How Scalex CEO Chad Burmeister grew to $1M revenue and 100 customers in 2021.

hello everyone my guest today is chad burmeister he's the ceo and founder of a company called uh scalex dot ai he's equipping today's modern sales professionals with ai powered sales strategies and technologies to dominate their market as ceo he's responsible for building a next-generation ai for sales company that enables sales people to be ten times more productive chad you ready to take us to the top i'm ready let's do it all right sales marketing space is extremely fragmented what kind of cohort are you carving out for yourself here well there's funded startups that have to penetrate their market and and you know figure out their message and market fit and so we help startups go out figure out their messaging and then accelerate their ability to go to market and then we also help public companies who drive thousands and thousands of leads um get with those leads quicker and more effectively to two to three times their conversion rates do you consider yourself a sas company are you more managed to professional service uh we're right on the we're right on the edge yeah we provide services but we also offer a recurring revenue sas subscription model well so let me ask you over the past 12 months if you look at your total revenue what percent was sas versus the other one 50 50. oh it really is 50 50. wow okay let's just focus on sas for today's interview so on your sas product on average what are folks paying per month for that on average they're spending about three thousand dollars per user per month okay three and and is it mostly one user per team or is it more than one um it typically what happens is a company work looks to us to do a 90-day pilot program with our people our technology our data we configure the solution for them and then after 90 days we package it up and then give it back to them to take over the program um what happens is most of the time companies have six eight ten you know internal business development people and then they learn that they can actually do the work with two so that's what we show them outside the four walls package it up hand it off and then they get a very massive improvement in pipeline and a massive improvement in reduction so instead of looking at the per seat price give me the com per company right per company an average what's a company pay you across all their seats per month yeah um on average about 72 000 so typically there's a couple of seats in a company um yes it's like six thousand bucks a month about two seats that we offer yeah that's right yeah okay interesting um put this stuff on a timeline for me when'd you launch we launched in december of 2017. so it's been about 15 16 months that's good and over that time frame how many customers have you signed up 100 clients that's great okay so 100 clients and i mean can i take 100 times at 6 000 price point you just gave me you're doing what 600 grand a month uh we are not quite at 600 grand the the i would say about 40 of our customers are in that range and then another 60 of customers purchase either the social platform the email platform or the dialing platform so we do offer smaller packages than the six thousand dollar a month plan okay what are the other things you just mentioned are those like a hundred dollars a month or 500 bucks a month or what do those come out to typically um on average five hundred dollars a month yeah i looked at your chart that you posted yesterday about the yeah i saw you you left a good comment about someone that moved i you said downstream or upstream yeah ringcentral moved upstream so they did a lot of freemium and it was under 500 bucks and i remember the head of the the chairman of the board would come into the quarterly meetings and say guys this is going to be really really hard for you to pivot from smb free trial downloads up to you know 100 000 500 000 million dollar deals and the company did made the pivot and over how long how many years did it take to make that pivot it took two quarters okay how did they actually do that and tell me how i understand where you're getting this information from were you a board member and you had first-hand knowledge of this so i was the director of inside sales um at ringcentral from about 2015 to 2017. and so you know i saw that transformation so what actually happened you have a but you start off with a bunch of free signups and you're going we want to turn these free five dollar a month people into 500 000 a year customers well we we built an outbound team so i was responsible for creating small medium and large right we call it mid market majors and enterprise and it was pure outbound the first step was to identify the icp which is that what's what folks the ideal customer profile right id the ideal customer profile then go out and build a team of specialists to go outbound into those companies and you know we went from three or four hundred thousand dollar and higher customers to pages and pages of hundred thousand dollar plus customers so just be clear was that team selling they were scanning the free user signups for domain names that were from big companies that have signed up for free or no they ignored the free user race all together and just outbound directly to people that were enterprises outbound directly um sure there's some inbound from those large companies but in for the most part it was mainly outbound yeah okay that's interesting okay so let's get back to you so for you said 40 of your 100 customers are paying the 6 000 a month that's 240 000 a month right there in revenue correct yes and then the other 60 of the 100 you say about 60 paying call between you know 500 a month for your kind of your other tools that's another 30 grand a month in revenue so you're doing 270 a month right now something like that yeah we're just under just uh just about 200 000 a month is the actual number fair enough and what's what's growth look like year over year so a year ago what were you doing yeah so the first year we started we did 337 in december of 17. last year we did 1.45 million this year we're targeted to do 2.5 to 2.6 okay uh last year 1.45 million 1.45 and that's your 2.6 yeah yeah that's great um where i want to talk more about like where you've driven that growth from uh well i mean yeah actually let's go there right now so how are you signing up customers are you doing kind of outbound inbound what's it look like yeah good question you know we we drink our own champagne i moved from the eat your own dog food to drink your own champagne phrase so uh definitely drinking our own champagne we use a virtual assistant model to send out emails and send out social connections so all of the digital component of outbound it's zeros and ones and guess what ai's better than you and i at uh at writing emails and responding to emails so two-thirds of the outbound effort can now be outsourced to a bot the other one-third i think that makes us highly unique over anybody else that's out there doing this is that we partner with 10 to 20 years sales veterans and we put them on the phones with the people who are opening clicking and replying to the emails that we're going outbound with so we we hand source our customer database rather than just relying on a bunch of inbounds from people that are probably disqualified have you heard of steve running alley-oop dot io i have not okay interesting um they did so i feel like something similar he was just on the show with discoverorg in terms of kind of running their outbound organization and it scaled nicely it sound and he was similar to you in terms of revenue mix between professional services and software um but in okay sorry interesting um and we're a big fan of discover order by the way that's that is our data strategy so they do the best when it comes to phone and email that are validated by human within the last 90 days if you buy a cheap data source there's tons of them for 99 a month right now but they don't have directional phone numbers and they don't have demographics discoverorg's absolutely a huge part of our success yeah um how much of you guys raised are you bootstrapped we're bootstrapped we had a 50 000 loan that has been paid off free and clear so life is good we are getting approached by a number of investors right now so um we we're open to the dialogue because i think we can grow a little bit faster than the 2.6 million dollar clip i think we can get to 10 within a couple of years rather than rather than three or four um if you did raise now what would be the right amount to raise uh 500 000 is really what i would be looking for and why is that right because we don't have to hire multiple sales people we hire a sales person right right now i'm the company sales person how many people total on the team um three full-time employees and several contractors that deliver the the dials when we're doing the outbound and then we also have people who who monitor the digital bot communications so you know it's a highly leveraged model you really only need one person sitting on top of about 20 campaigns how much are how much are you taking like are you talking did you have like 10 20 30 ebitda margins per month with only three people doing two million a year in revenue uh yeah very good a bit of margins yeah i mean is it like 30 ish yes so let me ask you a question right why would you raise capital if you could just reinvest your own your own cash flow well that's that's what we've been doing and truthfully i'm working with an advisor to help me through that decision um the big reason is for strategic reasons because the investors we're talking to are not the normal type of vcs they're folks who have contact center relationships with very very large companies um so it'd really be to you know yeah i'd like to hire a couple more sale a sales person a full-time dedicated bdr and a customer success person but it's not required uh but just from a strategic perspective if you did raise 500 grand what valuation would you like to raise at an ideal world um 30 million dollars three years out i believe in three years we'll be doing 10 million 3x multiple we're not we're not a 10x because of the mix of services revenue but we're certainly a three to five x so just to be clear hold on hold on i wanna make sure you understand that you wanna um you think you can raise today 500 on a 30 million pre because three years from now you'll be 10 million and you're doing basically a 3x multiple on where you'll be three years from now correct do you i mean do you think you'll get term sheets at that yes okay that's that's very surprising to me very rarely do i see a ceo be so convincing to convince vcs to give him a value first off a multiple at all secondly a multiple on where revenue might be three years from now how have you been able to convince investors to do that well the space is heating up beyond reasonable doubt if you look at dude that could be a bad thing for you though that could mean more competition margins get sucked out of a system when there's more competition well there's some defensibility around agent assisted dialing um it is a hard thing to build right there's there's dial box and there's bot dialing but from our understanding of the world that's illegal to auto dial businesses these days especially if you're calling a mobile phone do you have any physical term sheets on a 30 million pre right now i do not okay yeah so it's all kind of discussions it's discussion so you you may very well be right that may be aggressive um i i did have a dialogue with someone recently that said you know they're willing to look at a 10 million so i would also just say too by the way like a lot of ceos get stuck in this trap they feel like and i did this too by the way this is why i can talk so openly about it i put it in my book on page 243 is a massive mistake um we we almost like to brag about like how big we get our valuation but actually what becomes very difficult is you then have to grow into that evaluation otherwise you're i mean you have to do a down round or it's not pretty um so like sometimes actually a more conservative valuation especially on your first round of capital is actually a much better leverage than a huge valuation yeah that's good advice and you know what i'm i i'll be honest i've been on you know i've been the vp of sales of through four different startups in the bay area and i've had some interactions with boards and investors investor groups i'm pretty new to it so i just signed up in fact for a an accelerator program yesterday which one called new chip they're pretty new kids on the block but they seem to be very very um trustworthy i talked to two or three references and they highly they highly recommend it um do they take equity i'm gonna go learn the rules of the game before i play do they take equity i know okay so what's the upside of the accelerator did they give you cash uh they have a crowdsource model on the back end um they do give you they do give one company cash at the end of the accelerator um but they introduce you to a crowd source platform that you know generally can get can raise quite a bit of money i don't think i'm gonna go the crowd source route but yeah i just need to learn the rules of the game in terms of uh raising money what's your fully weighted attack on our new customer that's gonna pay you 2000 bucks a month uh my cost of acquisition for two thousand dollar a month i i need to i need to get a better answer on that one i mean do you generally know how aggressive you're willing to be to get a new customer will you pay first your acv up front to get the customer um so far we've been very profitable company um well you can be you could be profitable instead of a 12 month payback period i'd still have a 12 month payback period um yeah good question i i haven't talked that through with my board yet yeah wait what do you mean board you haven't raised any money well i have a board of advisors i don't have a board of directors it's like a fake board that's like a use the board when you need to use it but really they don't really it doesn't really matter i mean look i would by the way i would just make a note of this i would ask your accelerator and your mentors if i was where you are right now i'd be greedy as hell and try and keep as much of my company as possible you have cash flows you could easily go raise 500 grand in venture debt at like a now you're probably going to get something a little egregious from like you know a lighter or a sas capital for somewhere between like 20 and 30 effective aprs but at least you keep your whole company and if you know how to spend that money to get more than that back then you still have the whole company you drove growth with someone else's money yeah and that that's really what i believe the company is talking to us about um they they talked about a convertible note is that uh fit in the category no that's different convertible note it converts to equity that's that's where the name comes from and that will typically be at like you'll give them like a 20 discount that you'll you'll owe them like six percent interest which you never actually usually pay out of cash you usually just accrues on the note value and then that converts into the series a valuation um but no give everyone it's different than venture debt got it yeah vendor debt never converts to equity you keep all of your that's the upside you keep all your equity got it yeah so just something to think about write down have a conversation about yeah all right man let's wrap up with the famous five number one what's your favorite business book uh let me look at my let me look at my bookshelf right here you know i would have to say that my my most recent favorite is gap selling by keenan number two is there a ceo you're following or studying um you know i've had a lot of success with chris beale at connect and cell that's where i used to work it's my alma mater he's highly numbers driven and he's always said for 10 years the conversation matters so chris beale number three what's your favorite online tool for building your company besides your own um i like quiller it's a proposal tool that integrates to salesforce and it got video embedded q-w-i-l-r yep uh number four how many hours of sleep to eat every night i get between seven and eight hours of sleep every night that's good and what's your situation married singled kids married with kids 17 year old and a 16 year old good and how old are you i am 46. last question chad what do you wish your 20 year old self knew i i would have kept more of the stock of the companies that i've worked for because i would probably be worth 20 to 30 million dollars right now if i would have kept a few of those stocks that i was awarded and so the second part of that is i would have learned to be a cfo a little better to manage manage my monies um so that i would have had 20 million dollars in the bank by now scalex dot ai serving 100 customers penguin average 2 grand a month so 200 000 a month right now in revenue that is up from about 90 000 a month just a year ago and closing out 2018 with about 120 000 a month that's up from again total revenue in 2017 of 375 000 in total revenue again ai for sales platform team of three revenue per employee through the roof which i love basically a really bootstrap taken about call it 60 grand a month to the bottom line so cash flow positive chad it's a nice place to be man thanks for taking us to the top i appreciate you