How Qualified grew to $2.5M revenue and 350 customers in 2019.

hello everyone my guest today is nathan doctor he's the ceo and co-founder of qualified.iowa rapidly growing platform for assessing engineering skills that are used and is used by companies including apple ge and vimeo the company also built codewars.com where over a million software developers train their coding skills he's also a managing partner at synapse capital crypto asset investment firm nathan you're ready to take it to the top completely ready all right man so i mean should people think about this like kind of udemy or creative live but specific for developers or more like a treehouse or a top tower where you'll hire developers yeah great question so we're more in the hiring realm so i'm not really similar to any of those but on the assessment side so where we fit is in the hiring process so there's really two sides of the business on the company piece with enterprises a lot of the clients you just listed off what we're doing is we're helping them identify and surface the best quality candidates in their pipeline so helps them increase the speed to higher reduce the cost to actually finding candidates and also unearth resumes that otherwise would get overlooked okay got it so you might send up an email automation for every time a resume gets submitted via indeed to vimeo vimeo auto replies with like a quiz link and that quiz link is powered by you exactly so that quiz link that they take them through is a real coding challenge so it approximates real world work on the job and we're actually testing them based on the development skills are you a developer actually no which isn't come on i was about to say nathan you have the answer to this question has to be yes otherwise that you're working some magic how the hell do you do this it's all on the developer side it's all my co-founder jake so jake's the cto of the project and he's the one that's really the it's his brainchild in terms of actually developing it and what's your guys's revenue model i mean this is a sas model or a per placement fee or what yeah so we do a sas model so we're really focused at fitting into that hiring process so they're using us throughout the year regardless of the candidates that come through um all of their flow actually funnels through our platform so we're charging an annual contract okay i don't want to go on every customer court i'm sure you have a lot of different sizes of customers but on average what would you say a customer pays per year to use your tech yeah of course so um across the range is from 6 000 to 17 000 depending on the cohorts okay cool and why would someone pay six for 17 and that's annually right yeah why would they pay six for 17 i'd just be the scale of a customer so on the smb side we have smaller growing businesses versus on the enterprise side yeah but measure by what like number of seats number of applications per month what's the unit amount right so the vectors that we actually charge based on are the number of assessments they're running through per month and then we also have a seat count so that would be for recruiters that fit on the platform engineers that are evaluating it are helping set up the assessments interesting and give me a sense of volume so i mean trailing 12 months how many total assessments to your platform that's a good question so we typically on the actually don't have a assessments number off the top of my head but we're in the millions so okay there's a significant amount of volume yeah million plus that's good and then put this on a timeline for me when'd you launch uh so we launched qualified in 2016 and spent the first year really just getting platform right testing out the revenue model there's a lot of iteration there and then the last few years really been scaling the south side what uh this is always a fun question what'd you spend total on your mvp do you remember uh it was quick and it we did in a weekend actually so i mean less than a grand yeah we like we built it out over a weekend and we're actually getting paying customers by monday how did you okay so how did you do that right how did you get your first customer yeah so the caveat there is we actually started a company that a product that's also part of this company called codewars and so what codewords is is a community for software engineers to train their skills on coding challenges so that's where we develop the methodology that we use for testing engineers and through that we built a community about a million developers it's widely used by developers in college all the way up to senior level engineers on the in the workforce as a way to pick up new languages and skills do brands google facebook pay you to send like a sponsored you know email sends through like to your user base i imagine they pay a lot of money for that yeah there's definitely a revenue opportunity there but that's not something we've gone after just because we're really focused on keeping that codewords community uh very clean yeah so basically if google reached out and asked that you'd say hey no the way to get access to our user base is to actually sign up for a paid plan and we'll help you do your your you know coding yeah exactly so we do have a revenue stream that comes through codewords there is a sas component of that too where hyper users can actually up pay to get access to better feature sets but for the most part it's a free community better feature sets like what like like harder challenges no so the content's all there but there's a few different aspects we call it code codewords red and they start to be able to get some of the feature sets so they it's a kind of a range of things that make it easier for them to use the platform so they get prioritized code execution so for example if there is a lot of volume um theirs gets put to the top there's also a way for them to actually mark and see other challenges to learn from it more effectively when did code wars launch codeword was launched in 2013. okay so that came first and i assumed that was your co-founder who set that up yeah so we started that together we actually interesting story uh we met at a hackathon um i pitched the general concept of it met him right there we built the product in a weekend just kind of like qualified and launched out that weekend got our first two angel investors that's great um what the angel investors put in uh so the beginning it was 90 000 for that first angel round so it's relatively small that's great and now the now is code wars if i'm on the cap table of qualified does that mean i also own a percent of code wars or are they separate yeah exactly same entity okay so total race to date is how much total raise is a little over two million a little over two million yeah that's great i love that you've stayed i mean you've stayed pretty darn lean what i love about this is you built the distribution channel first and the product second i think people spend way too much time today building product first and then trying to figure out distribution when distribution is way more important in my opinion yeah absolutely that's the hard part in a lot of cases how did you i mean what were some of the things where you saw like viral growth on getting new people into code wars between 2013 and 2016. yeah so one of the biggest things that actually made a difference is that we really gamify the entire community so you earn honor and you earn rank and status as you complete challenges so that rank and that honor kind of creates your standing in the community and also shows off how strong of developer you are across different languages so the first um mvp that we put out there we launched out to hacker news we got 10 000 developers to sign up within a weekend and essentially all it was was a few example challenges that people could take on a landing page and they actually earned gamified honor on that landing page and then we had it scrolling to show the top 100 people can i see this this is so viable can i see a screenshot of this anywhere ah that's a great question we probably have one somewhere in our archives you have to send it to me wait okay so because see part of getting gamification right is understanding where and when to apply social pressure via pixels on the screen right so what i'm hearing you say is trying to describe it again on one screen they could take the challenges and there was like a leaderboard on the right where people's names were showed with like who had the most honor exactly and you earned more honor by completing more challenges yeah so as you went through the stack there was seven challenges that we had pre-filled in there that you could create that you could take and they're an honor but then at the end of it we actually created a viral mechanism where you now could earn more honor by emailing it to your friends you could earn more honor by tweeting it out so there's a whole component of social aspects and you can even link in your facebook or twitter accounts okay did that their whole earn more honor by tweeting emailing your friends it sounds good when you actually measure that though did it truly drive growth that was actually probably our largest source of growth for coders in the beginning which one was it tweeting sending an email a facebook post which channel i would say twitter and then email facebook was far behind how would you ch how would you track if someone emailed their friend about code awards did you set up a custom referral program or something exactly so there's a custom referral link so even after they sent it out that user would get attached to their account and they would earn honor for that okay so if they emailed you know 100 other friends but only one join they'd get one honor you didn't you didn't give honor based off no volume of sends yeah it wasn't volume it was actual follow through that's interesting i might replicate this on my my community for sas founders and do like a intelligence score and the more like questions about sas you can answer the more intelligence you accumulate and if you're dumb as hell you can buy intelligence that works too not buy it but you can earn it by tweeting and emailing your friends etc probably probably ruins the system because then people go no all these rich people are just going to buy intelligence but they're you know dumb as rocks you know yeah it starts to mess with the value metric a little bit yeah yeah that's interesting okay very cool i love this uh 2016 you launched the company how many customers have you scaled to today so we're over 350 customers now that's great now can i multiply that i mean you said minimum early right six thousand dollars a year 350 times 600 bucks a month you're doing north of 21 grand a month or sorry 210 grand a month yeah so we don't talk to the top line revenue but but i'm just taking your numbers though i mean i think you're doing way more than that because you said between six grand and 17 000 ac it's fair to say you're north of that uh somewhere in the ballpark fair enough but help me i won't push harder there what about growth where were you about a year ago do you remember yeah great question um so we were probably half the size okay good so caught maybe a hundred ish k about a year ago and now you know more than double that has most that doubling less than half the size less than that okay yeah how did was most that doubling from driving a higher volume of applications through the same pepsico vimeos or was it by adding more pepsicos and vimeos uh great question so it's been a combination so the last i'd say six 12 months we've really been starting to build up the sales team so the first i'd say 2017 it's actually largely founder sales so most of myself going out there pounding the pavement then once we really got the model tuned in dialed um we started to build that sales team and it's been a combination of going out there and getting those larger contracts and we're starting to push those acv acvs up really significantly on the enterprise side and then also a combination of growing amounts so in a lot of cases um our ideal customers have grown two to five x over the contract or over their lifetime and throughout renewable processing do you know what the expansion is typically from year one to year two is it like you know 30 expansion or something on the whole aggregate basis no no no like if you sign up a new customer today for a thirty thousand dollar acv do you know pretty predictably you're going to grow them to 40 000 acv at the year 2 renewal yeah yeah we do so we're in the expansion side probably in the 20 to 40 seconds it's pretty i mean that's pretty healthy assuming you're managing churn well i mean what's revenue churn annually uh revenue trend annual is not negative so we're gross sorry gross yeah gross revenue turn annually um single digit percentages okay fairly i mean so let's say less than five percent right if you're turning five percent uh annually and you're expanding 20 net net revenue retention's caught 115. yeah it's pretty yeah or said differently net negative revenue churn very cool what's the team look like today how many folks so we're about coming on 20 people fake 20 people i like small teams you want ar per employee that's the metric right profitability all right are you profitable today are you burning um so we actually hit profitability about a year ago congrats or focus more on growth okay good good and now i mean how aggressive are you being your truck in like 10 grand a month or 100 grand a month burn um no we're probably closer to like 30 40. okay that's i mean that's not i mean that's livable if you've raised two million bucks right yeah any raise coming up or you're good for a while um so we're actually pretty indefinitely good at this moment so even the burn we're kind of ramping it up as sales growth happens and then obviously to with upfront contracts the the revenue side of that's really nice because you can bootstrap the growth of the company with the actual payments from customers um so as far as next raise we haven't really we're preparing for it but then we're also keeping our options open as far as continuing to grow at profit i mean nathan would you do the other thing i mean pull a wistia here right your your revenue your aor relative to what you've raised is very healthy i'd say anything above a one-to-one ratio so if you raise the same amount that you're doing an ar it's a healthy sas company a lot of companies are way underwater in that metric a lot of companies that are in your stage where again your ar is higher than what you've raised or close to it they'll actually just buy out the equity to get that company to get your equity back and they'll use something like debt to do that would you guys ever buy out the two million equity yeah we've actually a friend of mine was floating that idea they're in the process of doing it right now and we've thought a little bit about it internally but from our perspective we're also really aligned with getting our investors a good return so we'd like to see this through as quickly as we can and and show them successfully by the way you still get a good return right i mean wistia paid their early investors i think it was like four or five x uh i mean they still got a good yeah yeah you're not just buying out at two million i mean you would essentially i make i'm making this up now yeah yeah i'm making this up if you're doing call it 210 a month right now minimum right so that puts your ar at something like you know two and a half or three million bucks you could go out and raise one or two x that in terms of debt and give your early two million you know a three x return and buy them out for six million on a play plan over the next year or something that's only if you guys really wanted to convert this into a high high ebitda free cash flow margin business where you didn't have the pressures of vc like growth right where you have to burn millions of dollars a month that kind of thing yeah so yeah that is a pretty interesting concept i would say at this point we're far more focused on taking that growth as quickly as possible seeing where that goes and then deciding at that next inflection point do you know what your fully weighted cac is to get a new six thousand dollar a year plan uh it's a good question yeah so it's right now on the ltv to cat because it does change based on the blending so we've tried to break it down based on customer size we're about four to six dollars on the ltv decox side as far as multiple yeah if you just to simplify that so to get a new six thousand dollar your account am i hearing you say you'd s you'd spend six thousand so it's a one to one your payback period is 12 months our period would be 12 months no it'd be less than that um so for each dollar in revenue we're getting or over four to six but that'll be over i mean given we're generally newer right now we're looking at about 24 months obviously that's going to increase as time goes on 24 months what lifetime yeah just as far as like what our historical shows right just because we don't have data from before then so you just be clear you're putting a dollar in and getting four dollars out over two years you're assuming lifetime value is two years yeah yeah so said differently you're spending 50 cents to get a new dollar of ar or approximately three thousand dollars you're gonna do six thousand dollar account yeah around there yeah yeah yeah interesting by the way i think your churn is i think your left and value is actually going to be way longer than that but it's nice that you're using conservative metrics yeah absolutely cool very cool um all right let me see let me see if i have any other questions um this is great no not going to raise you guys want to sell the company when would you sell it for 20 million bucks if someone offered um probably not no we'll see i mean we're in the growth phase right now so we're definitely open to raising it really comes down to what's going to be the best thing for the business yeah and so what's going to get the business to the next stage within next year too yeah yeah if you if you do have like a 50 cents in a dollar out kind of model i mean would you ever to preserve your equity go take a million dollars in debt at like super you know where you're not giving up any equity to drive that additional growth yeah debt financing is definitely interesting it's something we you've definitely thought about why haven't you pulled the trigger um really right now we just don't need money so yeah yeah yeah when you said indefinite kind of runway earlier i mean you're talking like 24 months of runway at your current burn yeah exactly yeah and you're burning caught you know 40 000 a month and you're looking to scale that so that's like more you got like a million or more in the bank basically you just you guys just have to watch you just have to watch the youtube video and read his body language on that one all right nathan let's wrap up with the famous five number one what's your favorite business book great question uh genius of the beast is a really good one okay it's interesting in that it ties business together with biology so it talks a little bit more about capitalism and how that actually connects back to the human nature number two is there a ceo you're following or studying yeah i'm a huge fan of slack so stewart's done a phenomenal job with that i think the way that they've consumerized sas is really interesting yep number three what's your favorite online tool for building your company favorite online tool we have so many of them my uh my co-founder jake is the the king of services so it's hard to choose anyone but i'm i'd say right now charge b is actually doing really well for us on the road management side are you built on charge b yes partially yeah yeah no did you build on stripe at all yeah we we started out with stripe and then as we scaled and needed something more professional and cleaned it up across the realm we now use both services together interesting number four how many hours i sleep to get every night uh really ranges say six to seven yep and what's your situation married single kiddos somewhere in between i have a fiance okay but we don't have any no kids running around huh no no kids all right give up a dog all right half a half a kid and how old are you how are you nathan i'm 30. 30. last question what do you wish your 20 year old self knew great question uh if i could sit down with my 20 year old self it would be all about focus i'd say there's 80 of the things we do that don't really matter and it's really finding those 20 and going all in on those guys qualified dot io has about 350 customers right now all paying north of six thousand dollars in terms of acv so call it north of 210 000 a month right now in revenue around there that's up over 100 year-over-year in terms of growth they've done this all just raising two million dollars they're burning about 40 000 a month right now but plenty of runway more than 24 months in the bank right now so looking to scale that team size of 20 burning about five percent less than five percent annual revenue churn that's on a gross basis 20 expansion for 115 net they're spending about 50 cents to get a new dollar of ar because they own the distribution channel first codewars.com again now helping uh big companies facebook apple pepsico vimeo these kinds of companies hire developers at scale nathan thanks for taking us to the top thanks so much