How Reviewpro CEO Michael Kessler grew to $15M revenue and 45K customers in 2018.

hello everybody my guest it is rj friedlander he's an entrepreneur investor based in barcelona he's the founder and ceo of a company called review pro the world leader in guest intelligence for the hotel industry focusing on hotel tech the guest experience or entrepreneurship he's spoken to more than 100 events worldwide from prominent industry conferences to annual strategy meetings of renowned hotel brands and enthusiastic and natural storytellers compelling presentations explore the latest trends and technical innovations impacting reputation and enabling savvy hoteliers to gain a competitive advantage rj are you ready to take us to the top absolutely thank you all right you mentioned renowned hotel brands i'm curious which brand uh annual strategy meeting did you present that that we would all know well brands like if you're european based for those of you that are on this side of the pond brands like kimpinsky um amman resorts um large brands like radisson so today we work with 43 000 brands across across the globe and from all different segments for review pro absolutely and just are those 42 000 those are all paying or are there like a free plan no those are all paying clients so we have everything is a b2b sas product right and so we have clients that pay us for our tools so there are a number of different we have four different tools and then we also sell data to destinations so on the tool side there's about maybe about 35 000 uh hotels that pay us a monthly sas fee for one or all of our are and then we have uh the balance of ten thousand pairs for our data that's interesting and that data thing really is what more like a one-time product type service every now and then no it would be for example like in the uk the automobile association of the uk uh uses our data uh in that case it's 5000 hotels as a part of their national star rating system so no it would be it would be through our api an ongoing feed where they're using our data um as a part um you know of and combining that with other data sets i see when you look at your historical revenue over the past 12 months what percent was based on the data feed versus the 35 000 hotels actually paying you everybody's paying us for data um so 100 of our revenue comes from b2b sas for data on the tool side so they're using our data through our our dashboard and they have access to our analytics and our reports um that would be in terms of of revenue would be like 95 percent over 90 i see okay great and rj i mean what got you you know this is a very fascinating space with the advent of kind of airbnb but people still craving hyper curated experiences what got you into this space in the first place well i was working i was previously ceo of digital media for the largest media company in spain and that was back in the old days before uh well right when user generated content was kicking off uh started an obsession with photography and using flickr early on i really saw and felt that there was um this unstoppable force of user-generated content i always like b2b business models um personally more so than b2c um i like aggregation business models where you're taking data and you're adding value because the inside insight you can drive through quantitative and qualitative analytics and so really uh review pro was born out of that original interest and obsession with user-generated content and sort of a reverse engineering of where would there be an opportunity where could we grow a great business and when did you launch the company what year so uh we started coding in january 2008 we signed our first paying client in september 2009 but also review pro is an interesting story from a capital standpoint i funded the company for a year and a half um we raised a total of five million euros in equity which to build a global uh sas business model uh where we work with as we said uh 45 000 hotels 150 countries we support uh the product and and account management in seven languages to have built all that on only five million was a bit of an issue how much did you put in personally um of the five million i put in much less than others oh oh oh so sorry the what you put in the funnel for the first 12 months that's included in the five million not on top of exactly the total yeah exactly total funding of about five million i see no that i mean look that is fantastic so so help me understand you know launch in 2008 you're scaling up today what's the team size today how many people today we're um we're about 110 people globally uh the majority are in our boss our barcelona headquarters and then we have people in the u.s singapore and eastern europe that's great and then give me i want to kind of dive into maybe a unique kind of customer story i'm sure you have you know many different customers you already articulated there's two types one that's a data play one that's kind of directly using via your interface help me understand though on average i mean what's the customer paying per year for this sort of thing well again we have four products we have the online reputation we have surveys both in stay and post day we have uh the ability to for our clients to assign tasks and basically have a case management system and that's all wrapped up in a in a guest messaging hub so they can communicate both pre-stay and stay so again it depends on what the mix of the product suite is but um you know to give you an idea this year we'll do over 15 million dollars in revenue five zero or one five one five one five okay great uh so 15 million um if i obviously divide that by 12 that puts you out i think about 1.2 million uh per month right and then divide 45 000 customers into that each one's paying 20 30 bucks per month is that right um no the math doesn't really work out that way because the data the data on a per unit basis is much less um so now the well so what is the 45 000 though is that is that brands or locations of the hotels no that would be individual hotels so for example we work with radisson globally that's our largest brand so radisson hotel group has multiple brands all of those hotels worldwide use our online reputation our surveys our case management um and so how many logos rj then do you work with uh brands uh we don't look at the business that way but it would be hundreds and hundreds okay now what i'm trying to get a sense of is about how many locations per logo you're working with do you average and that helps me get a sense of what size of brands you're working with yeah but we work across all segments so for example our smallest client is a hotel that has seven rooms uh they have one property it's an independent property with seven rooms and our biggest client as i said is this russian that has uh 1300 properties globally so that was one of our successes as a sas company is we were able to build a product that was relevant for all segments and that we were able to build a customer acquisition strategy built around content and we were able to drive leads and volume across all segments and then while we also and obviously do a face-to-face sales a large large part of ourselves are done over the telephone and remotely so that was what allowed us to scale the business um you know i sold the company uh about two years ago to the largest hotel technology company in the world it's called shiji when we sold the company we had 62 full-time employees right and so we've grown the business and the team significantly since since the acquisition but we were a very very optimized company that was very capital efficient and and our ability to build a great product and scale the business and and the reported price on that was 35 million bucks is that accurate um well they acquired they acquired 80 initially and the price was higher than that okay so yeah the the reporting diving deeper on that they said they paid about 28 million bucks to take about a 79 stake in the in the company which would value the company at 35 million at that point is that are those numbers wrong uh it's that's pretty close pretty close okay and so here's my question to you it's very you know i run a very small private equity firm and one of the difficult things is once you make somebody rich it's very hard to retain them uh so why are you stopped the company right well first of all i love the business and i love the team and the product and our clients and when shiji acquired us we had just launched two of our of the products i mentioned we just launched two so they acquired us at a point where you know i live in barcelona so they use football terms it was it felt like half time right there was still a lot there was a lot uh of work to be done um you know as a ceo as a person emotionally and professionally vested in this company so a lot of the motivation came from that the fact that there was still a lot to do secondly when shiji acquired the company or 80 of the company they gave us um you know they invested into the balance sheet so all of a sudden we had more capital to scale the business than we'd had to get to that point right so we had more resources after being bootstrapped for so long uh thirdly that 20 um i i have the you know the significant part of that 20 and an agreement to stay with them and puts to for them to acquire the rest of the shares over three years so two two years has passed um we're on pat we're on track to by the end of next year to more than double the the size of the company so there was a there was a motivation emotionally lots of work be done and then there was also an interesting and motivating uh uh incentive economically to continue growing the just to business as we've 28 million bucks that she paid that that all went to the balance sheet meaning none of that was secondary you took no money off the table no no not at all so what happened was uh our original investors which were individual investors um and uh uh some some well-known some well-known uh entrepreneurs and then also a small venture capital fund they earlier on they all exited with between a two and a half and a 28 time return so um all of our original investors left the left and they were paid out um and then there was an additional there was an additional investment into the balance sheet so no the 28 million was not all into the balance sheet there was secondary plus uh investment for growth i see and help me understand growth today if you're doing call at 15 million run rate today what we had about a year ago well last year probably you do math quicker than i do and uh in 2017 we grew 36 almost 37 percent uh this year we're over 30 percent growth and uh we're expecting strong growth next year as well that's great okay yeah so 30 growth i mean that puts you at about something around like 980 grand a month back about a year ago something like that sound about right if you say so these are details yeah 30 30 though 30 year over year is what you've hit to walk me through where most that growth is coming we grew 37. okay and where's most the growth coming from is it coming from selling additional modules to the same brands or adding new brands entirely well what happened was it's a combination today they're very our core product or the backbone of our product suite is the online reputation most uh hotel brands have a product there so our growth is coming from um stealing uh or acquiring uh brands that are using different products so that's a part of the growth i like stealing way better it sounds way sounds way more aggressive i like it yeah exactly we like to steal clients turns critical rj in this business what how do you analyze your churn and what is it today yeah we have a phenomenal uh success rate there um we are our churn rate is less than 10 so that's less than 10 revenue churn per month per year absolutely that's great so we're this is one of the reasons we were able to grow is because we always focused on data and proposition clients um myself and the other two founders we didn't come from the hotel industry so we didn't have the hubris or arrogance to think we knew what our clients needed we were really good curators of listening to what they said they needed and then actually developing the right product for the for the market based on those inputs and by that focus on data that focus on value proposition really listening and developing the right product it allowed us to have uh a really um exceptionally um uh high ren renewal rate yeah so we talked about less than 10 revenue churn per year so that's obviously on a gross basis i imagine when you add back expansion revenue do you go over 100 net revenue retention on the cohort yeah the um so actually i can't answer that question why no because i don't have the data exactly where it is because what happens is our the the way that we are and we don't really work on a cohort analyzing analyzing monthly cohorts what we do is we look at brands we look at oftentimes what happens is brands will acquire other brands um you know they'll retract so a hotel brand especially the medium and sp and even more so the large ones have a lot of inflow and outflow and so what we measure first and foremost is our client retention so on a brand level and then what we look to do is look um our products sell additional products to existing clients and then also obviously add new brands so that your question you know we have i would say detailed uh comprehensive metrics but we don't measure the business exactly how you explain so that makes sense well i guess what metric do you use to understand how effective your sales team is in getting customers to adopt new modules yeah exactly so i mean in our kpis what we measure is uh first of all every month obviously we're we're tracking within the details of the kpis we're looking at if we acquire uh in new mrr um we have targets and goals for uh the average number of new products we have goals for upselling so in our kpis um we're tracking all that and then our um our chief revenue officer when he's managing his team and working with you know our sales directors and our sales managers around the world what they're looking is to uh you know to identify where there's shortfalls in each of those metrics and focusing on improving where improvement needs to be made but but yeah we are tracking kind of every step along um you know the conversion path from number of leads to uh leads to quality leads for widely qualified demos conversion rates so i i would say that we have a fairly sophisticated um uh set of kpis and we've got a great uh head of sales who's managing that and and putting pressure and and working to improve where need be rj last economics question here because we're because we're out of time in terms of aggressiveness on acquiring new brands or logos um what are you willing to spend in terms of payback period will you spend 12 months 24 months yeah again those those are metrics that i know a lot of companies work that way but we we don't it's not exactly how we do it like so what we do is we each of those products i mentioned or each of those modules has a call it a rack rate or a list price right and then we give discounts based on the number of hotels um the contract length and we give a premium or a discount for prepayment right so what happens is with such a large client base what we do is our willingness disc is really based on uh benchmarking of other clients that have similar size properties and so what we do is we try to stay within the with within the guidelines of other clients we have of similar characteristics yeah but all that rj bulls i mean if you have a sophisticated sales team you have to understand fully weighted cac i mean because there's commissions there there's how to get the lead there's the sdr to ae ratios there's the customer success person onboarding and upselling over the first year i mean do you have any barometers in terms of customer acquisition costs we do but those things i can't share the details of the specific customer acquisition costs because as i said before what we do is our approach was very different than in our comp set is very much driven off content marketing and our ability to manage remote sales for medium and large brands so um i get that i totally get that rj i get the content i get all that but there's still a fully weighted cat so if you don't want to show like the specific number let me give you a hypothetical if a brand's gonna be worth a ten thousand dollar contract for you over the first year would you be willing to spend up to ten thousand bucks to get that customer well in the market that we're in today it's not necessary for us to do that our return is is is is see if it's necessary you think you can spend five grand to get a 10 grand customer if i would be willing to spend five grand to get a customer because our average customer our contracts are between a minimum is one year we don't go month to month right that's fine the shortest the shortest contract period is 12 months um our average contract period is about 26 27 months right so um again the uh the uh to invest five thousand to sign up one of those clients of course that would be great business well yeah but not not and just any client though see payback periods are ratio right so like let's say you pay your sales people a 10 commission on a two-year 200 000 contract right that means you're willing to spend today 20 grand to get a 200 000 contract just the sales commission but then you also have the sdr's that set up the demo you have any paid stuff the conference you spoke out to get the lead like all that stuff i'm just trying to get a sense of payback period ratio you're comfortable with yeah the to be honest with you the the way that we're measuring it's a little bit different so i don't have i can give you an example that's fine but i can say what i can say is that um again if you look at our marketing uh the percentage that we spend on marketing every year as a the percentage of marketing and sales below industry uh benchmarks if you look at if you look at um what we pay per uh per qualified lead uh these numbers these numbers relative to our average contract size are very very small also what happens we're in a market because um of the there's a finite market to what we're doing right so there's um it's not a market where if i'm only much more aggressive i can act like oh the market significantly right there's i think that there's certain constraints by by by the size of the hotel market and the segments and so we manage our business um we manage our uh our business our expenses and what we're willing to spend probably in a you might say in a way that's a little less sophisticated than some of the people you're interviewing no no it's fine it's not necessarily about sophistication but but even if you let's say if you define a market there's only 100 000 brands to sign up in a world where ideally the per the brand that can spend the most wins you actually really have to understand cac and lifetime value so you understand if your economics can support a higher cap to win the customer in the first place um so we can come back that way i think we beat that to death so um and we're out of time so let's wrap up here with the famous five number one what's your favorite business book my favorite business book well one that i just read recently that i enjoyed a lot for the personal side was uh shoe dogs that's a good one so i don't know if it's number two rj what's your favorite uh tool for building your company well i would say right now oh wait let me let me think about this can you can you ask a question give me a thought the yeah yeah what just what's what's your favorite tool for building a company well i would say the tool that's most integrated in our business is salesforce okay number three um name a name under the radar ceo that you're following or studying under the radars i should i should ask for these questions ahead of time i'm trying to think that's okay just not jeff bezos or elon musk someone you meet with in barcelona because they're another ceo you respect yeah so i mean for me uh glenn the ceo of you know such a huge company and ability to innovate and keep growing at such huge scale to me this is this is definitely a ceo of reference you said glenn redfin ceo now glenn is the ceo of booking.com oh booking.com ceo got it all right uh number four how many hours of sleep to get every night i sleep on average five hours a night that's crazy low um and what's your situation married single kids divorced no kids two kids i have a 19 year old daughter and a 21 year old son two kids in university that's great rj how old are you 53 53 last question what do you wish your 20 year old self knew i wish my 28 year old self knew how important the details were back then back then i didn't pay much attention to details and just you know like most kids my age just sort of paid attention to what what i wanted to and what i see is every everything is is in the details and that's something that that i definitely pay more attention to now than i did back then guys details matter founded in 2008 review pro now works with over 45 000 hotel locations several hundred brands doing about 15 million bucks in run rate or about 1.2 million bucks per month they're going about 30 percent from 2017 to 2018 so do it doing call call it you know uh uh well a little less than obviously about a year ago they've raised less than 5 million bucks to grow this brand in 2016 sold 80 percent of it for about 28 million bucks to a another firm he rj is staying on to continue growing the company obviously incentivized with equity as well economics healthy less than 10 percent revenue churn per year a team his team of 110 people in barcelona and remote again building up these four modules probably have some additional ones on the way to continue driving more usage more adoption and more value for these hotel brands rj thanks for taking us to the top