How Shotfarm CEO Mike Lapchick grew to $1.4M revenue and 100 customers in 2018.

hello everyone my guest today is Mike lapchick he's the founder of the Chicago Catalog group which happened back in 1996 and was acquired by Lake capital or the Hagin marketing show which is now Epsilon I believe in 2006 he went to the daily expense of man a facilitating the exchange of product information between their retail and brand clients and this is where he saw an opportunity to build an exchange platform that automated this process he launched his current company shot farm back in 2010 which enables retail channel different rapid retail channel and product assortment expansion for more than 12,000 brands and retailers today Mike are you ready to take us to the top uh yeah you hope right I've been ready for seven years yeah you hope good alright so tell us about the company what do you do and what's your revenue model how do you make money so it's a straight up SAS based model so it's you know mor it's all about mr yeah what do you do what does the company do yeah so so that we understand the revenue model how do you tell me what you do for clients I don't know if you can mention the one we talk pretty show up down here in Dallas but tell us what you do yeah so well let's see yeah this is what I was I was alluding to I'll give you a just a cold start right as if is if I'm telling my mom so so essentially the the private information that you find on on an e-commerce site Amazon or in e-commerce site all that information about a product comes from the manufacturer okay that's that's how it gets there or where it comes from I should say how it gets there is a whole different story and there is no protocol for for the transfer that information or the information itself so every retailer has a different requirement both from a data standpoint and also from a transfer is different so so what we do is we sit in the middle and we centralize that whole that that whole process so that the manufacturers can upload their product information in in their own way and then we distribute it out to retailers in the format that they specify and help me understand more kind of size of companies you're working with what would you say the average companies paying you per month in terms of our poo yeah I'm not doing that dude I'm not like I can't I can't tell you what hurt what I really sorry like I'm not asking your revenue I said what is the average contract size on average I have no idea how many customers you have are we talking $1 a month a million a month 10 grand a month on average so yeah so our average mor is 1200 bucks okay average mr I'm talking just one specific client so you're saying a specific client on average might pay about 12 grand per month no 1200 per month 1200 per month right got it mr would be that multiplied by all your customers that's how actually your revenue number that's not what I was interested in I'm just curious on average a customer pending at 1200 per month but I gave you one day to point now if you get the other one then you know my revenues correct I could back into that but what I'd like to do now is understand more the back story so tell me when you launched the company what year and where was your head at that time so yeah it was pretty much what you read in the bio is 2010 and and this is a problem that we saw that we had only found a manual solution for the last company and I just couldn't believe that there wasn't some sort of a centralized exchange for this in existence and I couldn't understand how how companies were actually getting stuff to market so so you know that's where the idea yeah my specifically those so entre nets into this show or exited sassiest they're always wondering you know I'm very comfortable now maybe they're they just sold their company 400 million they're sitting in earn out I've got a company in there wondering should they leave and start their own thing where were you emotionally at the time you decide to finally quit that job had you saved up enough savings where even if the new thing failed you were fine for a year or was your back against the wall you had to make it succeed on day one emotionally where were you oh I was out to solve a problem so the way you know so I had sold my last company so I had money that wasn't the issue I wanted to solve a problem and you know and you know the the finances that that would be a byproduct of that right so well more specifically if you really want to get into it where my head was is like why would I not want to get into it that's what I want to get into how do you listed it have you listened to the show before I tried to listen to it the other night and get a sense of okay so yes I wanted I okay good all right so the real deal is that I had a number of checks written out to various charities and and personal interests but they're all they're all checks out to they were giving it was philanthropic at in and I started this company so that I could sign those checks and I made enough money for me to retire but I didn't make enough of the sale of last company to retire it actually make a difference in in the world and so that's why I went back to the blackjack table and gave it another try got it so let me make sure nurse do that correctly you wrote your ear oh you wrote checks which were so much that you couldn't actually send to these charities and you said okay I'll be using the motivation to launch this new company which also solves a problem and the goal is if it build it successful enough where I can write those checks is that have you wrote them you're seven years in your about your this will be a very different conversation in about thirty days from now so tell me why you interviewed me then tell me why who are you selling to I can't tell you I'm selling to ya so why are you selling because of times right tell me why how does an entrepreneur stand when the time's right well what you look for is is a you look at your growth trajectory right - you look for that hockey stick or anything that approximately is a hockey stick and as soon as you can start predicting when the plateau is going to occur we you want to sell on on the upside right you want to sell before the plateau and that's where we are today why was one of the painters are you looking at where you're going I see a plateau coming in this case now so smart time to do it that's where I was going so so there's um there's a lot more competition so we we really we were the first in this field and now we have a ton of competition so much of it is well funded you know and we've got first move first mover disadvantage classic first mover dissident so so what is that you mean you spent all the money to figure out the problems and then others just ripped it off for free exactly so yeah and the other ones are yeah they're ripping it off and they're coming in with much more funding than we had going out because obviously when you have a new idea something that's it's disruptive it's it's hard to get funding because it's bigger risk there's no proof point right so other companies are using us as a proof point how much had you raised Jen you raised ten total and was that what through maybe what series a yeah yeah a and we did a small B yeah on top of that so and then so we raised ten we got competitors and now at fifty seven million in funding who is a company called salsify and in there a number of others that are you know somewhere between I just can't I can't is your competitive nature who every sedan go oh man it was gonna be fun to beat them in the beginning but now it's fun to beat him even more because I've got 57 million in funding that that kind of thing that you're mine doesn't work like that like what do you mean you know the idea the idea of beating a bigger giant with more money yes the David Goliath thing always gets me out of bed but in in this case it's we've got to the point where it's hard to fund our company it's hard to find additional funding even though I could bring up all these proof points you know it's it's just it's hard the story's too long it just took too long you know it's we were a little bit early and in we were we were the first ones out there so so it's it's hard to bring that that that in funding unless we reinvented ourselves entirely and honestly I'm a little bit tired for that yeah yeah so so we did a great thing we changed the nature of the industry certainly there are a lot of options now which actually fractures exactly what we're trying to solve right because we're trying to create one centralized exchange now there are a whole bunch of centralized exchanges which kind of screws up everything but but at least the customers some choices network before they had none so I feel good about that but but all that said the company that that if all this goes through that we'll be working with is is very well-funded and and we will bring a whole lot of new life into this and we have a we have a pretty crazy plan on how to how to do what you just said is beat the guys with the 57 million in funding it's good well look we are recording this here on January 10th 2018 it won't actually go live until June 3rd 2018 so we'll see we'll see when it goes live if no one will hear even hear it until it goes live so hopefully you'll be everything will be done at that point and you'll be on your way had I known that how did I I would have spoken in the future tense that's okay that's okay okay so let me just go back real quick to the you said it's difficult to raise capital I think if I'm reading between lines what I'm hearing you saying is when you're raising capital these guys like to see triple triple triple the first three years and maybe double double double for the few years after that what you're saying is it took you time to figure this thing out when you showed them the historical revenue they're going at it took you too long to grow this big we don't see a billion dollar opportunity we won't fund you and what you're saying was well I'm gonna go create a double then and sell for a good amount of money it's not a billion dollar exit but it's still a good amount of money it's like yeah that's pretty much it yeah so just add to that some nuances we the the first five years the four years of the company really were in in creating this network so so my approach was it created a sticky network so on the wall of the company says never a barrier to join never a reason to leave and and so we we we we wanted to build this networking this dependency between the retailers the manufacturer on the network and then figure out how to monetize it not when I say figure it out I mean prove out ways to monetize so we knew what we wanted to do but you know what's once you have that network you can throw all kinds of revenue options at it right some will work in some won't but but you've unless you're an idiot you've got a you've got a guarantee cash machine there so so spending the first four years of doing that yes smart I still I would do it again today the only difference that I would make is that I wouldn't do it in Chicago I wouldn't fund it in Chicago it's the conservative bed of investors in the country these guys are bankers you know you go in with any but not top-line growth the first question they're gonna ask you is what are your revenues they say well none o eat or do starting the company now yeah not interested you know come back when you've got revenue nobody's willing to take and this is for you who's had successful exits right you have legs to stand on yeah so now hopefully with two successful exits you know my next one I'll be able to get some funding for in Chicago that accomplis but um but that has been the biggest problem and end in as it is an adjunct to that you've got the developers go where the investment money is right which is not Chicago right so very tough to plus in team business today team size and how many developers we got seventeen people uh for developers for do okay all in Chicago most in Chicago we have we have one guy who just moved back to Spain because yeah it's warmer there it's warmer there in Chicago and one probably one smart remote worker back in Spain okay good and give me give me a sense here when you're signing you mentioned marketplace which sent warning flags off in my brain because marketplaces are notoriously hard to monetize you have chicken and egg do you have that problem and if not how do you monetize do you charge on a kind of per record basis to the actual retailer who do you bill so the brands both sides have the ability to pay for a function right because what what we realized early on was that you can't say that there's an influencer the same influencer in every relationship it's never always the retailer just never always the manufacturer so you know in all the platform surfaces we give either side the ability to pay my two is to to equalize the dynamic and in that particular relationship but primarily it's the brands who foot the bill for for this service it's not per record they pay we index everything off of storage instead of the number of products that go across what kind of storage just two gigabyte gigabyte store okay got it so if I'm making this up if urban I have no idea of Urban Outfitters as a clam but urban outfitters wants to you know have you know a thousand gigabytes of data you have a plan for that and the way that that get is filled is you're pulling those specs for manufacturers and slowly filling that virtual inventory yes oh so it would be it would be the brands that would be uploading all the images that the retailers don't store stuff on our images yeah yeah so it's mostly images and videos that eat up the storage right and those are the most costly things for me to process into transfer right so that's what we index all them so so the retailer is just the recipient of it they don't pay for in these storage so the brand let's say oh let's say you deed is okay they they upload their whole catalog of assets right and it might be 40 50 gigabytes or so and then and then they turn on other features well though the feature pricing is based on how much storage they're using right so it all goes up as the storage goes up Dinah's know who needs that stuff because when Adidas shows up on macys.com they want the right Prague's images to show on the right data that's right okay it makes perfect sense now all right SAS companies churn always a huge big indicator what's your turn today and how have you managed that well it depends on how you measure turn there's several modal's for that but we do right now we are at negative 1/2 a point negative net revenue churn annually or monthly uh monthly money yeah that's pretty healthy you know negative X percent your net negative six percent revenue term meaning your expansion revenue outpaces you any churn revenue by six percent every year yeah that's great that's super healthy and now why do you choose to measure based off that vs. logo turn well we have we a bunch of different ways that we indexes so that's just the one that I brought up because it's it's easier for me to discuss it's the one to watch do you feel it's a better it's a better indicator there's a region yeah it's smaller resolution right yes later I can see what's going on an almost daily basis so yeah and how are you how are you I don't want to get into obviously your exact customer numbers for the reasons you mentioned earlier but is this generally a high volume touch kind of model or a high-touch inside sales team low volume of cluster may be appropriate asses do you more or less than a hundred customers more okay you have more button but not like 10,000 right well then so we have we have 12,000 we have 12,000 companies using the platform not all of them are paying but more than a hundred thing so they got it thank God and when you say companies you're talking adidas yeah okay got it that's helpful to understand so okay so you do have a pretty significant than number I mean number I mean sometimes I talk to enterprise folk or companies that are doing very well at from an enterprise perspective and it's like you know you know a hundred grand a CV and they only need ten customers from interesting business already your it sounds like you're maybe mid market or kind of in the middle out of 12 grand ish a CV what you probably expand over time yeah yeah interesting interesting yeah okay what I mean Howard that's a significant amount of both free users and obviously converting more than one hundred to paid how are you getting those free users and how are you converting no to paid so we're a network play so if you've got adidas that uploaded a bunch of content there are two ways of the distribute that content out one is one is a push model where they push through what we call switches which are essentially AP is in the system that parts the data out and go all the way to the retailer the retailer is involved in that process where they put their specification in shot form and all the conversions are done okay and this is what we're replicating here is what happens naturally outside of the platform anyway and then the other model for the for the retailers that are not quite as important to adidas is they open up a a self-service model where the retailers can log in upload a list of SKUs and then download all the information that that they need for them so so ITA's would invite all of those retailers one of those splat onto the platform when those retailers come on the platform we know through our in platform marketing which other brands they they might sell and we say hey Nami's just like just like linkedin here other brands that you may know would you like to connect with them now build a dependency for that retailer on on chap farm one user interface you know several brands that they collect content from becomes easier for them you know with the hope of pushing that retailer to a mandate you shop farm and it just kind of grows from there so you will not see a lot of shopper marketing out on yes you don't do you don't really do paid a cuisine when I if I ask you what's your khakis day we don't care about that we have Network effects well exactly but but I do look at I do I do look at the free platform as a marketing expense versus a technology expense so what would you say you're fully weighted tack is yeah it's about boy it's either you can look at it a couple different ways if I sew to my carrying costs for a free for a free customer is about thirty bucks a year twenty bucks a year and around there maybe even a little bit less depending on how much storage free storage they're using or how much of the free storage for using so so it can go down from there so now if I look at the the that that cost and and compound that against the paying number of customers I could give you that figure but then you could you could reverse engineer to figure out how many pink customers we have to figure out the revenue but but but just suffice it to say that that it's the we look at the carrying cost those in the cost to convert versus versus an aggregate cost of those against the paying customers let me ask it differently that I think will help you protect when you're trying to protect um how quickly do you like to eat your money back in terms of payback period well as quickly as possible I mean 60 days are you understand that's incredible for SAS community people we go but we don't get it I mean so most SAS companies are like twelve months if they're lucky right right so yeah that was that was the plan so well I'll tell you where we failed is in the in-app marketing and it is the the biggest botched opportunity that we that we had was was converting the free to paying users okay so I can I put a staple the one that I mean where your aim for two months but where are you today are you like four months eight months 15 months well so well let me let me go on I'll tell you why why that questions not as an suppose you think so so when we raise our last round we brought on a sales team and again before this we we were any other revenue we had was accidental so so the sales team started in 2016 and indeed we had so much in bound interest that that's what they sold we did they never even looked at the 9000 companies at the time as an upsell opportunity so that's that's we we haven't converted many free to paying not even close to what we had projected and that opportunity still sits there today and and it will be I think harvested by by this next group yeah but okay so what is payback period today are you I mean are usually say there is none there's there is none or you don't know it's not it's not an important metric for you it's not an important metric because it's so low right so so the so it's definitely under six months can we say that well you're talking about a conversion right from free to fee no I'm talking about payback period right so you you you would say conversion is important because you said the way you measure your CAC is by carrying costs of free and you're doing some math in your head I think about how many free you need for one paid and then that's how you're getting your I think fully weighted CAC it's this one way to do it yes is that how you're doing it though I mean your business you need well I'm not doing it a particular way I'm saying that there are several ways to do it and that's one one way that we look at if we look at it a marketing cost and you look at the return on that marketing cost right that's one very different thing than in my carrying cost as compared to conversion last Joe right as a last few questions here before we wrap up when was last round what date November 2015 okay so I imagine you're probably profitable Poynter cat or break-even at least yeah good and company size more or less than 5 million in revenue not good - you can't do it is um I mean we can put a minimum right you said you have more than hundred customers 1200 bucks a month you're doing north of 120 grand potentially maybe only 120 grand maybe well north that we don't know it's totally fair that you don't want to put more more parameters around that but that's 1.4 million bucks annually at a minimum look if you're at that revenue and you raise 10 million and there's a 1x preference on that I mean are you going to be able to get above that so common holders get something from an exit if it happens oh yeah you will be able to okay good well that's good that's healthy we'll leave it up that let's wrap up here with the famous 5 mic number one what's your favorite business book hmm so that was that's a good one number two is their CEO you're following or studying right now no I'm not a CEO but but I do follow David's coke quite closely so Northbridge so these guys are ironically investors in in my biggest competitor but the guy is freaking brilliant so I do follow mmm number three is their favorite online tool you have mmm just running the business beside sharp arm No okay number of Google Google's suite they have a great suite I don't search engine but their suite of products we use almost all of them in the company so before how many hours of sleep to eat every night mmm and what's your situation married single you have kiddos married with two two kids how old are they young no not 14 and 16 well that's that's healthy and how are you Mike 53 last question take us back 20 or takes back to 33 years what do you wish your 20 year old self knew mmm man you should give me these in advance I like on-the-spot reactions that's the best yeah yeah true my I wish my 20 year old self knew to have kids sooner have kids sooner interesting why do you say that well because there I'm gonna be light of that old dad that drops him off like hey is that your grandpa yeah you know and just more energy to play with them more time to enjoy him I'll be younger I would have been younger when when they're off and gone yeah is the only thing I would have done differently in life in business I wouldn't change anything there you guys have it from Mike he had a successful exit under his belt got out and launched shot farm back in 2010 really first-to-market did all the grunt work carve the path and then others can immediately biked down it behind him with bags of money on their back to the tune of 57 million bucks but he has figured out a solution last round is back in 2015 so about three years he's built the thing where it's profitable or at least break even to profitable team of 17 he's focused now on driving a nice outcome for everybody they raised ten million dollars have weld north of a hundred customers paying on average 1200 bucks a month so well north of 1.4 million bucks in revenue exit price will be more than hopefully 10 million bucks if all goes well you can research it when his articles going live because it should be post acquisition so we'll see what happens Mike I hope to have you back on and thank you for taking me to the top like