How Riskmethods CEO Heiko Schwarz grew to $7.8M revenue and 130 customers in 2018.

hello everyone my guest today is heiko schwartz he's the founder and managing director of a company called risk methods he's an expert in both software and strategic purchasing and has spent 20 years successfully helping supply chain and procurement organizations implement solutions to increase performance reduce cost and minimize risk he's been honored with the pro to no award from supply and demand chain executive forest forward thinking approach the topic of supply chain risk management eiko are you ready to take us to the top great thank you nathan thanks for the introduction you bet so for people that are not in the weeds in your space just describe why supply chain risk management is important all right we do um supply chain risk management is extremely important for companies mainly for the companies that produce goods and as supply disruptions or reputational non-compliance within their supply networks lead to manufacturing stop which means these companies are no longer able to serve their customers with the products that they have promised to serve which leads to increased cost to firefight and fix this problems and loss of revenues at the same time so if you imagine these consequences do pair up it means at the end of the day that a company is losing revenue why the competition is jumping into this this lack of product delivery and cost increase so it's really the worth math um from an economic perspective and that's probably not in space in which manufacturing companies want to to end and heiko what are these kinds of risks i mean when i think supply chain risk management i think apple and foxconn and then oh whoa there's unsafe worker conditions oh whoa we have to stop using foxconn i mean is that the kind of risk you're identifying it is part of it so we cross we look from a holistic perspective on everything or damages the reputation of our customers or disrupts the supply chain so to be become a little bit more precise we look into an area which we call delivery so everything that disrupts the delivery it might be a strike and a supplier or sub supplier site it might be in strike at nc port airport distribution center warehouse and there might be a fire at a production site or assembly line of an business partner that really physically disrupts the supply chain or a hurricane or something hurricane that's any kind of natural disasters flooding earthquake fires um probably actually a big topic in india's so aside of these physical disruptions we also consider everything that is putting the business partners in struggle because of financial health so cash flow developments fines penalties lost lawsuits which are really bringing in financial risk to the viability of business partners is another area where we are looking deep into got it aside of a side of these um you mentioned image and compliance related topics which is another pillar where we have to consider working conditions at the operations of our business partners because the non-compliance breaches might might it be child labor environmental pollution bribery corruption whatever it is these incidents within the supply networks they reflect and um hit the brand owner at the end of this chain so your software helps manage these risks the manufacturers are the ones paying you they're your customer correct so we mainly target manufacturing companies because they have just in time just in sequence manufacturing processes running and every minute of um disruption is getting really really costly for them so give me an average you know help us kind of dial in here are is the manufacturing company going to pay you like a grand per month a million per month what do they typically pay you per month for this kind of software um so it really depends on the size of a company so our our offering starts with i'm close to two grand a month for the smaller enterprises and it goes um direction and even crossing six digit monthly fees so it really depends on the size of a company as we want to as measured by what size is measured by what um revenue so we have revenue bands like everything up to 500 million turnover 1 billion turnover etc interesting pricing axes are someone would pay two grand a month versus a hundred grand per month it's based off their own kind of revenue their own flow correct because the value that we bring to these organizations is that we are protecting their revenues right and the more we protect the more value is related to the offering that's that's the idea and we believe it's it's extremely important to have also these lower um entry fees for smaller companies because as long as your ambition is to foster and strengthen an entire supply network even the smaller ones should run a great supply chain risk management practice because the weakest chain in in a supply chain is causing that trouble so we have to foster everyone the large ones and the smaller ones and heiko if i pushed you a little bit harder here and just for the sake of focusing forced you to like give me a kind of a your perfect customer or your average i mean would you say it's in like five to 10k per month range or is it truly enterprise you know a hundred thousand bucks a month so in average we are uh around the the area of 5k a month okay um and give me a question as a company is that sorry to cut you off but what size of comp is someone that's paying you five grand a month are they doing 20 million bucks a year what's their typical size uh their typical size is in the area of um two billion turnover oh wow okay so this is a very small percent of of whatever the total turnover is yeah yeah okay correct put all this is an interesting space put all this on a timeline for me what you year did you launch the company in um so we founded risk methods back in 2013 started with a development of the technology went to the market end of 2013 and we this time we focused mainly on the part where we automatically identify the threats um into the supply networks of companies and this part of our offering is called risk radar because we monitor the threats um then we released the impact assessment part which is bringing in a second dimension to build risk portfolios think about threats on one axis and the impact on another access which supports organizations to prioritize and where and and to to give them a guidance where to put focus in terms of resources capacity money cost basically budgets to improve the the risk exposure and last but not least to close the loop all the action planning and execution support to track down the progress of the preventive activities but also on the um crisis um reactive part of what is risk management basically right 2013 it sounds like several product lines today what's the team size today how many people are you total so we just crossed 140 employees and so everyone who's interested into this great space please check out our open positions on our website and at the end of the year where is everyone where is everyone based where are the offices the headquarters are based here in munich bavaria small country nearby germany i'm kidding and the us operations are based in boston massachusetts and we have an operations center based in ruslov as well it's poland oh very good very good all right so munich boston and poland and then over the past five years what have you guys scaled to in terms of total customers or manufacturers you're working with um so we today as of today we surfing customer base of 130 enterprises across which are headquartered across europe and north americas for sure the supplier will supply chains which means the objects that we are monitoring might be suppliers of supplies customers own facilities warehouses dc's seaports airports are spread across the entire globe so it's really a global topic but our go-to market is focusing on emea and and north americans and heiko have you been able to scale to these 130 customers bootstrapped or did you decide to raise capital uh we bootstriped in the beginning so rolf and myself as the two founders we we brought in um our savings into the foundation of risk risk methods come on wayne how much did you guys put in [Laughter] it was tough it was uh we wanted to give a decent signal to the market that it's not uh just an uh gambling thing so we put in a six-digit figure into the foundation so just just said out of curiosity when you launched the company were you married no okay i was gonna say was this like divorce money where if it like failed you're gonna be on the street kind of thing but you you really went all in though i mean you put like both of you guys all your savings big risk yeah absolutely it was really an all-in decision and as i can say yes today i'm married with risk methods that's good so how much total raise to date so far we raised north of 20 million dollars through and series a and series b we went through in series b um springtime last year and we raised around 15 million dollars into the series b okay so one five one five million series a was about five million for 20 total yes correct if you do that if you did that last spring and most people once you're on the venture capital treadmill you're raising every 12 to 18 months that means right now you're about to announce or you're in the middle of fundraising or you're in acquisition talks with a competitor which one is it um it's neither nor oh come on hi god um even if if um are you pro are you are you are you a spot where you don't need to raise capital are you are you casual positive at this point we are getting really close to this spot and we have no several options on the table that we are discussing and we believe that a good option would be that we potentially extend our reach with some additional funds but not going to and seriously right now and which would be probably more probable to to do maybe end of 2019 by the way this is getting more and more popular to do kind of a bridge round in between series b and seriously to kind of grow valuation more before you go out and do a big 20 30 million series c right right would you ever use i don't know what it's like in europe would you ever use venture debt to serve as the bridge so it's non-diluted or would you definitely go out and raise equity um it's a good great question so we considered um venture debt several times in the past at the end of the day the the terms that we got from from venture capitalists money versus equity were really amazing at the end of the day so we so far we decided for go uh to go for venture capital as um it's been amazing in terms of the the valuation and the very little dilution you would take yes but it's still some dilution right venture debt has no dilution and if you can get out from having any covenants or warrants it could be cheaper capital correct it's always about balancing the the opportunity with the risk level and um some players in the market are getting really really nervous and i had some some thought and experience exchange with other founders who did venture depths and as soon as they cross or match and miss some of the important kpis these players might become really really stressful and you're talking about covenants warrants things like that correct yeah very good our intention is that we work with investors who have a very long-term perspective and breadth and are interested in building a great company and therefore we have been successful so far to to bet on on funds and and investors that have a long long-term perspective right makes good sense let's shift the focus back and put a spotlight back on your customers so obviously growing a sas company churn is very very critical what's your churn today and how do you think about it well i'm not going to disclose the um precise figure but we have a negative and two digit negative churn and um which is an amazing amazing sign in terms of customer satisfaction basically you're more than you're more than negative net 10 churn monthly or annually yeah monthly or annually annually okay and is that is that said said differently ico just this should be basically saying the same thing that's essentially meaning your expansion revenue is more than making up for any lost revenue and so your net revenue retention annually is over a hundred percent yes correct got it by by at least you know 110 double double figures yeah that's great let me let me ask a question a lot of people um struggle with uh introducing upsells and the ability to drive expansion revenue any kind of cohorts especially as they get into year four and five of the company how did you decide where to drive expansion revenue and what products to build to drive the expansion revenue great great question um so far and that's amazing um we haven't focused what's amazing driving amazing is that we didn't put emphasis and efforts into into upselling um and we're focusing on building a great the nice thing about our offering is that the different let's say the three main products identify threats assess impact mitigate are building on each other so it's a logical consequence as soon as you achieve maturity one you're seeking for step two into our product portfolio and because it just makes sense to add on um this part um to go to maturity stage two and three and so on so um our our strategy is to intensify and focus on the customer success which we are not charging um to guide and develop our customers through this journey of supply chain resilience which automatically ends up with customers asking for more of our offering and it's not in selling approach it's really us being the trusted advisor and developing the maturity together with our customers i could just be clear the pricing actually the reason people pay more is because they're either adding additional products do you have seat based upselling and also obviously you have natural upselling as they grow their total volume i assume they probably pay you bit more too yeah but that's that's not the i think this is kind of representing maybe one percent of the upsell so it's mainly product upsells yeah okay last question here we're out of time but i want to understand how aggressive you're being in terms of growth and customer acquisition so you described earlier you're a perfect customer or your kind of average is about five grand a month what are you willing to spend in terms of fully weighted calc to get a new five thousand dollar a month customer um so we have an um kak versus some lifetime ratio which is really strong which means at the end of the day that our ri is um usually below 12 months payback period okay yeah so 12 month payback period obviously on a 60 000 acv account you're basically saying you're willing to spend up to 60 grand to acquire that customer maximum maximum yeah and how strong is that relative to your ltv um it's a decent multiple of um [Music] six as of today six you said six that's okay so you're assuming about 360 000 ltv yeah that's healthy that's great all right and then look before we wrap up i mean i can do the math you give me the numbers 130 customers at a 5 000 price point puts you somewhere in the range of about 600 grand per month right now in revenue is that directionally correct correct and it will be much more until end of this year that what's your target for the end of the year um we we target another two weeks growth and um we typically do on the 650 not on the 650 on the year year-over-year basis and um we usually do 70 of our new business in in the second half of the year so it's really like a budget cycle-driven uh year and rally so where so where were you a year ago so in october of 2017 a year ago where were you at 300-ish per month yeah a little bit more like close to 400 okay that's great very good all right let's wrap up here i go with the famous five number one what's your favorite business book wow um i think one of the best i read is hard things about the hard thing about hard things ben horowitz that's good number two is there an under the radar ceo that you really respect i think i respect every ceo because life as a ceo is a hard knock life yeah it's fun but it's really tough and everyone who decided to do this um has my deepest respect and respect of how great the companies do it's a tough challenge number three what's your favorite online tool for building the company the whip browser good answer you probably use that every day number four how many hours of sleep to get every night excuse me could you please repeat the question sure how many hours of sleep to get every night oh this really depends like i i'd say between three two to six okay very good and then we'll call there a four or five average there and then what's your situation married single kiddos um i'm single uh but i'm living together with my girlfriends not married no kiddos and how old are you i'm 42 42 last question iko what do you wish your 20 year old self knew [Music] um could you please repeat the question what do you wish you knew when you were 20 i think i would do exactly the same again and again and if i were 20 right now i would do my studies and stick my hosts into the business life and just as i did in the first years of my career tried out as much i could and and finding out which which areas of the professional life are fun and and what makes me a satisfied and happy person uh also from terms or from the perspective of the private life guys there you have it risk methods helping 130 customers with supply chain risk management each customer pays about five grand a month so doing a call at 650 grand a month today that's up over 2x year-over-year they're doing about 300-400 grand just about a year ago they've done this with about 20 million dollars raised economics are healthy net revenue retention well over 110 percent most that expansion coming from their three very unique product lines that build on each other in terms of aggressiveness and acquiring customers sixty thousand dollar cac up to that at least which is less than a 12 month payback period they got about 360 grand in lifetime value with their team of 140 people based between munich boston and poland thank you so much aiko for taking us to the top thank you so much as well take care nathan