How Qarrot Reached $40K Monthly Revenue and 100 Customers with a 6-Person Team (Interview with CEO Aaron Carr)

Introduction and Background

Nathan Latka

00:00Hey folks, my guest today is Aaron Carr. He spent fifteen years in the customer loyalty industry before jumping out and launching Qarrot, a cloud based employee recognition platform. Aaron, are you ready to take us to the top?

Aaron Carr

00:10>> Certainly am. Let's do it.

COVID Impact on HR Tech and Employee Engagement

Nathan Latka

00:12All 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 COVID? How's COVID impacted you guys?

Aaron Carr

00:22>> So it's funny because for the first month when sort of the March lockdowns happened last year, I think we were all concerned. It sort of hit businesses like 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 hit this massive uptick and we started getting more calls than we did pre COVID. So it's been interesting to

00:51>> say the least. Certainly some industries are on tighter budgets, but I'd say our HR tech and specifically employee engagement and recognition is really on a lot of people's radar right now. So it's actually had a net positive impact, I'd say.

Pricing Model and Average Revenue per Account

Nathan Latka

01:07That's interesting. Okay, now what are customers paying on average per month to use your technology?

Aaron Carr

01:12>> Yeah, so we're primarily subscription based. It's a per user per month fee. We start at $3 per head per month. On average, based on the account size, it's about, let's say around $200 $230 per account.

Nathan Latka

01:28Oh, wow. Okay, so teams are signing up like fifty, sixty, 70 employees right off the bat.

Aaron Carr

01:33>> Yeah. Yeah. So predominantly we're hitting the small to mid market. So I'd say our customers are between fifty and two hundred employees per shot.

Customer Profile and Market Focus

Nathan Latka

01:43Interesting. And how many logos are signed up? How many individual companies?

Aaron Carr

01:47>> Yeah, so we're still, we're in year 3.5 as Qarrot. We've got close to 100 logos. And I do want to call attention to the fact that before what inspired Qarrot was we launched this sort of custom program for this really big company in The US that's got like 3,000 locations. 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.

Nathan Latka

02:16So you launched in what, 2018?

Aaron Carr

02:18>> Yeah.

Nathan Latka

02:19And do you remember?

Aaron Carr

02:20>> Yeah.

2019 Revenue and Business Model Breakdown

Nathan Latka

02:21First year in 2019, do you remember total revenue?

Aaron Carr

02:25>> 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 Qarrot customers who was about 15 ks MRR

02:40>> at that point. And we would have been doing in 2019 probably about 1,500,000 total. So 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 for us are digital gift cards. So that gets sucked into our sort of our revenue line as well and accounts for that difference.

Gift Card GMV and Take Rate

Nathan Latka

03:07So how much like per month right now are you making just from the GMV percent on reward purchases?

Aaron Carr

03:15>> So total GMV per month, we're going to do

03:20>> rewards revenue total this year is 3.5.

Nathan Latka

03:24Projected or recognized so far?

Aaron Carr

03:27>> No, that's projected total, but that includes what we've done up till date, up until the end of July.

Nathan Latka

03:33What is that number?

Aaron Carr

03:35>> We've done about, we're very back half heavy. So we've done about 1.5 today and we've got another 2,000,000 that will come in by the end of the year.

Nathan Latka

03:45Interesting. Okay. And so how much will you make on 1,500,000 of reward purchases through your platform?

Aaron Carr

03:52>> So the gift cards, it's very thin margin, it's 3%. So wish it were more. We're working on negotiating better margins, but gift cards are notoriously thin margin in that respect.

Nathan Latka

04:04Got it. So just to be clear, the 1,500,000 is you're saying is revenue, that is total volume or that's your 3% take?

Aaron Carr

04:12>> No, that's our total volume. Wish it were 3% take. We're working on it. We're working on getting there.

Nathan Latka

04:18Fair. Yeah. So your 3% take on that then would be about $45k. So you're doing between like 5 and $10k a month right now on percent of GMV revenue.

Aaron Carr

04:26>> Exactly.

Nathan Latka

04:26Interesting. And is that included in the 23 ks number you just told me for MRR?

MRR vs Reward Revenue Distinction

Aaron Carr

04:32>> MRR is completely distinct. So MRR is 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.

Nathan Latka

04:47Yeah. So on average across these 100 customers, you've got again, $230 a month coming in per customer for 23 ks in MRR, but then each customer is also spending some amount then on these rewards. So really when you add in the reward revenue, your 3% cut, you're more like $30,000 a month in total revenue, right?

Net Platform Revenue of $40K per Month

Aaron Carr

05:04>> Correct. In fact, total, I refer to it as net platform revenue. So net platform revenue for last month was closer to 40 ks.

Fundraising History and SAFE Round

Nathan Latka

05:16That's great. Yeah. So you call it like, you're almost at like a $500,000 run right now. Have you done all this all bootstrapped or did you guys raise capital?

Aaron Carr

05:23>> I'd like to say we're mostly bootstrapped. In 2018, I got it in my head that we needed to raise some capital. We did a very small pre seed round, less than 300 k Canadian. So very little in terms in terms of dilutionary impact.

Nathan Latka

05:38What was the valuation on that?

Aaron Carr

05:40>> So we did it. We had it. It was a safe. We did valuation cap of 2,000,000.

Nathan Latka

05:45Okay. And would you change anything about like you redid it today or did that does that feel like the right move?

Aaron Carr

05:50>> Do you know, honestly,

05:53>> 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. But 300 ks really isn't a lot in the grand scheme of things. So if I were to go back, I might have

Team Size and Structure

Aaron Carr

06:18>> deferred that and maybe just look to an alternative non dilutionary source.

Nathan Latka

06:22And what is the team size today? You said you plugged that all in marketing.

Aaron Carr

06:26>> Yeah, so we're a team of six. I have four software developers, one marketing personclient support, customer success person and myself. So I'm functionally the primary salesperson. My marketing slash customer support does all of our demand gen and handles all the incoming stuff that frankly, don't want to touch. And then we've got four full time software developers.

Nathan Latka

06:51And so Aaron, are you sole Founder then?

Aaron Carr

06:53>> So I have a, 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 sole, let's say, operating founder.

Nathan Latka

07:12So when you look at that plus $300,000 raise and the dilution associated there, how much equity do you still own today personally?

Aaron Carr

07:18>> So on a fully diluted basis, I'm about 65%. So I still have like a good chunk.

Growth Strategy and Moving Upmarket

Nathan Latka

07:24Yeah, that feels really good. I imagine that feels really good. How do you grow? Like how you double revenue?

Aaron Carr

07:32>> 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 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 multinational organizations.

08:05>> 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. We're more just super comfortable in like the sub 1,000 level. We can knock those guys out all day, but how do we grow? I think investing more in demand generation.

Demand Generation Spend and Lead Volume

Nathan Latka

08:26Have you already run a test there and you know what sort of works? How much did you spend last month on demand gen?

Aaron Carr

08:31>> So all in direct advertising costs are between 5 to 7 ks Canadian a month.

Nathan Latka

08:36Okay. And how many new leads do you get from that?

Aaron Carr

08:39>> We get per month 50 to 60 reasonably qualified leads in the form of demo requests and free trials.

Nathan Latka

08:47Okay. And how many convert to paid?

Aaron Carr

08:49>> We're converting about five customers a month, five paying customers a month.

08:55>> Yep. Interesting. Okay. Interesting. Very cool.

Churn and Net Dollar Retention

Nathan Latka

08:57So 100 customers today, maybe 105, 110 as you go on month to month. Now, do these customers stick? What's churn look like?

Aaron Carr

09:04>> So last year we calculated churn at about 16% on an annual basis. This year it's coming in below that. Like it's sort of in the 10 to 15 range. Like we're losing less than an account per month. 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 churn trends. But based on those numbers, we're seeing accounts last like up to five years. And

09:35>> certainly we do have accounts. Our oldest account is like since the inception. Like we've got number of accounts that are 3.5 and they're

Nathan Latka

09:43Are you upselling them, Aaron? Do you have upsell revenue that makes up more than 16% of the churn?

Aaron Carr

09:48>> 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 add into the mix. Right now, upsell is more just 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 as the economy improves and as

10:16>> things rebound in particular, they hire more.

Nathan Latka

10:19But what is it today though? Like in the last twelve months, did you expand more to get to a 100% net dollar retention or no, you're still below that?

Aaron Carr

10:28>> So, sorry, can you repeat that?

Nathan Latka

10:30Yeah, like of the customers you had exactly one year ago, it sounds like 16% of the revenue churned. How much upgrade revenue were you able to drive? Was it more than 16% upgrade revenue?

Aaron Carr

10:39>> Yeah, it's about 20 to 25%.

Nathan Latka

10:41Got it. So your net dollar retention is like 109%.

Aaron Carr

10:44>> Yeah.

Nathan Latka

10:44I see. That's great. That's a good place to be in. And you're trying to expand that it sounds like which is nice. Yeah. 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 turned down?

Aaron Carr

11:00>> So I'm not sure that we've So let's just say there's been a lot of heavy flirting. We haven't actively turned anything down yet because like the flirting hasn't necessarily gotten to a marriage proposal. We

11:13>> get contacted by PE firms. They usually want us to be a bit bigger, to be fair. We've had a few strategic acquirers come along. There are some stuff that's kind of floating out there at the moment.

Nathan Latka

11:262,000,000 cash all upfront. Do you take the deal?

Aaron Carr

11:29>> 2,000,000 cash all upfront. Honestly, we're in a really good place right now. I'm not sure. I'm not sure.

Nathan Latka

11:35That's one, but you own 5%.

Aaron Carr

11:37>> Valuation cap back in 2018.

Nathan Latka

11:39So Yeah. That's fine. But you own 65%. What is that? 1.3 pre taxes, post tax in Canada. What is that gonna put in your pocket? 900,000 post tax. Are you married?

Aaron Carr

11:48>> Single. Single.

Nathan Latka

11:49Okay.

Aaron Carr

11:50>> Does your did you are you

Nathan Latka

11:51are your parents alive?

Aaron Carr

11:53>> Yes.

Nathan Latka

11:54Does will your mom kill you if you tell her you turned down a $900,000, like, deal that would put that in your pocket post post tax?

Aaron Carr

12:00>> She she may not talk to me for a few years, but for my daughter, her grandchild. So

Famous Five and Closing

Nathan Latka

12:05That's so funny. Alright, man. Good stuff. Let's wrap up with Famous Five, Aaron. Number one, favorite book.

Aaron Carr

12:11>> I'm gonna give you two if I can, because I have to give credit to Liar's Poker by Michael Lewis. That's what inspired me to get into business when I was like 15 or 16. 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. Sort of really helped the thinking vis a vis like how to innovate in a mature market.

Nathan Latka

12:33Number two, is there a CEO you're following or studying?

Aaron Carr

12:37>> Probably Tobias Lutke. Like, obviously Canadian, more like an inspiration. Smart guy, made some very, very good decisions and I love the story of Shopify.

Nathan Latka

12:49So number three, what's your favorite online tool for building a business?

Aaron Carr

12:53>> 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.

Nathan Latka

13:07Aaron, how much sleep do get each night?

Aaron Carr

13:09>> Seven, seven and a half.

Nathan Latka

13:11That's good.

Aaron Carr

13:12>> And situation, I think you said you're single. Any kiddos running around?

13:15>> I got a beautiful ten year old daughter and a nine month old puppy.

Nathan Latka

13:18Oh, wow. Okay. Got it. One kiddo and how old are you?

Aaron Carr

13:21>> I am 47.

13:23>> 47.

Nathan Latka

13:24Last question. Something you wish you knew when you were 20.

Aaron Carr

13:26>> Oh gosh. Honestly, I just wish that I'd known to get in earlier. I remember a classmate in 1996 saying, I'm going to go off and build apps for Blackberry. I thought, 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.

Nathan Latka

13:45Guys, you have it, qarrot.com HR Tech Play, they help you reward your employees and put together great incentive plans doing $15,000 a month in revenue back in 2019, now doing $40,000 a month in revenue. Combination of SaaS plus percent of GMV, that GMV are companies buying rewards for their employees and they take a little cut, 3% of those rewards. They've got a 100 customers today, paying an average $230 per month. They raised $300k back in 2018

14:09at a $2,000,000 valuation. Team site is six today, four engineers that it looks to scale. Aaron, thanks for taking us to the top.

Aaron Carr

14:15>> My pleasure, Nathan.

Nathan Latka

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