How Qarrot CEO Aaron Carr grew to $859.5K revenue and 100 customers in 2024.

hey folks my guest today is aaron carr he spent 15 years in the customer loyalty industry before jumping out and launching carrot a cloud-based employee recognition platform aaron are you ready to take to the top certainly am let's do it all right so you're in a hot space this is like hr tech space employee performance in a remote world gets very very important what are you seeing in terms of coveted how scope impacted you guys so it's funny because for the first month when sort of the march lockdowns happened last year i think we were all concerned uh it sort of hit businesses like you know pretty hard but a few months later everybody was talking about well now we've got this challenge of keeping people motivated and engaged while they're working remotely and suddenly the industry like hit this massive uptick and we started getting more calls uh than we did pre-coveted so it's been interesting to say the least certainly some industries you know are on tighter budgets but i'd say our hr tech and specifically uh employee engagement and recognition is really on a lot of people's uh people's radar right now so it's actually had a net positive impact i'd say that's interesting okay now what are customers paying on average per month to use your technology yeah so we're primarily subscription based uh it's a per user uh per month fee we start at three dollars per head per month um on average based on the account size it's about uh let's say around 200 230 dollars per account oh wow okay so these are teams are signing up like 50 60 70 employees right off the bat yeah yeah so predominantly we're hitting the small to mid market so i'd say our customers are between 50 and 200 employees per shot interesting and how many logos are signed up how many individual companies yeah so we're still uh we're in year three and a half as carrot we've got close to 100 logos and i do want to call attention to the fact that before what inspired carrot was we we launched this sort of custom program for this really big company in the us that's got like 3 000 locations but we've also got that one big logo off to the side but then the rest of our logos are again in the small to mid space so you launched in what 2018 yeah yeah first year in 2019 do you remember total revenue oh gosh well we were doing about in 2019 our mrr was predominantly from our one side cut the one big guy and then we had a handful of carrot customers it was about 15k mrr um at that point and we would have been doing in 2019 probably about one and a half million total so our again our revenue is comprised of subscription revenue on the one side but because we're a rewards and recognition platform they're also buying in effect rewards which from for us are digital gift cards so that gets sucked into our sort of our revenue line as well and accounts for that difference so so how much like per month right now are you making just from the gmv percent on reward purchases so total gmv per month we're gonna do uh rewards revenue total this year is 3.5 projected or recognized so far uh no that's projected total but that includes what we've done up till date up until the end of july so what is that number we've done about we're very back half heavy so we've done about 1.5 today we've got another 2 million that will come in by the end of the year interesting okay and so so so how much will you make on 1.5 million of reward purchases through your platform so the gift cards it's very thin margin it's three percent so wish it were more we're working on negotiating better margins but gift cards are notoriously uh thin margin in that respect got it so just to be clear the 1.5 million is you're saying is revenue that is total volume or that's your three percent take no that's our total volume i wish it was a three percent take yeah working on it we're working on getting there fair yeah so your three percent take on that then would be about 45 grand so you're doing between like five and 10 grand a month right now on percent of gmb revenue exactly interesting and is that included in the 23k number you just told me for mrr no no on top mrr is completely distinct so mrr's pure like the customer has two charges effectively they've got their recurring charge obviously for their subscription and then they separately buy rewards so those are more on an invoiced basis yeah yeah so on average though across these 100 customers you've got again 230 a month coming in per customer for 23k and mrr but then each customer is also spending some amount again on these rewards so really when you're adding the reward revenue you're three percent cut you're more like thirty thousand dollars a month and total revenue right correct in fact um in fact our total i refer to it as net platform revenue so net platform revenue uh is uh for last month was closer to 40k that's great yeah so you call it like you're almost like a half a million dollar running now if you don't know this all bootstrapped or did you guys raise capital uh i'd like to say we're mostly bootstrapped in 2018 i got in my head that we needed to raise some capital we did a very small pre-seed round less than 300k canadian so very little in terms in terms of dilutionary impact um what was the valuation on that so we did it we had it was a safe we did a valuation cap of two million okay and would you change anything about like you redid it today or did that does that feel like the right move do you know honestly um it was i think we needed the capital at the time but we've also had a friendly relationship with the business development bank of canada bdc and we probably could have just borrowed the capital as well what we needed to keep running i mean we plowed it all into marketing and sales so it paid some dividends um but you know 300k really isn't a lot in the grand scheme of things so if i were to go back i might have deferred that and maybe just look to an alternative non-dilutionary source and what is the team size today he said he plugged it all into marketing yeah so we're we're a team of six uh i have four software developers uh one marketing person slash client support uh customer success person and myself so i'm i'm functionally the primary sales person uh my marketing customer support does all of our demand gen and handles all the incoming stuff that frankly i don't want to touch and then we've got our four full-time software developers and so aaron are you so founder then so i have uh let's just call it a silent partner who's got a minority holding and he's more there as an advisor i call him my corporate swiss army knife because he does like all of our finances and sort of provides a lot of strategic guidance but i'm functionally the the sole uh let's say operating founder so when you look at that plus a 200 000 raise and the dilution associated there how much how much equity do you still own today personally so uh on a fully diluted basis i'm about 65 so i still have like a good chunk yeah that feels really good i imagine that feels really good um how do you grow like how do you double revenue so fantastic question honestly i think for us it comes down to plowing more money into well intelligently plowing more money into demand generation and possibly starting to build out a bit more of a sales team because we're mostly dealing in the small to mid market the economics are more oriented towards um inbound versus outbound but we are starting to add a lot more sophistication to the platform and starting to get calls from the much larger uh multinational organizations so those calls are very welcome but it's like we're in that intermediary phase where we still get nervous picking up the phone when somebody huge calls us um we're more just super comfortable in like the sub 1000 uh level uh we can knock those guys out all day but um how do we grow i think investing more in demand generation have you already run a test there and you know what sort of works how much did you spend last month on demand gen um so all in direct advertising costs are between five to seven k canadian a month okay and how many new leads we get from that we get per month 50 to 60 uh reasonably qualified leads in the form of demo requests and free trials okay and how many can work to paid uh we're converting about five customers five paying customers a month yep interesting okay interesting very cool so 200 customers today maybe 105 110 as you go on month to month now do these customers stick what's churn look like so last year we calculated uh churn at about 16 on an annual basis um this year it's coming in below that like it's it's sort of in the 10 to 15 range um like we're losing less than an account uh per month um so we've only been around for as i mentioned three and a half years so we don't really have full visibility on long-term uh churn trends but based on those numbers we're seeing accounts last like up to five years um and certainly we do have accounts our oldest account is like since the inception like we've got accounts that are three and a half years and there's are you upselling them aaron do you have upsell revenue that makes up more than 16 of the churn we're trying to get there we're actually just about to embark on a sort of a pricing and upsell sort of strategic review to figure out what services can we append or what upsell packages can we can we add into the mix right now upsell is more just as the as our customers grow and add more employees they subscribe to more seats and we do see that consistently that natural there's a natural occurring revenue growth um as the economy improves and as things rebound in particular they hire more but what is it today though like in the last 12 months did you expand more to get up to 100 net dollar retention or no you're still below that um it is so sorry can you repeat that yeah like of the customers you had exactly one year ago it sounds like 16 of the revenue churned how much upgrade revenue were you were able to drive was it more than 16 upgrade revenue yeah it's about 20 to 25 got it so your net dollar retention is like 109 yeah i see that's great that's a good place to be in uh and you're trying to expand that it sounds like which is nice um any acquisition the folks reaching out trying to buy the business you're in a hot space there's a lot of money floating around yeah what's the biggest offer you turn down uh so i'm not sure that we've so let's just say there's been a lot of heavy flirting um we haven't actively turned anything down yet because like the flirting hasn't necessarily gotten to a marriage proposal yeah we get uh we get contacted by pe firms they usually want us to be a bit bigger to be fair uh we've had a few strategic acquirers come along there's some stuff that's kind of floating out there at the moment um a few million cash all up front do you take the deal two million cash all up front um honestly we're in a really good place right now i'm not sure i'm not come on that's one but you own sixty thousand valuations back in 2018 so yeah that's fine but you own 65 percent what is that 1.3 pre taxes post tax in canada what does that could put in your pocket 900 000 close tax are you married uh single okay does your did you are you are your parents alive yes will your mom kill you if you tell her you turned down a 900 000 like deal that would put that in your pocket suppose tax she she may not talk to me for a few years but for my daughter her grandchild so that's so funny all right man good stuff let's wrap up with the famous five erin number one favorite favorite book um i'm gonna give you two if i can because i have to give credit to liar's poker by uh michael lewis that's what inspired me to get into business when i was like 15 or 16. um more recently though of a more applicable nature to what i do is the innovator's dilemma clayton christensen i'm sure you've heard that a million times just to really help the thinking vis-a-vis like how to innovate in a mature market so number two is our ceo you're following or studying um probably toby's little kid like obviously canadian uh more like an inspiration smart guy made some very very good decisions and i love the story of shopify so number three what's your favorite online tool for building a business honestly we're very heavy slack users but if i look at the one tool that helps us drive internally it's actually azure devops not particularly sexy but we live and die by what goes into devops erin how much sleep do you get each night seven seven and it's good and situation i think you said you're single any kid is running around i got a beautiful ten-year-old daughter and a nine-month-old puppy oh wow okay got it one kid on how old are you i am 47 47 last question something you wish you knew when you were 20 oh gosh honestly i i just wish uh that i'd known to get in earlier i remember a classmate in 1996 saying i'm gonna go off and build apps for blackberry and i thought what what is that like why don't you become a banker or a consultant that's what all the cool kids are doing so i just wish i'd had that entrepreneurial spirit a lot earlier guys there you have it erin at carrot.com hr tech play they help you reward your employees and put together great incentive plans doing 15 000 a month on revenue back in 2019 now doing 40 000 a month in revenue combination of sas plus percent to gmv that gmv are companies buying rewards for their employees and they take a little cut three percent of those rewards they've got a hundred customers today planning average 230 dollars per month they raised 300 grand back in 2018 and a 2 million dollar valuation team said the sixth day for engineers that looks to scale aaron thanks for taking us to the top my pleasure nathan one more thing before you go we have a brand new show every thursday at 1 pm central it's called shark tank for sas we call it deal or bust one founder comes on three hungry 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