How ScaleX Reached $1.45M in 2018 Revenue and Signed 100 Clients (Interview with CEO Chad Burmeister)

Introduction and Company Overview

Nathan Latka

00:00Hello everyone. My guest today is Chad Burmeister. He's the CEO and founder of a company called Scalex.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 salespeople to be 10 times more productive. Chad, you ready to take us to the top?

Chad Burmeister

00:20I'm ready. Let's do it.

Market Positioning and Target Customers

Nathan Latka

00:21Alright. Sales marketing space is extremely fragmented. What kind of cohort are you carving out for yourself here?

Chad Burmeister

00:27Well, 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, get with those leads quicker and more effectively to two to three times their conversion rates.

SaaS vs. Professional Services Mix

Nathan Latka

00:51Do you consider yourself a SaaS company? Or are you more managed professional service?

Chad Burmeister

00:55We're right on the edge. Yeah. We provide services, but we also offer a recurring revenue SaaS subscription model.

Nathan Latka

01:03Also, let me ask you over the past twelve months, if you look at your total revenue, what percent was SaaS versus the other one?

Chad Burmeister

01:08Fifty fifty.

Pricing: Per User and Per Company

Nathan Latka

01:09Oh, it really is fifty fifty. Wow. Okay. Let's just focus on SaaS for today's interview. So on your SaaS product, on average, what are folks paying per month for that?

Chad Burmeister

01:17On average, they're spending about $3,000 per user per month.

Nathan Latka

01:21Okay. Three. And and is it mostly one user per team or is it more than one?

Chad Burmeister

01:27It... Typically, what happens is a company work... Looks to us to do a ninety day pilot program with our people, our technology, our data. We configure the solution for them. And then after ninety days, we package it up and then give it back to them to take over the program. What happens is most of the time, companies have six, eight, 10 internal business development people, and then they learn that they can actually do the work with

01:55two. 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 in cost.

Nathan Latka

02:06So instead of looking at the per seat price, give me the per company. Right? Per company. On average, what's a company pay you across all their seats per month?

Chad Burmeister

02:14Yeah. On average, about $72,000 So typically there's a couple of seats in a company.

Nathan Latka

02:21Yes. It's like $6,000 a month. So about two seats.

Chad Burmeister

02:23That we offer? Yeah, that's right.

Launch Timeline and Customer Count

Nathan Latka

02:26Yeah. Okay. Interesting. Put this stuff on a timeline for me. When did you launch?

Chad Burmeister

02:31We launched in December 2017. So it's been about fifteen, sixteen months.

Nathan Latka

02:36That's good. And over that timeframe, how many customers have you signed up?

Chad Burmeister

02:39100 clients.

Nathan Latka

02:40That'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 $600,000 a month?

Chad Burmeister

02:47We are not quite at $600,000 the the I would say about 40% of 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 $6,000 a month plan.

Nathan Latka

03:06Okay. What are the other things you just mentioned? Are those like $100 a month or $500 a month? Or what do those come out to typically?

Chad Burmeister

03:14On average, $500 a month.

RingCentral Story: Pivot to Outbound

Nathan Latka

03:16Yeah. Okay.

Chad Burmeister

03:16I looked at your chart that you posted yesterday about the sales.

Nathan Latka

03:20Saw you. You left a good comment about someone that moved. I... You said downstream or upstream?

Chad Burmeister

03:25Yeah. RingCentral moved upstream. So they did a lot of freemium, and it was under $500. And I remember the head of the... The the chairman of the board would come into the quarterly meetings and say, guys, this is gonna 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...

Nathan Latka

03:48Over how long? How many years years did it take on to make that pivot?

Chad Burmeister

03:51It took two quarters.

Nathan Latka

03:53Okay, how did they actually do that? And tell me how many are seeing where you're getting this information from? Were you a board member and you had firsthand knowledge of this?

Chad Burmeister

03:59So I was the director of inside sales at RingCentral from about 2015 to 2017. And so, you know, I saw that transformation.

Nathan Latka

04:12So what what actually happened? Do you have a... But you start off with a bunch of free sign ups and you're going, we wanna turn these free $5 a month people into $500,000 a year customers.

Chad Burmeister

04:20Well, 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.

Nathan Latka

04:20Which is that? What's what? Folks, the ideal customer profile, right?

Chad Burmeister

04:20ID 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 3 or $400,000 and

04:49higher customers to pages and pages of 100,000 plus customers.

Nathan Latka

04:54So just to 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 ignore the free user rates altogether and just outbound directly to people that were

Chad Burmeister

05:07pivot to outbound directly. Sure. There's some inbound from those large companies, but in... For the most part, it was mainly outbound.

Monthly Revenue and Year-Over-Year Growth

Nathan Latka

05:15Yeah. 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?

Chad Burmeister

05:15Yes.

Nathan Latka

05:15And then the other 60 of the 100, you said about 60% paying call between, you know, 500 ish a month for your kind of your other tools. That's another 30,000 a month in revenue. So you're doing $270,000 a month right now, something

05:35like that?

Chad Burmeister

05:35Yeah, we're just under just just about 200,000 a month is the is the actual number.

Nathan Latka

05:40Fair enough. And what's what's growth look like year over year? So a year ago, what were you doing?

Chad Burmeister

05:44Yeah. So the first year we started, we did $3.37 in December '17. Last year, we did 1,450,000. This year, we're targeted to do 2.5 to 2.6.

Nathan Latka

05:55Okay. Last year, 1,450,000?

Chad Burmeister

05:581.45.

Nathan Latka

05:59And that's your 2.6?

Chad Burmeister

06:00Yeah.

Customer Acquisition: AI-Driven Outbound Model

Nathan Latka

06:01Yeah, that's great. Where I want to talk more about like where you've driven that growth from. Well, mean, yeah, actually, go there right now. So how are you signing up customers? Are you doing kind of outbound, inbound? What's it look like?

Chad Burmeister

06:11Yeah, 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 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 is better than you and I at at writing emails and responding to emails. So two thirds

06:39of the outbounding 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 ten to twenty 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

07:05of inbounds from people that are probably disqualified.

Nathan Latka

07:08Have you heard of Steve running alleyoop.io?

Chad Burmeister

07:11I have not.

Nathan Latka

07:12Okay. Interesting. They they did... 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. He was similar to in terms of revenue mix between professional services and software. But in... Okay, sorry, interesting.

Chad Burmeister

07:27Yeah, and we're a big fan of DiscoverOrg, 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 ninety days. If you buy a cheap data source, there's tons of them for $99 a month right now, but they don't have direct dial phone numbers, and they don't have demographics. DiscoverOrg's absolutely a huge part of our success.

Funding, Bootstrap Status and Raise Plans

Nathan Latka

07:51Yeah. How much have you guys raised? Are you bootstrapped?

Chad Burmeister

07:55We'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 we were open to the dialogue, because I think we can grow a little bit faster than the $2,600,000 clip. I think we can get to 10 within a couple of years rather than rather than three or four.

Nathan Latka

08:17If you did raise now, what would be the right amount to raise?

Chad Burmeister

08:21500,000 is really what I would be looking for.

Nathan Latka

08:25And why is that right?

Chad Burmeister

08:26Because we don't have to hire multiple salespeople. We hire a salesperson. Right? Right now, I'm the company salesperson.

Team Size and Operating Model

Nathan Latka

08:33How many people total on the team?

Chad Burmeister

08:35Three full time employees and several contractors that deliver the the dials when we're doing the outbound.

Nathan Latka

08:35Mhmm.

Chad Burmeister

08:35And 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.

Nathan Latka

08:54How much are how much are you taking? Like, are you talking? Do you have like 10, 20, 30% EBITDA margins per month with only three people doing 2,000,000 a year in revenue?

Chad Burmeister

09:02Yeah, very good EBITDA margins.

Nathan Latka

09:04Yeah, I mean, it like 30% ish?

Chad Burmeister

09:04Yes.

Valuation Ambitions and Investor Discussions

Nathan Latka

09:06So let me ask you a question, right? Why would you raise capital if you could just reinvest EBIT your own your own cash flow?

Chad Burmeister

09:14Well, that's that's what we've been doing. And truthfully, I'm working with an advisor to help me through that decision. 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. So it really be to, know, yeah, I'd like to hire a couple more sales... A salesperson, a full time dedicated BDR, and a customer success person. But

09:43it's not required, but just from a strategic perspective.

Nathan Latka

09:47If you did raise $500,000, what valuation would you like to raise at an ideal world?

Chad Burmeister

09:52$30,000,000 three years out. I believe in three years we'll be doing 10,000,000, three x multiple. We're not a 10 x because of the mix of services revenue, but we're certainly a three to five x.

Nathan Latka

10:04So just to be clear, hold on. Hold I wanna make sure I understand that. You wanna... You think you can raise today 500,000 on a 30,000,000 pre because three years from now, you'll be 10,000,000 and you're doing basically a three x multiple on where you'll be three years from now.

Chad Burmeister

10:16Correct.

Nathan Latka

10:17Do you I mean, do you think you'll get term sheets at that?

Chad Burmeister

10:19Yes.

Nathan Latka

10:20Okay, that's that's very surprising to me. Very rarely do I see a

10:23CEO 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?

Chad Burmeister

10:34Well, the space is heating up beyond reasonable doubt. If you look at

Nathan Latka

10:39That could be a bad thing for you, though. That can mean more competition. Margins get sucked out of a system when there's more competition.

Chad Burmeister

10:43Well, there's some defensibility around agent assisted dialing. It is a hard thing to build. Right? There's there's dial bots, and there's bot dialing. But from our understanding of the world, that's illegal to auto dial businesses these days. Yeah. Especially if you're calling a mobile phone.

Nathan Latka

11:03Do you have any physical term sheets on a 30,000,000 pre right now?

Chad Burmeister

11:06I do not.

Nathan Latka

11:07Okay. Yeah. So it's all kind of discussions.

Chad Burmeister

11:10It's discussions. So you you you may very well be right. That may be aggressive. I I did have a dialogue with someone recently that said, you know, they're willing to look at a 10,000,000. So somebody

Nathan Latka

11:22Yeah, 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 This is why I can talk so openly about it. I put it in my book on page two forty three, it's a massive mistake. We almost like to brag about like how big we can get our valuation. But actually, becomes very difficult is you didn't have to grow

11:39into that valuation. Otherwise, you're fucked. I mean, you have to do a down round or it's not pretty. So like sometimes actually a more conservative valuation, especially on your first round of capital is actually much better leverage than a huge valuation.

Chad Burmeister

11:53Yeah, that's good advice. And you know what, I'll be honest, I've been on, you know, I've been the VP of sales of three or 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

Nathan Latka

12:13Which one?

Chad Burmeister

12:14Called Newchip. They're pretty new kids on the block, but they seem to be very, very trustworthy. I talked to two or three references, and they highly they highly recommend it.

Nathan Latka

12:25Do they take equity?

Chad Burmeister

12:26I'm gonna go learn the rules of the game before

12:28I play.

Nathan Latka

12:28Do they take equity?

Chad Burmeister

12:31No.

Nathan Latka

12:32Okay. So what's the upside of the accelerator? Did they give you cash?

Chad Burmeister

12:36They have a crowdsource model on the back end. They do give you... They do give one company cash at the end of the accelerator, but they introduce you to a crowdsource platform that, you know, generally can get... Can raise quite a bit of money. I don't think I'm gonna go the crowdsource route, but Yeah. I just need to learn the rules of the game in terms of raising money.

CAC, Payback Period and Profitability

Nathan Latka

12:56What's your fully weighted CAC on a new customer that's gonna pay you $2,000 a month?

Chad Burmeister

13:01My cost of acquisition for $2,000 a month, I need to get a better answer on that one.

Nathan Latka

13:07Or do you generally know how aggressive you're willing to be to get a new customer? Will you pay first year ACV upfront to get the customer?

Chad Burmeister

13:13So far we've been very profitable company.

Nathan Latka

13:19Can be profitable and still have a twelve month payback period.

Chad Burmeister

13:22And still have a twelve month payback period. Yeah, good question. I haven't talked that through with my board yet.

Nathan Latka

13:28Yeah. Wait, what do you mean board? You haven't raised any money?

Chad Burmeister

13:31Well, I have a board of advisors. I don't have a board of directors.

Nathan Latka

13:34That's like a fake board. That's like a use the board when you need to use 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. Have cash flows, you could easily go

13:49raise $500,000 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 SaaS Capital for somewhere between like 20 and 30% effective APRs. But at least you keep your whole company. And if you know how spend that money to get more than that back, then you still have the whole company, you drove growth with someone else's money.

Chad Burmeister

14:06Yeah. And that's really what I believe the company is talking to us about. They they talked about a convertible note.

14:12Does that fit in the category you're

14:15talking

Nathan Latka

14:15convertible 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 6% interest, which you never actually usually pay out of cash. You just accrues on the note value and then that converts into the series a valuation. But no, give everyone notes different than venture debt.

Chad Burmeister

14:32Got it.

Nathan Latka

14:33Yeah. Venture debt never converts to equity. You keep all of your that's the upside. You keep all your equity.

Chad Burmeister

14:39Got it.

Nathan Latka

14:40Yeah. So just something to think about, write down and have a conversation about.

Famous Five: Books, Tools and Habits

Chad Burmeister

14:43Yeah.

Nathan Latka

14:43All right, man. Let's wrap up with the famous five. Number one, what's your favorite business book?

Chad Burmeister

14:48Let me look at my let me look at my bookshelf. You know, I would have to say that my my most recent favorite is Gap Selling by Keenan.

Nathan Latka

14:57Number two, is there a CEO you're following or studying?

Chad Burmeister

15:01You know, I've had a lot of success with Chris Beale at ConnectAndSell. That's where I used to work. It's my alma mater. He's highly numbers driven, and he's always said for ten years, the conversation matters. So for spiel.

Nathan Latka

15:16Number three, what's your favorite online tool for building your company besides your own?

Chad Burmeister

15:20I like Qwilr. It's a proposal tool that integrates to Salesforce, and it got video embedded, Q W I L R.

Nathan Latka

15:27Yep.

15:28Number four, how many hours of sleep do you get every night?

Chad Burmeister

15:32I get between seven and eight hours of sleep every night.

Nathan Latka

15:35That's good. And what's your situation? Married, single, kids?

Chad Burmeister

15:38Married with kids, 17 year old and a 16 year old.

Nathan Latka

15:41Good. How old are you?

Chad Burmeister

15:42I am 46.

Advice to Younger Self

Nathan Latka

15:44Last question, Chad. What do you wish your 20 year old self knew?

Chad Burmeister

15:48I I would have kept more of the stock of the companies that I've worked for, because I would probably be worth 20,000,000 to $30,000,000 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 so that I would have had $20,000,000 in the bank by now.

Nathan Latka

16:15Scalex dot ai serving a 100 customers, paying an average of $2,000 a month, so $200,000 a month right now on revenue. That is up from about $90,000 a month just a year ago and closing out 2018 with about a $120,000 a month. That's up from, again, total revenue in 2017, a $375,000 in total revenue. Again, AI for sales platform, team of three revenue per employee through the roof, which I love. Basically, really bootstrap taking about $60,000 a month

16:39to the bottom line. So cash flow positive. Chad, it's a nice place to be, Thanks for taking us to the top.

Chad Burmeister

16:44Appreciate you.