How Servicechannel CEO Tom Buiocchi grew to $60M revenue and 500 customers in 2019.

hello everyone my guest today is tom b okay he joined service channel as executive director and ceo in 2014 he has more than 30 years of experience leading growth companies in both technology and energy services including jetta networks drobo a vc firm as an eir brocade communications and hewlett-packard he has a bachelor's of science degree in electrical engineering from union college and mba from northwestern's kellogg school of management he's also on the board of directors for conics and gmac all right tommy you're ready to take us to the top thanks a lot that's a lot of stuff right there must be and i'm very old that is a lot that means you're doing something right right i don't know we'll see so why is a guy like you coming in and run a company i mean you know enough why not take all the risk and launch it from scratch and own 100 well it turns out about four years ago three of my colleagues and myself ran into a couple of founders who had an awesome business and we decided at that point in time to become investors and take a majority share in that business over time we got so involved and loved the business so much that a couple of us of us got involved in the operating part of it and so that and that was service channel that's exactly right exactly right so what round did you come into the company when was it personal money or through via vc firm well we we raised our own money it was quasi personal quasi friends and family we formed a small fund to make that investment like a little svp exactly right okay and what year was that in late 2014 okay so that was that was about four years after kind of the debt financing exactly exactly so okay so i want to go back to that in a second so then you so you put money in 2014 you also took over in 2014 so were those things tied together no i took over in 2015 it turns out i got involved as a board member in 14 and about a year into it uh we took over as the management team as well the founders moved on to the board and still remain on the board and so we just took over as a management team so tom what happened you know a lot of people gloss over changes to the founding team in terms of who's leading but i know there's a lot of nuance right so like was it friendly was it not friendly why the change very very friendly um stephen and serge the founders had incredible insight into this industry insight that no one else has had in the past and they they founded the stalwart company in this space but they hadn't had experience in scaling a technology company so we're taking their expertise and their insight into this space and hopefully coupling it with a couple of software executives who have done this before in in hopefully the one two combo interesting okay so from a capitalization perspective how much total has the company raised to this point we raised 54 million dollars uh in us in a in a series with um excel in 2017 we put in about 40 before that so in the in the 90s okay in the 90s and was all was that entire excel round for operations or was any of that part of a recap uh mostly for operations it was okay all right so 90 in the company now let me take a step back here for people that have not heard of the company before what do you guys do so we're online platform like online platforms we collect buyers and sellers so they can transact with one another our buyer is a facilities manager or real estate professional of a chain uh think of your favorite chain that you eat or shop at subway yeah exactly they need to maintain all of their facilities in a in a consistent clean and safe manner we connect those people with a network of commercial contractors who perform all the trades that make that location safe clean inviting and allow that user experience at that brick and mortar location to be great so think of you know chipotle panda cvs amc theaters louis vuitton nike stores adidas stores the gap so things like that so if i'm at nike and a little toddler basically runs into something and just destroys a wall or a shoe rack or something the the local nike rep can open your app quickly call a local person to come fix the thing in the store exactly and if you're a thousand miles away and the water heater needs replacement or something you can hit a button on our app and it will contact the local contractor a thousand miles away who's closest to that location to come in and do the job for you so what is your ip are you maintaining and managing this network do you pay these contractors directly or is your ip really the tech it's the tech it's the connectivity between the buyer and the seller the ability to transact and find someone a thousand miles away who's the right person for the job who you can manage to your slas to your price into your quality standards much like you get an uber driver across town we get a commercial contractor across the country pure sass pure sas okay so you're not taking any percent of like projects completed through your system or anything we take a pure sas uh at the customer side and because we're a platform we take a tiny transaction for each invoice job that the contractor performs it's very very small like under one percent yes it is okay um from the contractors great now you must give them enough business where they stay hyper responsive to alerts that you send them otherwise people wouldn't use you because it would be too slow absolutely uh so when the customer mandates basically that the contractors will receive all of their work on the service channel app they need to just look at their phone when they get a work order they need to respond to it just like an uber or lyft driver would and then that process is digitally recorded just like an uber or lyft drive is except it's i need tom to fix the toilet in toledo as opposed to johnny to come pick me up in my ride right okay and then so let's just talk pure assassins that's the majority of your business on average i i know you have a lot of cohorts but we don't have time to go on all of them on average what are companies paying you per year to use the tech or per month so think of it as a a double digit or slow triple digit amount per location per month okay and i guess that's part of why i'm asking the question is i'm curious on average how many locations does one customer sign up with all of them so for for cvs it's 15 000. for panda it's 2400 but if you take your total customers divided by or divided into all the locations you serve what was the average oh about 600 locations is our average customer oh wow i mean okay this is a large deployment every time a new customer comes with a big deployment oh yeah so so think of a cvs on one side with well over ten thousand and think of um what's what's a good one shake shack hundred locations or um uh all birds or bonobos or warby parker with maybe a dozen or twenty or twenty five it's that range but on average it's about 600 okay and and these brands again pay about anywhere between 50 up to the six figures 50 grand per year per location well we charge them on a per location per month basis so think of 50 to 150 per location per month oh i see and then you multiply it by those number of locations that they have so we charge on a per store basis i see i see okay very good and then uh remind me again the timeline on this when did the company launch the company this is a great story the company launched in 1999. when i was born tom that's exactly right the two founders working in new york city were kind of the savants between the contractor and the retailers at that time a lot of work on a phone an old phone they put technology to it their first customer was the gap in 2001 word of mouth spread the internet happened mobile happened then all of a sudden in 2014 you got a pretty pervasive tool and a lot of customers on the platform how many today we have about 500 brands that you know on the platform we manage about 350 000 of their locations in 63 countries so uh when uh apple opened or when the gap opens a banana republic in tokyo that banana republic comes on our platform interesting so 350 000 locations across that base and you said earlier 50 bucks per location per month minimum and that puts you at 17 million a month in revenue minimum is it accurate well that's not accurate but was going to say you're taking you're taking you're taking me out to dinner next time i'm in town yeah taking very wide ranges there so we won't do the math here but it's a very wide range of uh legacy pricing and current pricing and growth and so forth okay i guess what i'm trying to uh well okay we'll move on past that so help me understand today how you're getting new customers sure um so first of all word of mouth is a great thing when a facilities manager or real estate professional moves from one chain to another which they often do they often take service channel with them in conjunction with that we have a network of 50 000 commercial contractors on the platform they're always referencing us because they get more work when they reference us and it's easier for them to receive and do their work when they get it on their mobile phone so we get references that way plus we have a sales force of about 15 individuals quota carrying reps who are in the field talking to uh other chains that we currently don't have what profitability metric do you put on those folks do you want to see them you know their quota is going to be 7x what their on target earnings are their compass it's about uh six x or so six six so just be clear if someone hits their quota a quota carrying folks hits their quote and they're gonna paid two hundred thousand dollars for a year you're gonna make sure that they bring up at least one point two million in new bookings over a million dollars that's right yeah okay interesting and and you have kind of that kind of average industry 80 percent attainment on those sales folks uh 70 to 80 percent attainment on the sale that's pretty good and what's total team size today we have about 200 people um the company was founded in manhattan in new york city we recently opened an office a few months ago in pleasanton in the east bay in northern california so we're kind of split between those two locations and now obviously when these sales folks are growing and you're growing the team you want your customers to stick to keep funding growth so it turns critical here how do you manage your churn and what is it currently so we have we have a very low churn in the low single digits um okay that's annually i'm sorry that's and so like five percent annual churn correct correct lower than five percent typically customers churn for a variety of reasons the most the most likely one being they went bankrupt or they were acquired by somebody else uh it's a fairly um uncrowded space if you will from a technology standpoint and the technology competitors are very few and far between so our insurance tend to do uh with companies having difficult times financially or getting acquired we have a customer success team an account management team that's very active in managing those accounts so most accounts have a a rep they deal with who helps them on a week-to-week basis to use the platform get the is one of the quarter carrying are these one of the 15 quarter carrying folks quarter carrying these are customer success uh individuals who are mandated with customer satisfaction product usage metrics and uh you know client retention methods are the csms responsible for driving expansion revenue and increasing contract they're not they're not that we have a separate team that drives expansion revenue we have csms responsible only for client success what do you call the expansion folks account managers account managers and client success managers the two different groups okay so the ams the account managers they are quota carrying along with aes that's correct that's interesting okay do the account managers drive expansion to more than make up for the four percent churn so you have over 100 net revenue retention absolutely you get you get um usage expansion you get location expansion you get geographical expansion expansion and you also get product expansion we have upgrades and so forth so there's four different ways to go do that what does usage expansion mean measured by what it's measured by the number of trades and work orders they perform on the platform okay then we know what location expansion means literally they add new locations and product expansion as you upsell based off new feature sets new modules capabilities and then certain customers who are global have geographic expansion we we move from uh company in the u.s to add canada or add mexico ad at foreign countries as well so tom what is net revenue retention annually oh it's about 120 okay that's pretty darn good i mean i'd consider world-class you know being somewhere in the 140 range do you think you can push it up that high or no 120 is your max that's right we're trying uh you know we're trying to get there i think 120 now is uh is pretty good and we're always trying to make make it better yeah how so i guess again one thing with obviously onboarding new customers you want to manage relative to the 54 million you do with excel is obviously cac right so to get a new customer right that pays you i guess what on average for 500 600 locations at whatever price you charge from what are you willing to spend to get them well it turns out we don't have to spend very much the word of mouth in this industry and the tightness of the professionals in the facility space is very very tight so there are a few trade shows where these people congregate and gather or our customers are very very efficient and again word of mouth and our network effect is probably the single single biggest thing so you don't spend any on paid ads we do not spend paid ads no okay so your biggest cost in really a salesperson commission and trade shows it's sales person commission it's trade shows it's a small but very mighty marketing department uh and you know we reach out to our customers and and try to make them happy word of mouth carries a lot and if someone did come here today and sign up with 500 locations what's probably their first year acv going to be oh well it's 500 locations 100 bucks uh you know it might be a hundred grand or something like that something like 100 grand okay interesting and you will find people like that at trade shows and things like that well we get references right we find them with trade shows they've either used this in the past and they want to use this again or they come through word of mouth reference through another customer or a contractor who's done work for them okay interesting so 100 grand a year on 500 locations right it basically comes out to more like 16 per location right instead of i'm not as fast with the math as you are but it's it's a six digit number yeah yeah you you what i'm saying is you give obviously volume based discounts right per location people are signing up hundreds of locations we typically ramp over a multi-year period and we may start the first year a little bit lower that's right yeah yeah interesting okay very good um funding so last funding round was over a year ago at this point and most folks were on their vc truck they're raising every 18 months or so are you raising right now no we're not because we have a very low burn rate we try to operate the company break even basically okay i mean when you say low burn you're trying like a million a month or less no we're talking about like nothing a month okay you truly are break even we're running a company a break even you know some people me they go break even and then i learn later they're burning a million a month but in san francisco it's like no right we have a very disciplined uh game plan we're trying to grow as fast as we can at a break-even rate okay interesting how did you deploy you were there the entire time the 54 million is being deployed how was that deployed to drive growth and if it worked why aren't you raising more to drive more growth well the fundamental premise was to harden the product re-architect the product so a lot of engineering growth most of our office here in the pleasanton area is uh engineering technical and product based uh we haven't added a tremendous amount of sales organization the company at the time we invested did not have any uh systems in terms of billing in terms of usage management in terms of accounting crm marketing automation we added all those systems we moved the application to the cloud um we invested in that heavily so it's a lot of product investment um i would say some sales and marketing investment but not as much as you might think in a different company's burning like crazy and spending 40 or 50 percent on sales and marketing and what do you try i mean obviously it's harder to double and triple big numbers so over the next 12 months what do you hope to grow revenues by we like to look at a uh we like double revenues every two years that equates to 41 percent kegger so okay very good and then if we take kind of again 350 000 locations at more like 15 bucks a pop a month that's more like you're doing like 5 million bucks a month something like that we are we are not at 100 million dollar run rate yet yeah when you think i mean do you think you can hit that next year it will take more like 18 24 months we'll be we'll have visibility to it probably next year yeah and is it fair to say you're kind of in that 40 to 60 range now uh that's more than fair to say okay good what is it i'm trying to think what does more than fair mean that's still conservative it's conservative okay good good so we'll say that we'll end it here and say more than 60 million bucks annually and if you grew by more than 40 50 year about a year ago you're doing call it you're way better at math than i am you're worried that's good i just i like the growth rate stuff right i think it's important right so so again if you're you're d you're tar obviously you can't double 60 million every year that's very difficult um so that growth rate makes sense is most that growth do you think going to come from expansion right up selling new products or new customers all together uh we like to see a lot of new customer growth it creates demand and then the back end we get more transactions so it's pretty balanced actually okay pretty balanced okay very good all right tom let's wrap up here with the famous five number one what's your favorite business book okay you're not gonna believe this the making of the movie caddyshack the making of a hollywood cinderella story it's it's an amazing book people don't view it as a business book but it's i love it because you take all these crazy genius characters bill murray uh you know chevy chase rodney dangerfield and you how do you make them work together to create a masterpiece it's the favorite book of all time number two is there a ceo you're following or studying probably two customers of ours danny meyer at shake shack he's who needs another hamburger brand right he's amazing and then melanie whalen at soul cycle again who need another workout place but she's building an amazing brand there it works there's a lot of people rolling these companies up by the way i should have asked you are you in talks right now to be bought up by any private equity firms no no it's not something you're interested in not at all not at all even if it was a you know a number that ended up with a b not at all not now come on tom i don't believe you someone early it's early days this this market is barely tapped we haven't done any good stuff yet how many how many how many other locations are there that you can expand into there are 2.4 million locations in the us that are parts of chains 2.4 million okay 600 billion a year on repair and maintenance so you own 15 percent of the market already then if you have 350 locations that's great the rest of it is untapped got a lot of room to run that's i would still say that's pretty good market share though 15 of the total market is pretty damn good it's early days in this market though it's early days in this market all right number three what's your favorite online tool for building the company oh for building the company okay i think you meant like personal tool we use slack tremendously i think slack's the best thing ever okay number four how many hours i sleep to get every night um i get eight hours every two nights okay that's good except on the weekend i try to go a tonight all right fair enough and uh how old are you i am 61 years old 61 married single kids i am married with three great kids my son kevin is 30 aspiring actor in new york city i have twin girls claire and megan 21 entering their senior of college i love that okay so what what do you tell them take us back to your 20 year old self what do you wish you knew uh you know i had a fairly conservative start to my career right and i tell them to take more chances uh live a little try things out don't take the safe path nothing nothing nothing like taking control of your own destiny early on i would admire them to do that guys servicechannel.com helping physical locations manage any work orders and things like that currently serving 500 customers 600 locations per customer on average so 350 000 locations service doing north of 5 million dollars per month in revenue so call it 60 million in aor hoping to grow that by at least 40 or 50 percent year over year as they continue to scale 90 million into the company altogether team of 200 people four percent gross turn 24 expansion 120 net revenue retention tom thank you for taking us to the top appreciate nathan