Scoop Revenue & Funding (2024)

hello everyone my guest today is zack rose and he pioneered the first large-scale drupal website for the howard dean campaign in 2003 and then co-founded the world's first drupal development shop civic space he then went on to co-found a successful drupal development shop chapter 3 and also co-founded mission bicycle what started as a professional website development epiphany we're doing it wrong evolved into an all-in-one platform after he and a few trusted colleagues got together and started solving problems we're gonna jump into pantheon today zach are you ready to take us to the top sure all right so tell us about the company what's pantheon doing how do you generate revenue yeah so we are a website operations platform for wordpress and drupal so we host websites but our our real value is our developer tools and we're built for marketers who want to iterate really quickly on the websites got it and so how are you different than like a wordpress or weebly or wix or squarespace yeah so the website industry is very it's very large industry it's about 200 billion dollars a year so as an industry we spent more money on our websites than anything else more than digital advertising and there are a few different segments of uh a product so on one end of the marketplace you have the wixis weebly's squarespaces and those are built for uh companies where the business owner typically is building the website themselves so you're choosing a template buying domain name and then launching website in a you know a couple hours so we those are not our customers so we work with companies where they have professional marketers on staff and the marketers are designing and building the website to drive the business and uh and then it was an enterprise part of the marketplace where uh your customers who spend upwards of three four five million dollars on a single website implementation okay so if you're playing only in the enterprise space then and it's a sas model we're much more in the mid market okay okay is it is revenue model wise is it a pure play sas model yeah it's all fast okay so like i mean what on average you are paying you a grand per month or what's the average would you say it's a wide range so it ranges from you know a few hundred dollars a year you know 20 30 bucks a month up three customers though you know in the millions okay got it but so i mean those are you know developing in terms of your engineering resources for 20 a month customer versus a million dollar your customer very different product roadmaps i mean where are you generally focused smb or or the million dollar plus range it's actually you'd be surprised so the product the core product is the same for our million dollar customers as our uh 25 a month customer and it's because uh we built it for web teams so the commonality is the the uh smaller customers are serviced by agencies so the agency has a web team that's you know building dozens of websites or hundreds of websites that can service you know customers of that scale and then the larger customers the websites are bigger and have you right there are some product differences there's you know security compliance scalability performs all that kind of stuff uh that they have but you know it turns out folks who who have small businesses care about performance as well so it's essentially the same product what i mean but there's there's a reason someone's paying you 30 bucks a month versus 30 grand a month right is it mainly like number of seats on the team is it an sla agreement i mean what is it yeah it's a good so good question so it is a combination of number of sites traffic of the sites and then support requirements around the site okay fair enough got it good let's go back here and get more of the back story so what did you launch the company officially in so we got to market in 2012 uh and it came out of the consulting work that we were doing so we specialize essentially in devops for large-scale website projects so we helped rebuild the economist uh and projects for the nbc where uh you know they pay upwards of a million dollars just on the devops infrastructure and we did that all by hand we give it back to the it teams at the end of it and typically the customers really did not have the skill sets internally to manage the infrastructure themselves you know i.t teams typically they have the skill sets to manage servers and slas around them when you get in the world of website devops you you have cdns caching apm you know like you know the whole lamp stack and then you have dev environments test environments deployment systems caching systems it's a very long spew of technologies that you have to master and so what we would see the pattern would be basically that the the website developers themselves would have to do the devops because the it teams just didn't have that background uh which wasn't any fun for them so it'd be like hey jen you know the only one we trust to deploy changes guess what your new job is you're now going to deploy everyone's changes which is pretty miserable uh for jen so uh eventually the light bulb went off we you know did that project you know about a half a dozen times uh and exactly what was what was the consultancy revenue before you started thinking about sas when you're doing two million a year five million or a million a year yeah it's around five million five million a year okay and then in 2012 you said we need to we need to productize this uh yes a little before that we need to productize this and turn it into a sas service and so we incubated it inside the uh the web agency for a little bit and then took them there yeah it's a smart way to do it um you've got a built-in customer base with your agency customers now what are you at today in terms of team size so uh panther's about 150 people okay based where uh many of us are in san francisco uh but we we have to be global so we have you know team we have a couple of offices around the world and we have uh folks in everything essentially every continent you're you're in san fran though yeah we're based in san francisco okay well then i have a thing i know they answer the next question but i'm gonna ask it anyway and maybe you'll surprise me uh bootstrapped or if you raise capital wait we raised capital yeah of course so how much have you guys raised to date uh it's all public so about 50 million okay five zero and where i mean the first round of capital what year was that and would you use that primarily on so that was back in 2011 i think we closed our c round uh and it was invested mostly in the product it took us a while to get to market it took us a couple years because from the get-go uh we knew we didn't want to be constrained with the typical uh kind of problems that hosting companies run into so the way most of our competitors do this is they put you uh on a biscuit vm uh and then on a virtual machine yep uh and then uh but if you wanna iterate on your website you know develop on it uh you safely you want to have you know a different dev environment so then they have to spin up a second vm and then when you actually deploy the website in the live environment uh and deal with you know lots of traffic you probably want to cluster with high availability and then you have basically the spew of servers uh and so you end up running if you're running at our skill you know in the tens of thousands of of servers you have to manage and and then you know scaling between them is very complicated they're all a little bespoke so it's hard to manage them at scale so we we knew we wanted something uh an order of magnitude more efficient and so we uh took the time to build uh build what we saw was kind of the right way of doing it which is to do it on a containerized platform so we we're the only ones who have a a multi-tenant um operations platform for drupal and wordpress where we can scale you really smoothly in containers from a tiny website that pays you know in the 20 month range to very very large websites that get you know many millions of visitors uh and the other piece of it is we uh knew we wanted to work with what so we we think that the way actually most marketers build the website is completely wrong uh the way most websites get built is you have a uh essentially a website relaunch project where you you know you don't like your current website so you go in and hire you know the marketer goes and hires an agency to do a big rebrand uh or uh so we do all the messaging information architecture the the design phase on those projects is typically like three to six months and then uh and then you have to develop which might be another uh six months of time or a year of time and by time you launch the website for most large organizations you're you're a year or two years into it and then when marketers launched a website and they think it feels you know the website they launched it feels outdated already that's because yeah you designed it two years ago um and then for most companies that the killer is that the website is there uh and you maybe got 60 of the things right in the website we lost before you ran into budget but the 40 that's wrong kind of steers you in the face for months and months months and then people get really angsty about it and then kind of repeat the process yeah so zach let's let's get just because we're running short on time here so the you built the product 2011 to seed round you're building your engineering your engineering what when was your first customer contract closed was it 2012 or 2013 or 87 2012 was that customer one of your agency customers as well um no it wasn't yeah so how did you get them uh well we were very plugged into the ecosystem and so from the very we did a lot of customer development back in the day so back then uh we you know interviewing folks who uh we knew uh you know basically people from the drupal ecosystem uh who we knew were in devops problems we see them and then a little you know we say hey if we have this service that existed theoretically would you be interested and if they said yes um then three months later we'd ask them to actually start paying yeah makes good sense now what have you scaled today in terms of total customers oh we're in the tens of thousands of customers okay and just be clear that's that's customers not like free users yes okay now obviously key thing with sas companies is churn so what's your turn today and how do you manage it uh we'll be lucky that uh our customer base actually grows on its own uh and it's because uh we sell to you know uh customers where they're building many websites so a lot of the times as agencies or it's enterprises yeah well so that didn't answer my question so churnwise what's your turn like you're saying no customers ever left you no we're not gonna disclose that okay why don't you talk about churn it's obviously critical in any sas business yeah we're still gonna talk about our private metrics for what i just don't want to talk about private uh metrics so we yeah instead of talking about whatever you're currently at tell me more about how you think about turn in general at a high level yeah yeah so i mean uh we have a very low gross churn rate and it's because we work really hard uh to make the product work for customers and we put a lot of energy into that so you know enterprise customers uh we have a dedicated team that makes sure that they're essentially they're gonna be successful on the platform uh and then for our agency partners we put a lot of energy in basically training them uh and uh becoming their default platform for website operations so once once that happens it's uh we're quite sticky and then the other side of it is that it's also very expansionary because uh you know agencies will grow with us enterprises will grow with us they'll be with us for you know many years um and as they you know enterprises are you know essentially always launching new websites and we'll get that business you have some good historical data you know four or five plus years i mean on average and this is very back in the napkin but on average what do you assume these customers are worth to you over their life generally north of what well it's a very it's a very large range so some of the customers it's you know in the thousands and some it's in the millions yep for the folks that are the smb kind of the low i imagine no touch sales what is the thing you have to get them to do in the first week to make sure they stay sticky for a long period of time yeah so a lot of them are from agencies so uh the key for them is actually learning the product so and training them on the phone zach sorry i just understand you'll have agencies spending their time energy and effort to sign up a 30 a month customer yeah and we're happy to help them do that because uh why would they do that though there's not much money as a kickback or anything no it didn't so they so the agencies use this because of the the service um so they really want the software product itself so essentially if you have you run an agency or do you kind of work with agencies i mean we interviewed about almost 1500 b2b sas founders a lot of them come out of an agency and they build the sas product but i mean agency typically when there's a business model where it's a reseller program like hubspot's probably a famous example we just had brian on the price point is high enough where the agency can get a kickback so they're incentivized to do it i don't see how you have that incentive structure with a 30 month price point so we we uh do have some of those incentives but it's not the reason most agencies work with us so the agencies work with us because it's imagine you're an agency and you have to build a lot of websites for different customers if you don't use a if you don't use pantheon what you have to do is set up your own website operations so you have to have make sure every developer has a developer sandbox to make sure that they can deploy changes to live websites up safely without breaking things you have to you know make sure the websites are online uh and uh traditionally what that means is is basically your tech lead so the most senior developer has to actually go in and build all these uh services yourself so you're stitching together like github and digitalocean uh and new relic uh and you can't bill for that time it's very frustrating uh and your clients don't care it kind of still carry like how you tune engine x or what your deployment system is but you have to do it because you have to actually serve your clients you don't have one client you have dozens of clients so what we do for those agencies is we replace all of that with a free service so instead of them having to spend you know any time managing website operations or even pay you know agency with 10 developers will spend a couple hundred thousand dollars a year on this stuff they can't build so we we can actually make that profitable for them so we can save them a couple of thousand dollars of lost billable time uh and a lot of headache uh because if the stuff breaks it rolls back on on usually the founder to go fix yeah so sorry just because we're running out of time last quick questions here and quick answers if you can payback period do you try and optimize for any kind of payback period as you're growing yeah well again it's a wide range of customers so uh you know if they're worth millions we're fine uh it could absorb a large cac and we work within the typical sas constraints depending on the size well just to be clear it doesn't matter if it's a small 30 month customer or a 10 million a month customer because the payback you're willing to spend more or less depending on the size so it's actually a ratio so like do you try and stay below six months or 12 months how quick do you like to get your money back uh well it also depends how expansionary it is so uh you know we we're we're not incredibly focused on uh juicing our payback right now because uh we know if we get an agency or an enterprise on board it's gonna be very expansionary over time i mean we we do care about we optimize you know marketing channels and sales methods and all these kinds of things we want to stay with the constraints but it's not like an overwhelming focus it can give me a general range of exactly 12 to 24 months is that fair that's a private number okay why tell me i mean many people are going to listen to this and go of course he can do that he's raised 50 million bucks he can afford to bleed cash that's what they'll think when they hear you say that uh okay so are you bleeding cash um so uh we burn cash yeah i mean we raise money to grow the company yeah that's what i want to try and get a sense of when we have folks on that have raised 100 million bucks 80 million bucks it's it's very valuable to try and understand how they think about burns so if you don't talk about payback it's hard to kind of get in your head and understand how you think about burn yeah so i mean we're focused on building a very large uh profitable business over time the the issue in our marketplace as is true in many marketplaces is uh it's a 200 billion year market uh so and there are seven or eight companies who are you know well north of 100 million run rate so uh for us to achieve what we want to do which is to build a large independent uh platform uh we're up to grow pretty quickly and so we're you know yes we're gonna sacrifice cac uh cost and payback cost to uh to a certain extent certainly more than a bootstrap company would to achieve growth yeah exactly by the way that's valuable i mean i'm not i'm not saying this is a knock i'm saying you you have the ability you've created growth you have a great story you have a great team that enabled you to raise the capital a great valuation and you can afford to wait 24 months to get paid back on that cac that's an asset i'm just curious how aggressive or not aggressive you like to get but i think we've talked about that enough so yeah we're well within the kind of typical sas constraints i mean if you look at the public market numbers they kind of set the guidelines yeah um take me uh last question here you said you'd like to invest this money grow quickly generally what are you growing at year over year are you you know you're getting in the big numbers so 100 percent over your growth gets harder but it's a private number what do you ain't what do you aim for you don't have to talk about what you actually did i mean you know companies that get later stage uh when your companies go public or you know want to stay within the 25 to 45 percent 30 range year over year um we're earlier stage than that so we're going faster okay got it so can we can we say a minimum is 30 and a max is 100 that's a big enough range to stay vague it's a pretty big range yeah yeah okay good um all right uh and then look i mean you gave me minimums earlier 10 000 customers and you have the your smallest ones paying 30 bucks a month you're doing definitely well north of 300 grand per month at this point correct oh yeah okay good all right let's wrap up here with the famous five number one what is the last business book that you read oh man uh last i'm trying to give a good recommendation uh so i reread this book it's my favorite business book of all time it's a very weird book uh the toyota production system which was written in 1980 uh by the gentleman who created essentially his single most responsible person for the lean manufacturing system interesting number two is there a ceo you're following or studying zach um yes many uh i'm trying to give you a useful answer so yeah i mean uh one come to admire a lot uh because i know that we know them pretty well they're they we share the same first and main investor uh founder group is cengrid uh so their their ceo samir i think the world of he's a super sharp guy and what the company they built and the way they've gone to market um is uh it's really impressive and there's a lot we have to learn from them number two what's your favorite online tool for building the company online tool man i i i use uh dropbox paper a lot it's pretty fun okay number three how many hours of sleep are you getting every night yeah depending on the night i have a two-year-old uh six to eight hours six days okay now not bad and now just one kid or or more just one okay and what's your situation married single i'm married all right and how old are you zach i'm 34. all right last question what do you wish your 20 year old self knew ah that's a good question um yeah i think uh what i've come to appreciate the most over the past decade especially in the adventure tech world and if you have a lot of um uh listeners who are bootstrapping their companies i have a ton of my admiration for that i mean i the first three companies i built were all bootstrapped um so uh but the thing about the venture tech world which is which is kind of a secret sauce is uh it really functions mostly on a mentorship model which you don't appreciate from the outside so uh i would tell my 20th my 20 year old self to uh invest more in surrounding myself with people who have been there done that and can teach me because they're definitely out there you know they're happy to grab coffee and um tell you all their secrets if uh you asked him nicely there you guys have it from zach invest in the mentor network earlier on it's a little secret in the venture tech space after doing a lot of consulting work having a lot of success with his agency grunge about 5 million bucks in revenue 2012 started early prototyping on pantheon launched it now today has raised over 50 million dollars has 150 folks in san francisco and other remote locations again helping folks scale what they're doing on their websites uh faster more aggressively and more efficiently it's obviously a huge market they've got well they've got tens of thousands of customers so a minimum statement would be definitely north of 10 000. they've got customers paying a minimum of 30 all the way up to millions of bucks in terms of annual contract values and 30 bucks a month so you can just multiply 30 bucks times 10 grand and say they're definitely north and i think probably well north of 300 grand per month in revenue uh with very low gross turn zach thank you so much for taking us to the top thank you