because uh to some people two million dollars sounds like a lot of money it isn't uh because as you know you can go through that quickly yeah one way we manage burn is we don't pay me yeah so that's that's a way to manage things but there are real costs i mean i've got real employees uh so we're we we our op x uh monthly is is about 100k but we also start to bring in cash i mean the nice thing about an annual license model is the fact that you have when you close a deal uh you bring in the cash up front even though you recognize the revenue ratably over the the first year period so it's a it's a good model but at the same time we have to strike the balance and and there are times that i want to do more uh and and i want to step my foot on the accelerator but we do a lot of testing and small sets to really understand we're doing the right thing before we start to uh to put more fuel in into the fire and we're raising more money now i mean our hope is to raise another half million or so i and and we've done that really successfully along the way via angels and that will help us accelerate our customer acquisition and then we think you know within the next year we'll be ready for our first price round so gross burn total opex negative kind of 100 grand per month sounds like net burn maybe 90 grand per month something like that because you have a couple annuals coming in yeah yeah exactly that's great the the extra so let me ask you another question in order to preserve equity um have you looked at raising or doing things and leveraging venture debt or are you would you say too early to look at those options i wanted to keep us debt free is as long as we possibly could uh and uh so we we've looked at and considered some different kinds of uh financing options we wanted to be as plain vanilla understandable as possible uh and and so one of the things i did for instance on my uh with my investment i'm on the same note that all my investors are and i like that because we're at parity uh we we have uh aligned self-interest uh with with our investors which i think is an important uh uh approach to do in and we want to make sure that we're just we're gonna be a really clean investment uh for for that first priced equity round yeah and i mean i guess the reason i ask is just because if you are looking to preserve equity and you have identified a keyword that works for you it becomes very easy to display an arbitrage game on an interest rate on loan money and keep all your equity uh but it's you're right though it is you know many would argue if you're just gonna if you're already committed to the vc route and you want to stay quote unquote clean just sticking to these simple terms is also beneficial yeah we're also i'm i'm in this to build a big company nathan this isn't this isn't about growing something that's going to be you know 10 million 20 million dollars uh in in arr the goal is to make this hundreds of millions of dollars we've got a big enough market to do it with that in mind i'm expecting that we are going to take some dilution on to to get to that size but we're going to grow big enough so that who cares about the dilution at the end of the day if yeah it's tricky though peter i don't know if you look at the statistics but when you look at the last 24 sas ipos the average founder right on these venture back things had about six percent equity at the end so the argument would be yeah but that's fine it's a billion dollar pie and that's cool it's just a lot of people i think underestimate how what that dilution actually looks like to put you know crowdstrike's about to go public right they've raised 300 million bucks to get 300 million in arr the founders are obviously hyper diluted but it's a much bigger pie now so it just depends on what you want i i'm actually pretty good at math nathan i have degrees in physics and computer science and uh so i understand the way the metrics work i think that it is an important consideration there's always a balance what i don't want to do is i don't want to starve the company uh and uh and i believe to take full advantage of the opportunity we're going to need to we're going to need to raise some some reasonable cash to do that uh and and i'm completely going in that eyes wide open we know how to watch for uh watch for the terms that are going to cause us trouble down the road not only for me but for my early investors uh are important for me to protect you know i get that i i was i wasn't hitting your math skills either by the way i was just signing a very obvious figure which most people tell themselves the same story you just told yourself but they don't actually realize the amount of dilution it's going to take to build i'm quoting you a company with hundreds of millions of dollars in arr and that's why i'm asking is do have you seen because see you've been on both sides of the coin right you've been a much bigger company do you have some trick that we should be aware of where you can actually preserve for the founder 20 30 equity at ipo time or whenever you hit 100 million bucks in an ar without i mean there hasn't been anyone that's been able to do that yeah i don't think there's a single magical trick by the way if there was something everybody would do that that's why i posed the question by the way yeah no uh and uh if you hear one please let me know and no one else yeah and uh so there isn't one single thing i i think it's about careful management of uh of of the company of uh your fundraising approach uh and uh and in preserving as much as you can every single single step of the way it's part of the reason that we we've been uh strategic about the way that we want to time our first priced equity round we want to make sure that we sort of set that stake in the ground appropriately uh and and make sure that because setting us off in the right uh for that first round is really critical to make sure that we're sort of setting the setting the terms appropriately uh and making sure that we actually have provable scalable momentum in the company that's going to help us we believe in in getting that first base set of terms which is why i believe that it's about defining the process and systems and for for repeatability running the experiments at this early stage proving to myself first because i'm a big investor in the company obviously if i can prove to myself that we have the right kind of scalability i can't i think i can make the right investment thesis that will help me protect as much as i can and again if if if i have 20 30 percent i mean that would be a home run for me uh if if i had that'd be unbelievable if you held if you built a 150 million or north million dollar company you still had 20 or 30 that'd be obviously great yeah yeah of course you would yeah of course that would be fantastic and at the end of the day i i i believe that there's i i believe that we can uh do a good job preserving the right amount of uh equity i think it's probably not going to be that much at the end of the day that i'm going to own remember i'm a i'm a single founder so that helps uh right so uh so i started with a lot more equity and that's one way to to help protect is is start with a bigger piece of the pie yep very good let's wrap up here with the famous five number one favorite business book so my favorite business book is a blog is cal blog by dave kellogg i don't know if you know him but awesome post analytics yes it forced me into a book it's hard thing uh it's the hard thing about hard things yeah just be clear that you're talking about a host analytics ceo dave david yeah all right number two is there a ceo you're following or studying yeah i mentioned david cancel from uh from drift uh he's a serial entrepreneur uh great guy inspirational leader uh so uh yeah i i follow and talk to david frequently number three what's your favorite online tool for building your company so i i'd have to say it's hubspot it's kind of boring but the reality is we build a lot of the systems for our company all around hubspot it works it's scalable and they're a good close partner of us too and number four how many hours of sleeping every night so during the week i get somewhere between six or seven it was a little less than six last night uh on the weekend it's a solid eight that's great and then peter what's your situation married single kiddos i i'm uh blessed to be married for 26 years uh and i have three kids uh 22 21 and and 18. and how old are you i'm 54. 54. take us home what do you wish your 20 year old self knew well i there you go we had a glitch what do you wish your 20 year old self knew i wish my 20 year old self would know not to wait for 30 years to start my first company guys don't wait to start your company coming from planner again helping you understand your marketing budget forecasting and planning they just launched about six months ago i have about 18 customers paying 200 300 bucks a month so call it four thousand five thousand bucks in monthly recurring revenue has a team of about 12 people right now building this bad boy total opex about a hundred grand per month so their net burn is about 90 grand per month 2 million raised mostly from peter from his past successes uh who's now looking to take this up in the 100 million dollar range peter we're rooting for you thanks for taking us to the top thanks nathan