Shiphero Revenue & Funding (2024)

hello everyone my guest today is aaron rubin he's the founder and ceo of ship hero he's previously the founder and ceo of an online retailer of brazilian jiu jitsu apparel that he founded in 99 at age 19 and ran until he started ship hero all right aaron you're ready to take us to the top yes sir all right what does the company do and how do you guys make money so shapiro is a sas product we serve e-commerce companies and three pls three pls are third party logistics companies who ship four e-commerce companies how we make money by charging monthly sas monthly is it pure sas or is there mica marketplace play as well uh our revenue is almost all from sas we do drive some revenue to our three pl's and we got a little money off it but it's not uh significant compared to the sas revenue yeah okay very cool and so so on average like what do companies pay you per month and then can you paint the picture of a company paying you and how they're using you yeah so it varies pretty widely um especially because we have legacy customers we used to start and serve smaller customers so we still have a bunch um average customer pays us about 1500 a month okay um but our three pl's generally are paying us between five and ten thousand a month because they have a lot of more shipping more shipments they're shipping for a lot of merchants um versus if someone was shipping on their own in their own warehouse they might be paying us five or seven hundred dollars a month okay and so someone paying you 1500 bucks a month versus you know five thousand dollars a month what do you price against is like number of boxes shipped or square footage or what just seats it's just one at one angle just pure how many seats yeah well three fields we charge for seats what's a three p oh by the way it's a third party logistics company so let's say you make socks you don't want to ship out of your basement you outsource it so those guys those guys use our software and then they give you a log on to use our software as well but you don't have to pay us the 3pl pays for your subscription as well yeah yeah that's interesting all right and put this on a timeline for me when you launch the company so we started on it you know nights and weekends being my co-founder about 2013. um got first customer really like 2015 and then about 2017 we started to get some like real traction in 2015 that first customer tell me that story who's you have to bribe to get them in right well so our real first so i had an e-commerce company um so that was cus actually a friend of mine was customer one um my own company was customer two those were jiu-jitsu one yeah so those were the easy ones um my friend was company wine chateau they're still a customer they got a bunch of retail stores and they ship uh wine and spirits um we actually early days we spoke to so many people the one that i regret so much is fashion nova have you ever heard no but i assume they're big now fashion was huge they're like cardi b is like their influencer i think they're like top three shopify store in the world why didn't they sign up we spoke to the ceo like several times we were it was like super early days the product was so narrow we spoke to him i think he did trial it but like i don't know i remember chatting with him about like his vision and it was like nasty gal back then he's like oh we're gonna be like nasty gal you know like way bigger than nasty gal uh i think that's got shut down or something um but yeah whatever they just didn't go with us and they were yeah so tell a story of the one you of one or two that you close like how are you getting your first couple dozen customers so uh shopify apps that was the first year not anymore but that was in the early days there was it was like a barren wasteland out there for if you needed software i remember talking to the head of been visited for the app store it's like all combined they were much smaller than i said hey we're building this product and it's got all this automation and you can use ipads in the warehouse and it's gonna serve your bigger customers and we're like you know people that are doing a few hundred orders a day at least he's like yeah we don't have those customers you're in the wrong spot the shopify back then only had the tiny tiny customers but as they were growing and they got those bigger customers there was no one to serve them so how did you position yourself in the app store to make sure they found you like was there keyword ranking or metadata stuff that you did to optimize or reviews um yeah so back then it was purely based on reviews um which makes it hard to start uh so like ship stations been around forever and they're the kind of industry default um they have way more reviews so it's hard so we'd only get the people who like got through the first few and they didn't meet their needs they'd come to us yeah we always people had hard problems yep that's interesting and how many customers have you scaled to today um so people that pay us directly so not counting the merchants yes yell uh around 300 but you would count one psl as as one right right one three they'll be one even though they might have 200 submergence yeah yeah that would be what so so so aaron i mean can i multiply there can i take 300 times 1500 bucks a month that puts you at like 450 grand a month in revenue yeah we're like we don't disclose exactly but in like the 5 million ar bullpup 5 million okay fair enough okay so right around there then yeah yeah yeah fair enough good and then help me understand growth so if you're around that today where were you back you know a year ago well so 2018 we were 2.6x 2017 okay um this this year you know story's still still to be told um but hopefully similar ish well do you know where you finished 2018 at so if you're at a 5 million run rate today what were you like four and a half or four um i don't remember exactly but our business is somewhat seasonal in that q4 is when we get most of our growth because people are ramping for getting prepared for holidays okay so if you if you look at where you're at today and you go back 12 months obviously that takes in the holiday season of 2018. yeah it's around the same so 0.6 x you said 0.6 x 2.6 2.6 okay so you're more a little more more than doubling yeah yeah that's great yeah yeah so maybe like i'm making this like 200 grand a month right about a year ago now you're at like 450 something like that something like that is most the growth coming from adding new logos or getting more and deeper engagement from your current ones uh more from the current ones most of ours growth is from existing customers yeah so so that's rare most people driving you know growth from adding new customers so talk talk about your secrets of customer engagement once they start paying how to get them to double triple quadruple what they're paying you well so one interesting approach for us is to mark these three tails is really tough it's a challenge we're trying to figure out how do we get these three plus to know we exist um so the what's been happening so far is a merchant will be familiar with our software and they'll go to a 3pl and they'll be like all right i want to outsource to you and they'll look at them at the 3pl software now like the software sucks get try shipyards better software um so what the 3pl will do is they're like all right i'll try shipyard just for you right so we only got one merchant to start so they sign up they're like we'll just do it for this one merchant and then because it's a lot of friction to change existing people then what will happen is if we're doing a good job as they get new customers who don't care what software they're on they don't know any software in advance they'll put them on our software so we start growing from the minimum you could pay as a three bills a thousand dollars a month so you'll start at a thousand dollars a month and then you might get to five or eight or ten thousand over the next couple of years uh just by adding more users so we just got to get our foot in that door interesting all right and talk to me about how you've built this in terms of funding so have you bootstrapped or raised uh so i put in the first cash um from my previous company once we hit which was uh 1.2 million that i put in my own money once we hit around 100 kmrr i got some friends and family on safe notes for like 435 000 from them okay and then two months ago we borrowed some money um from a company called lighter capital yeah we borrowed 800 grand from them was that on a term loan or revenue-based financing yeah so they say they do revenue-based financing and i had spoken to them and i said i don't want to do revenue-based financing i want a term loan and then they give me a turnoff why didn't you go to an svb or a sas capital which typically can give you cheaper term loans and lighter yeah so i spoke to sas capital um and later sas capital i spoke to them and they didn't get back to me they did have a lower cost of capital but they wanted warrants yeah lighter capital like it was like three weeks from when i said i want money on a term loan so i had money in my bank yeah there was like almost no time to talk to someone else they just they they did a great job of keeping the momentum the price was reasonable it was probably two or three points more than um sas capital would have been but hey i don't even know if saskatchewan would give me the money in me in sorry the total vehicle was 800 from lighter yeah and and what was it typical like four or five six percent of gross monthly receipts no no you did terminals i'm sorry so what was the return yeah yeah sorry so what interest rate did they just arranged i don't know if i'm allowed to say because you know they don't typically do that i did sign something when i did it it was i was 17 10 and 20. yeah i don't get in trouble but they have talked about this publicly somewhere where they have they shared like ranges of what they would do on a term loan um the reason so it was at the very it was like it was a quarter point above what they said the bottom end of the range was when they spoke to me i don't know what they published yeah yeah so that's fair somewhere between 10 and 20 is fine um the the um and that is the true cost of capital right is there are there any there's no warrant coverage no pg no personal guarantee no covenants no the at the end of three years like then everyone talk to them again that's fine it's three year term so it's like fantastic unlike anything else where you kind of stuck with them because you got warrants or you got a board seat no board seat no wires only weird bit was i had to get life insurance for myself but what yeah i was like wait what well yeah apparently because like key van life insurance that pays them that's interesting 100k if i die that's so funny okay good so all in equity wise not including your own money and not including a ladder you raised 435 from friends and family oh i lost you there for a second is that right just 435 from friends and family that's it yep yeah the rest is your money or lighter that's great um do you think venture debt makes sense for a lot of people today that's always cheaper than equity do you think you're going to be successful that is always cheaper yeah what's your team what's your team size today how many folks 41 people 41. that's amazing and then churns obviously critical in this space now i'm really curious to understand this because it sounds like this number's gonna be very large for you when you look at what your expansion revenue is on the cohort that signed up a year ago what is the just the expansion typically i don't have that number it's so we have negative net churn how negative i want to say it's like two percent a month but i don't know that's really me guessing i haven't looked at a while no that's okay that's okay do you know do you know what um gross churn is before you add back expansion like are you losing like 10 a year or something uh it's actually really small on anyone who's gone live so for us the challenge is always get a customer to go live um once we get customers to go live it's less than one percent a month that churn out and then yeah the expansion more than much more that makes up for that yeah i don't know the raw number yeah yeah so call that you know worst case 12 percent right grow revenue churn annually right one a percentage point a month it's probably closer to six oh great okay fair enough um so six percent and then it sounds like again if you're if you're pushing uh you know negative you know two percent a month or that would be negative 24 that's the same as saying 124 net revenue retention which means your expansion revenue there's got to be what about 30 30 points that's good sounds reasonable but yeah no it's good talk to me about how you incentivize your sales team do you have cs reps that are quota carrying to drive more usage no so we we're trying to figure this out so both sales we hired our first salesperson in um september so whatever that was like eight months ago um and um but it's not with no sdrs and we didn't we don't actually have a marketing team my co-founder was running customer support customer success so he moved into starting marketing um last month so like we've been just really product focused and reliant on word of mouth which is not you know the long-term strategy we want to have a sales and a growth strategy it's just we've been able to get away without it yeah are you are you profitable today are you burning no we're prof well we so now that we've took the money from lighter um we'll dip into the negative uh this month but for the entire last year we're profitable how aggressive will you be in pursuing that growth so like are you cool burning like 20 grand a month or 100 a month like like obviously you're fully in growth but how aggressive will you be um and we're going to burn all the money that we got from later um and then well once we get down to a few months of runway we'll decide what we want to do but you know we're lucky enough that we're growing fast enough that um like to put on the brakes if we're starting to run out of capital like we don't have to fire people we just have to like stop hiring new people um so yeah we're going to play bayer we're not but like how cool are you in terms of like how cool are you cool with burning 50k a month since you just brought in 800 from lighter like i'm just trying to get a risk threshold yeah yeah beginning like our first our max burn will probably be around 90 or 100k as we kind of mapped out what we're going to spend on one yeah yeah that's fine that's perfect i mean that makes perfect sense with you know you just got eight months of runway essentially right after you actually get to that burn level um very good and then what do you think that capital will help you get to once you deploy the 800 get k you grow you let the system take shape you think you can double the company triple it i mean we think we could a little bit more than double without it um we think we can we're using that money to focus on some longer term improvements um so yeah it's not really focused on growth we're not hiring sales people or stuff like that there's some more product stuff that we like kind of long-term stuff we wanted to do we just didn't have the you know what dealing with short-term stuff is of course takes all your resources so yeah yeah last question here on aggressiveness so to bring in one of these new 1500 a month customers i mean are you are you are you know happy to pay one year of acv to acquire them or what payback period do you like to optimize for yeah so we don't like because we don't have that marketing organization we don't we haven't done any of those um numbers like the lifetime value is probably really good with a negative neck churn um and it's a decent customer size but we haven't done the math we also have to get those customers live right so like if we bring a customer in and they sign on on the dotted line but they don't actually go live then like they're not going to generate any revenue well you just don't use don't count as a customer right okay yeah so we don't have those numbers you really don't so that that i mean that's so interesting you you truly i mean some people like me they're like no we really have no sales no marketing it's just like magic we just like magically grow we're not really sure how it happened but we have a great product and it's word of mouth i mean that's your that's basically what you're telling me well it's not ideal because you can't you can't push yourself yeah right exactly no so we're trying to figure out like we we haven't taken vc but we get inbound interest sometimes uh usually we don't talk to them but sometimes there's someone who has a connection to us so we're like all right we'll talk and why were you cool coming on coming on my show by the way out of curiosity one more time why were you cool coming on i don't know you you asked did you ask again that's what ass it was like persistence baby yeah that's basically all it was yeah oh because i usually go do a lot um this is great dude you should tell your story more thanks so on uh when we talk to vcs that always that's the thing that i always tell them which is like yeah you guys are saying we'll give you a bunch of money i don't know what i can turn that money into because i don't have a formula for growth where x dollars equals y customers yeah i need to figure that out before i take any more serious money yeah fair enough all right man let's wrap up with the famous five number one what's your favorite business book uh meditations by marcus aurelius number two is there a ceo you're following or studying uh toby luke from shopify uh number three what's your favorite online tool for building your company besides shopify um i i like this tool called twist which is kind of like a non-interrupting version of slack um i like to have focused work so i like twist number four how many hours of spk every night we got a lot i have a newborn so not so much right now i'm a four week old but yeah i'm good at getting like eight hours usually yeah yeah all right so and it sounds like married in one kid or do you have more three i'm selling my third oh three kids you know the trilogy holy mack one how old are you 39 all right last question what was your 20 year old self knew my 20 year old self spent way too much time playing online video games so probably do a little less of that um i think the other thing would be you have a lot of energy then and i probably did a lot of work that was utterly useless and very low return just because i have like i'll just work and work work but probably should have just spent a little more time like thinking when i didn't have anything really important to do guys there you have it ship hero has gotten to a 5 million run rate on just 435 000 raised aaron the founders put in 1.2 million himself and they just took another 800 k from lighter capital which is nice again growing rapidly here about call it 2.5 x year over year across 300 customers paying 1500 bucks a month found it in 2013. it might raise capital in the future but only after aaron figures out how to actually build a scalable sales organization a lot of the growth today has been word of mouth which is again a nice place to be erin thanks so much for taking us to the top thank you