How RocketReach Reached 300,000 Registered Users with 80% Gross Margin (Interview with Amit Shanbhag)

Nathan Latka

00:00This is the top, where I interview entrepreneurs who are number one or number two in their industry in terms of revenue or customer base. You'll learn how much revenue they're making, what their marketing funnel looks like, and how many customers they have. I'm now at $20,000 per talk. 5 and 6,000,000.

Amit Shanbhag

00:19>> He is hell bent on global domination. We just broke our 100,000 unit sole market.

Nathan Latka

00:24And I'm your host, Nathan Latka. I just finished traveling Southeast Asia for forty one days, and I usually always get sick when I travel. And quite frankly, eating is difficult for me. It's hard to find a restaurant, and I'm spoiled in Austin with my personal chef. Well, I took these little packets with me this time, 30 of them in my carry on suitcase. They kept me totally healthy with 11 different secret ingredients. You can see them

00:48at nathanlatka.com/juice. I'll tell you more later on in the show. That's nathanlatka.com/juice. Top tribe, you know I don't have a lot of time to waste. That's why I use FreshBooks to send out invoices and make sure I'm collecting my money. To get your free month, go to nathanlatka.com/freshbooks and enter the top in the how did you hear about us section. This episode six thirty five and coming up tomorrow morning, you'll learn from Amapreet Kalcat. His Bangalore

01:18startup just hit $40,000 a month recurring revenue helping 18 customers get consumer data using social intelligence with his company, For All. Good morning, everybody. Nathan Latka here. My guest this morning is Amit Shanbhag. He bootstrapped RocketReach from zero to over 300,000 registered users in its first year. RocketReach and the RocketReach API are trusted by some of the largest companies on the planet like Apple, Google, Chase, Morgan Stanley, just to name a few. He has more than

01:45a dozen patents and started his professional life writing code for geostationary satellites. He's also a judge for the MIT $100K competition and hopes to invest more time and money back into the startup ecosystem. Amit, are you ready to take us to the top?

Amit Shanbhag

02:00>> Sounds good. I'm here.

Recap of Previous Episode Metrics

Nathan Latka

02:01Alright. So last time we had you on, it was actually a very good episode. Many, many people really enjoyed it. That was episode 465 in November of last year. And at that point, you'd passed a 120,000 paying customers. Your goal for or you passed $200,000 in monthly recurring revenue. Your goal for 2017 ARR is to hit, you said, 10,000,000. Are all those on track? You're beating those goals?

Current User Count and Growth Trajectory

Amit Shanbhag

02:28>> Yeah. So I don't remember exactly how many users we had back then, but we have almost 300,000 users now. Our growth has continued to accelerate. So all the all the signs definitely look positive. And, we're also investing in a couple of features in the, product that, we hope will really accelerate the revenue.

Nathan Latka

02:48When you say be specific with 300,000 users. People don't know what that means. Are those paying customers or free users?

Amit Shanbhag

02:54>> No. Those are so we have three tiers of users. There are there are anonymous users who just use our site a little bit and go away. There's signed up users. So there are 300,000 signed up users. Okay. And there are paid users who are less than 300,000 obviously.

Nathan Latka

03:08Okay. And last time you told me about 120,000 paid customers. Are you still at about that same area, have you gone up to 130, 140,000?

Amit Shanbhag

03:14>> Yeah, we're not exactly exposing that number, but it's somewhere, it's definitely lower than 300,000.

Nathan Latka

03:19Okay, well, but Amit, you already told me that number on the last episode that it was 120,000. I mean, all I'm asking is have you grown above that over the last four or five months?

Amit Shanbhag

03:28>> We've continued to grow. We've, you know, ever since March 2015, we've had, you know, double digit growth, high double digit growth, that's continued to continue to occur.

Nathan Latka

03:37Okay. Great. And you so you mentioned one of your focuses here in Q one is to get more teams signing up. So how do you do that? Pragmatically, how are you approaching that?

The Lead Generation Pivot Experiment

Amit Shanbhag

03:47>> Yes, a little bit of a journey, right? So what have we been up to? So we tried to do a few things to figure out how to accelerate our revenue growth. One of the approaches that we tried is we tried to go more into the lead generation space, which is rather than just providing contact information and just doing contact discovery, let's give customers a list of leads based on users who signed up for their service every

04:16>> day or something. We call it lookalike lead generation. The key learnings from trying to do a lead generation product were one, that the end customers hold us responsible for much higher

04:34>> quality of data and for things that are out of our control. If you provide a list of leads to our customers, then they have to actually reach out to them and follow-up on those leads. And how well they do that will affect how they gauge our data, which I'm which is sort of unfair.

Nathan Latka

04:52So this is like the same space as like Inspire Beats or LeadDero or LeadGenius, Prospectify, ProLeads, these kind of companies, right?

Amit Shanbhag

05:00>> Absolutely. Twofer probably does contact discovery, but LeadGenius is a good example of somebody that does lead generation. Okay. So if think about LeadGenius, right, they charge you much more per row of data because they are giving you what they would consider a qualified lead.

Nathan Latka

05:16Yeah. They've got about 200 customers and their monthly ARPU is about $3.3, $33,300.

Amit Shanbhag

05:22>> Exactly.

05:26>> The problem with that space is, one,

05:32>> bar is very high. Like, the quality of the data has to be very, very good. Otherwise,

05:38>> people will churn out very quickly.

Nathan Latka

05:40So how do I mean, could you not get to the quality of data that, like, a LeadGenius has? What was the challenge there?

Why Lead Generation Quality Was Hard to Control

Amit Shanbhag

05:45>> So we did not so LeadGenius uses a combination of people and software. Right? We wanted to do it completely with, completely with software and not rely on human intervention. So one of the things that we noticed is that we started hitting an upper bar of how good our quality was.

Nathan Latka

06:03Which was what? If if you give me a 100 emails, how many of them are gonna bounce?

Amit Shanbhag

06:06>> It's not a bounce. Let's say we give you a 100 emails, the question is how many of those are good leads for you? And that's a subjective evaluation. We found that we were topping out at about 40 to 50%. So actually good leads. We're good leads. The rest of them programmatically generated were not great leads. The other part of the problem is you've given this data set to your customer, they have to now follow-up on them.

06:29>> So they could do emails, they could do Facebook ads, Twitter ads. They have to call those people up with their phone numbers. They have to follow-up on that. Now the way that they do that, their sales pipeline, if that's not good, they will eventually pass the blame onto us and then say, this did not work because the leads were not good enough.

Nathan Latka

06:48Well, does LeadGenius solve that problem?

Amit Shanbhag

06:50>> To be honest, I don't know. I I don't know whether they are able to solve that problem. This is you know, as long as you're providing leads and you're not in control of the pipeline, you are, you know, you are in inadvertently going to be held responsible for things that are out of your control.

Nathan Latka

07:05Well, there yeah. I mean, I don't look. That was episode two sixty five for anyone that wants to go listen to it. But, I mean, they've got less than 2.8% gross customer churn per month, and their MRR is above $700,000 per month. So, I mean, look, their ARPU is way higher than you. Maybe they're putting humans on every account and they only have 200 accounts.

Amit Shanbhag

07:21>> Right. If they're able to do it with very low churn, that's awesome. But what we found when we were doing it, especially because we were not doing the human intervention part of it,

07:35>> First of all, the cost of getting each customer was very high because we had a, you know, the sales cycle was long, a lot of handholding.

Nathan Latka

07:41How high? What was the cost?

Amit Shanbhag

07:44>> Mean, we're talking about like almost a thousand dollars to acquire a customer.

Nathan Latka

07:48Okay. And what's your ARPU that you have on average?

Amit Shanbhag

07:51>> So we never really we never really released this product to a point where, you know, we have good metrics on these things. But Well, you have a

Nathan Latka

07:59120,000 customers, though. You must you must know what an average is. That's a huge sample size.

Amit Shanbhag

08:03>> Right. For lead generation though, the lead generation product wasn't that We basically piloted it. We never really talked Got about it. So amount of money that we were getting per delivery of dataset was somewhere between 3,000 to $7,000, right? And the thing is that they wouldn't last for more than two to three months because eventually they would

08:28>> find that the quality of the leads was But that

Nathan Latka

08:31math works, does it? If you spend a grand to get a user that pays you $3K per month, that's a grand for every $9K. I mean, that math seems to work to me.

Amit Shanbhag

08:39>> It does work, but the margins are not as high as a self serve model. Okay. I think the scaling of that is much, much more difficult.

Nathan Latka

08:50Okay. And were you powering, I mean, lot of your data, wanna do it with software. Were you kind of using a combination of what Clearbit and FullContact? I mean, what other data sources were you using?

Amit Shanbhag

08:59>> We're using a bunch of open APIs, right? So we're using a bunch of search APIs, we're using

Nathan Latka

09:04You mean AngleView though?

Amit Shanbhag

09:06>> Yeah, mean, we're using AngelList Crunchbase, those two things for sure. But then the other ones are a lot of them are spiders. So they're basically just looking at open HTML pages.

Nathan Latka

09:19And are those spiders things that you've built internally or you're paying access for other people's spiders?

Amit Shanbhag

09:24>> It's a combination. So we've got our own search cluster as well as APIs.

Nathan Latka

09:27Interesting, who besides you guys, who do you think does that really well, the spider approach?

Amit Shanbhag

09:36>> I honestly don't know because,

09:42>> and there are companies that do it, I'm not sure if Acxiom uses this, but we, yeah, to be honest, I don't know the answer to that question. We definitely use spiders, we definitely use entity recognition. There have been companies in the past that have used it, like Connectifier, But to some extent, I think Connectifier also used their browser to collect a lot of the data and from, you know, their their plug in to collect a lot

10:06>> of the data from the user's browsers, which we actually do not do at all.

Nathan Latka

10:10So And then going going back to your other sources like AngelList and Crunchbase, I mean, do you pay Crunchbase? Is it would they have a model where you can pay for access?

Amit Shanbhag

10:17>> Yeah. A lot of the a lot of the APIs are paid. So that's that's one of the reasons why our That's why process is high. Yeah.

Nathan Latka

10:24Interesting. That's why it's not as high margin?

Gross Margin and Cost Structure

Amit Shanbhag

10:29>> These the contact lookup model is relatively high margin, especially because we have no, like, no marketing costs, no sales costs.

Nathan Latka

10:36What is relatively high margin? Like, 85, 85% gross margin, something like that?

Amit Shanbhag

10:42>> So start of this, so we would say yes, about 80 ish percent, yes.

Nathan Latka

10:46Okay, got it. Cool, okay, so what did you do? You looked at the product, you put it in a beta, you didn't like it, what'd you do?

Repositioning as a Productivity Tool for Sales

Amit Shanbhag

10:53>> So we decided that the direction that we wanna go with the company is not generation

11:02>> a play, but a more of a productivity play. So we want our customers to think of RocketReach as a productivity tool that is always installed on their browser, always something that they access and they don't think a lot about. It's almost like a Salesforce. Anybody who's in sales uses Salesforce, anybody who's in a sales team uses RocketReach. We want it to become more of a de facto productivity tool for sales teams. And so the features that

11:32>> we're focusing on, they are catered towards teams being more productive than RocketReach. So directly being able to send emails through our website through our plugin, being able to track their effectiveness, being able to add and remove users. We've made a plug in a lot more, powerful so that, it can become lead you know, it can become basically profiles from all sorts of other websites. So essentially making it easier for people to use.

Nathan Latka

12:01And where are those pricing plans? Because on your website, I only I see $49.99, $2.99, but the only thing differentiated those really are number of lookups per month.

Amit Shanbhag

12:09>> Absolutely. Yeah. We wanna keep things as simple as possible. Right?

Nathan Latka

12:13But where are the team features? Like, if I wanna try those, where would I go?

Team Features and Self-Serve Roadmap

Amit Shanbhag

12:16>> So right now we don't have a self serve team feature. If you wanna you know, if you want teams to sign up for RocketReach, the best way to do that is to contact [email protected] and we'll set you guys up. Got it. But it'll be I think in the next two or three weeks, you'll see a, self serve team sign up feature, and it'll be in your account settings. You'll be able to go to your account settings

12:37>> and invite other members to your paid plan.

Nathan Latka

12:40Got it. And what are you guys, I I think last time we spoke, you you had told me that well, how much have you raised? You're with boots you're bootstrapped. Right?

Bootstrapped Status and Capital Strategy

Amit Shanbhag

12:47>> We're absolutely bootstrapped. Yes.

Nathan Latka

12:48And and still about you said last time team size was about five people. Has that grown, is it still about five?

Amit Shanbhag

12:54>> We're probably about to add two more people.

Nathan Latka

12:56Okay. So call seven people, you're bootstrapped. You have one of the highest because you're bootstrapped, revenue per employees in this industry when you compare across Leaderow, LeadGenius, everybody else. I mean, you thinking about raising capital or do you think you can just fuel growth off revenue?

Amit Shanbhag

13:12>> You know, I think that it makes so if we had gone with the lead generation model, I think that we it would have made sense for us to raise money, scale a sales team, and then grow revenue grow revenue that way. That was actually the original plan. But what we're trying to do is trying to scale without hiring a sales team. And it remains to be seen whether that can be done. I mean, there's a healthy

13:33>> amount of skepticism about it. I mean, we've spoken to a lot of people who say, you really need a sales team to grow quicker. And that might as might quite possibly be the case. But we wanna find out if we can do it with software alone.

ARPU Clarification and Revenue Scale

Nathan Latka

13:46Yep. Well and and just to make sure I'm going back on some of these numbers. So last time we spoke, which was 10/18/2016, you had said you you had passed a 120,000 customers and ARPU was about 70, which is in between all your self serve pricing plans right now. I mean, that puts you at a healthy I mean, your MRR is above $22,000,000 per month. Right?

Amit Shanbhag

14:04>> No. I mean, I really don't want get into revenue numbers at all just because it's very, very easy.

Nathan Latka

14:09Wait. I mean, but you I mean, I'm literally this is taken straight out of your mouth from the last step. So I can't take 120,000 times 70 because that's what you told me your customer number was and your ARPU was last time.

Amit Shanbhag

14:20>> Right. So the per user revenue, per user monthly revenue is about $70 so that's actually accurate. The

14:30>> number of paid users is kind of complicated, right? The reason it's complicated is because there are teams And that's why I just don't feel, I'm sorry.

Nathan Latka

14:40But this is, I mean, you're like a super smart guy. You're picking winners for MIT competitions. This is not a complicated question. You have like number of logos and then you have number of seats across all the logos and you either have a credit card or you don't. I mean, what's the number? Is the 120,000 number the number of seats across all your logos?

Amit Shanbhag

15:00>> To be honest, I think there was a bit of misunderstanding.

15:04>> So when I said 120,000 users, I think this was probably like maybe six, four, five months ago. I don't remember.

Nathan Latka

15:09You'd said customers though, because you had said he had 300,000 users. And I said how many customers? You said 120,000.

Amit Shanbhag

15:15>> I I

Nathan Latka

15:16mean, I have the I have the recording. I I reviewed it before this one. So so let's clarify, but we can fix it now. Okay.

Amit Shanbhag

15:24>> Think those were, when I give you the 100 something thousand number, those were registered users, they're not all paid users, right? 300,000 right now is the number of registered users, they're not all paid users. So our revenue is not like $70,000,000 or something else, right? It's not crazy like that. It's in the millions and it's in the millions.

Paying Customer Range Revealed

Nathan Latka

15:49Well, I'm not trying to necessarily get to your revenue numbers, but I just wanna get a sense scale in terms of your customer base. So, I mean, do you have more or less than 10,000 paying customers paying you $70 per month?

Amit Shanbhag

15:57>> Yeah, will not reveal that. I'm sorry.

Nathan Latka

15:59Okay. Why not? Because the numbers you, again, it sounds like we're way off from the last time you came on the show. Like it sounds like it's a completely different number.

Amit Shanbhag

16:08>> Yeah. I Why Right. Don't

Nathan Latka

16:10you wanna reveal it? What are you scared of?

Amit Shanbhag

16:12>> I just I I don't think there's a need to reveal it. It's something. I mean, you know, if somebody somebody wants to buy us, we'll be happy to talk to them, reveal the numbers, and stuff like that. But, it's just not something that people need to

Nathan Latka

16:25I I I mean, one of the reasons I ask a lot of these questions on the show is because when people are listening, they wanna take value and advice from people that are maybe about their same size or where they're trying to go. That's why I asked the question. So the problem with this is somebody that has maybe 100,000 paying customers at a lower ARPU is gonna is gonna is gonna see this and go, oh, I

16:43should listen to Amit. That's gonna be valuable. But you're saying you your model is actually much different. You your model is not high volume number of customers at a low ARPU. Maybe you have way less customers. I mean, can you give us a big range, stay as vague as you want in terms of number of customers?

Amit Shanbhag

16:59>> It's in, yeah, let's say it's in the,

17:06>> it's in it's

Nathan Latka

17:10Give me a big range and I'll stop give me a good range and I'll stop pushing you on it.

Amit Shanbhag

17:13>> Sure. It's somewhere between 1,000 to 50,000.

Nathan Latka

17:17Okay, good. That's helpful. Let's move forward. So what are the plans moving forward into Q2? Where do you put your focus?

Churn Improvements and Product Fixes

Amit Shanbhag

17:24>> Yeah, so as I said, we're very sticky. People don't actually churn a lot at all. We talked about churn last time. I mean, was actually sort of around the 9% mark. And what we've noticed is that churn

Nathan Latka

17:39Gross has customer churn per month was seven, yeah, you told me 7%.

Amit Shanbhag

17:43>> Yeah, something like that, yeah. And that has gone down significantly. So over the last few months, think that we've made a bunch of quality improvements to our site and the churn has gone down quite a bit.

Nathan Latka

17:56What happened?

Amit Shanbhag

17:57>> Two of the main reasons that people used to churn was basically quality of data and then we had some stability issues, and we fixed both of those. So people are just more satisfied with the product. Got it. There's a third reason that people churn that we still haven't fixed, which is once you have a large contact list, what do you do with it? And getting the data out of RocketReach and using it for something is still

18:21>> a little bit hard. So that's what we're fixing. And hopefully with that,

API vs Subscription Revenue Split

Amit Shanbhag

18:29>> our churn should reduce, our revenue should increase. The other thing that I want to mention about our revenue, which is interesting, is that one of the things that makes it hard from a revenue perspective to kind of clearly gauge what revenue is, is we also have an API. And the API, it just runs at a very, very different scale.

Nathan Latka

18:52Yeah, you're talking about when I'm trying to do MRR calculations or something like that, you have two different revenue streams is what you're saying.

Amit Shanbhag

18:58>> Yeah.

Nathan Latka

18:59Think I mean, but I imagine you probably see very much eighty twenty rule here. 80% of your revenue comes from the recurring subscriptions, 20% probably comes from the API.

Amit Shanbhag

19:07>> It's not that it's not that lopsided actually. Oh, okay. It's probably

19:13>> yeah. We see so some some metrics. Right? I think it's, like, 40% API, 60%, consumers, and then international is somewhat similar. Actually, 60% US, 40% international.

Nathan Latka

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Famous Five Rapid Fire Questions

Nathan Latka

20:34Amit, that's helpful, Let's wrap up here with the famous five. Number one, what's your favorite business book?

Amit Shanbhag

20:39>> I haven't read one.

Nathan Latka

20:41Alright. Good. That's number two, is there a CEO excuse me. Is there a CEO you're following or studying right now?

Amit Shanbhag

20:48>> I think Sundar Pichai, you know, especially since he's been in the news, I've been reading about him a lot.

Nathan Latka

20:53What was the name?

Amit Shanbhag

20:54>> Sundar Pichai, the CEO of Google.

Nathan Latka

20:57Oh, yeah. Good. Number three, is there a favorite online tool you have besides your own?

Amit Shanbhag

21:03>> Google.

Nathan Latka

21:04What specifically?

Amit Shanbhag

21:06>> Google search.

Nathan Latka

21:07Okay. Number, four. How many hours of sleep do you get each night?

Amit Shanbhag

21:11>> More now. It's probably about four to five.

Nathan Latka

21:13Okay. And, what's your situation? Married, single, do you have kids?

Amit Shanbhag

21:17>> I'm married, I have a four year old.

Nathan Latka

21:19Oh, very good. And how old are you?

Amit Shanbhag

21:21>> I am 37.

Nathan Latka

21:23All right, take us back seventeen years. What advice would you give your 20 year old self?

Amit Shanbhag

21:28>> Yeah, I think I said this last time. You know, When I was in my early 20s, think I worried about life a lot. And

21:38>> at a time when I should really have been enjoying life, I think I was worrying about it too much.

21:43>> And I think for everybody who's young out there, think take risks, you know, give everything that you're doing a good shot, but worrying is not something that actually is productive and I would advise against it.

Nathan Latka

21:54Guys, there you have it. Take risks, but don't worry, it's not productive. From Amit Shanbhag again, founder of RocketReach. They've got a team of five people adding two more out there in San Francisco. Again, helping you get better data or better lead data specifically. They've got between one and fifty thousand, paying customers, doing a churn now is less than seven percent, 7% gross monthly CAC anywhere between 10 and $30 depending on the product line, about a

22:1740/60 split between API revenue and SaaS revenue. Amit, thank you for taking us to the top.

Amit Shanbhag

22:24>> Thank you, Nathan.

Nathan Latka

22:26If you enjoyed Amit today, go back and listen to David yesterday. His lice killing brush just raised $2,200,000 presales. So interesting that the presales raising that much money. It's gonna retail for $20 to kill lice with no chemicals. It would mean the world to me if you guys got any value from this episode, if you would go lead a review on iTunes right now and then subscribe. You know, I hustle like heck to get these

22:51episodes out every freaking day for you guys. And trust me, I love it.

Amit Shanbhag

22:55>> I would do it

Nathan Latka

22:55with no listeners, but boy, oh, boy, it makes my day, and it makes my team's day when we see great reviews and get your feedback. So thanks so much. Top Tribe, I love giving away free money. Feel I like Oprah giving away cars, and I have something special for you today. How many of you have heard our super sharp guests talk about success they've had with Facebook and Google Ads? Well, all of you listening right now,

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