How SKYPAD Bootstrapped to $10M Revenue with 2,000 Brands and 1% Monthly Churn (Interview with CEO Jay Hakami)

Introduction and Event Context

Nathan Latka

00:00Founders, what's going on? You guys know I love in person events and they are back. The recording you're about to hear is from our most recent event where we had hundreds of founders come together share intimate details, templates, KPIs, OKRs about their business, and it was something special, something special. We'd love to meet you in person. If you want to see the next live events we have coming up via our schedule. The link will be down

00:23below in the description. If you're listening on iTunes, check this out on YouTube, you'll see the links in the description. Or you can just Google Founderpath or Latka next event. We'd love to see you in person. In the meantime, though, enjoy this recording. It's a good one.

Jay Hakami

00:36>> Good morning, everyone. Good morning.

Jay Hakami Takes the Stage

Jay Hakami

00:41>> Who's from New York? New York City? Very few. I'm three blocks down, I'm and I was late. So good morning, My presentation today will be great actually, it's actually great to follow Henry who does, what, 500,000,000 with my 10 usually $10,000,000. But but I will take you through our company, our our success story. Can you hear me okay? Okay. Good.

The Meaning of Bootstrap

Jay Hakami

01:09>> Anybody know what bootstrap, what's, what the term came from, please?

Nathan Latka

01:13Oh, and I don't know

Jay Hakami

01:14>> where the term came from but I don't know about it. Anybody know bootstrap? I looked it up, I'm not that smart. So bootstrap, you know, it's the little things on your boots that you kind of help pull your boots up. So back in the eighteen, nineteenth century, it used to be called bootstrap with means that you have to can you lift yourself with your bootstrap, which is basically impossible? Can you imagine going down and lifting yourself

01:38>> with your bootstrap is impossible? In the twentieth century, meaning today, it's making something out of nothing. Okay? So take that, take a note. Mention to your wife, you sound smart. So let me take you through my story here. Let me see if I can work this. Here we go. So, the next twenty minutes, I'm gonna go over, couple of things. Number one,

Company Overview and Growth Graph

Jay Hakami

02:07>> three three big moments in our journey. Everybody has their own war stories. I'll give you ours. The second thing is hitting the targets. How do we get to $10,000,000 from zero, I guess? And then the three metrics, the three KPIs that we look at as a business that may help you down the road.

02:29>> Our growth, we started back in 2010 and

02:34>> it's a beautiful graph, it goes up and hopefully will continue to do so. We're bootstrapped, we did not take any outside money, not from the banks, not from anyone, I own 100% of the company. And basically we

02:51>> started and we had along the way some great successes and a lot of hiccups as well.

Three Big Moments Preview

Jay Hakami

03:00>> The three big moments that I'll take you through is number one, idea to action. So how we come with the idea, it was actually a real napkin. Actually there's a picture of the napkin right there.

What SKYPAD Does: The Retailer-Brand Data Hub

Jay Hakami

03:17>> Let's see if I can go back. Okay, so the, what we do is we are a hub between the retailer, the large department stores, Neiman Marcus, Saks, Nordstrom, Macy's, and the brands and their suppliers. What we found, we found the problem an issue with the way they're communicating the sell through between the retailers and the brands. And we solved that problem by allowing the brands to gain access to the sales data from the retailers. What we

03:50>> do is we collect the data, we cleanse the data, and then we populate it into a UI so you can see what's selling, what's not selling, and so on and so forth. The business has evolved since then. So we started back in 2010. Our first customer was Theory. Everybody knows Theory, that company? Theory, jackets, suits, okay. Theory, still our customer by the way, and the way we came to them is with not this, but we came

04:16>> with this. Let me show you, with this. We're going to take, we're going to collect your data from the department stores you're in. We're going to collect the data from your ERP system. We're to bring it into a sky, into a database. We're going to cleanse it. We're going to match it because there's a lot of matching with colors and so on and so forth. And then we're to give you a UI that you can actually

04:43>> see what's selling, what's not selling by any combination of product attribute, which is season, color, size,

First Customer: Theory and the Napkin Idea

Jay Hakami

04:53>> time dimension, last week versus this week, as well as geographic location. So we came to theory with this idea. There was no there was nothing. There was no product. There was nothing out there. And they had they had something they tried to do in house, and we said, oh, we can do we can build a much much better mousetrap for you. And that's how we got started. This this this what happened. So Theory was our first

05:19>> customer. We moved on, and then what happened is that we actually developed a real dashboard that enables you to see key metrics on your business.

05:31>> So it goes through, I mean it's basically click and go. You want to see your top retailers, you want to see your top styles, you can just click, you go in in sub second response time it gives you the information back. You can do it by time dimension, you can do it by geographic location, you can do it by

05:53>> product attributes.

First Churn: Tommy Hilfiger

Jay Hakami

05:55>> Okay, I think you get the idea. So this was all great. Now let's talk about the hiccups, okay? I mean, anyone here did not have issues starting a business? I'm sure most of you did not. So I'll share you I'll share what ours were. Our first churn was a small company called Tommy Hilfiger. Anybody knows them? Okay. Mr. Tommy came to us. He was a second customer after Theory. By the way, Theory, and I mentioned that

06:23>> to Nathan, did not have a contract. It was a handshake.

06:28>> We knew the owner, Andrew Rosen. We handshake, we knew me for years, he said, I'm just going to do it. So Nathan was saying, where's the contract? Where's the contract with I said, Nathan, there's no contract, it was a handshake. G3 was actually the third customer, but Tommy was the second customer. We're so excited about Tommy, a huge customer. This is our second customer. Within three months, defunct. The data was wrong, the information was incorrect, they

06:58>> threw us out, know, the tail, you know, the leaf our feet, we just walked out of that business, we just did a poor, very, very poor job. That was our first big turn. And you have to remember, this is a small industry.

07:12>> Once you once you deal with once you deal with a retailer or a brand and you don't succeed, everybody else knows. The second hiccup we had was Neiman Marcus. So think about this for a second. Just imagine, you're collecting data from all these retailers, right? Nobody has agreement with you. The retailers do not know you're collecting this data, this data, on behalf of the brands. And all of a sudden, we get a call, not a call,

Neiman Marcus Cease and Desist

Jay Hakami

07:44>> we get a letter, from Neiman Marcus, cease and desist. Okay, what's going on? They're saying you're collecting our sell through numbers, you're giving it to the brands, we're doing that also, why are they using you and paying you rather than use hours?

08:03>> The first thing obviously you can imagine, we had about maybe four or five customers, maybe 10 customers by then. And a cease and desist knocking off Neiman Marcus would be a big impact on our business. So luckily, three weeks before this love letter, I met I met with the CEO at the time, his name is Jim Gold. Not I did not meet him, he presented and I was sitting all the way in the back somewhere. Not really

08:31>> shook his hand or anything. And he presented something about quality and integrity and yada yada yada. So I I wrote him a letter. Remember those? You know, you don't not an email, a letter. If for those of you who remember how to write letters. So I wrote him a letter and I sent it through the mail to him and I told him, look, this is what we do. I I heard your speech on the integrity and

08:55>> and that your company has and I was so excited and we do the same thing in our business, yada yada yada. He did not know what to make of that letter. So he said, why don't we turn it to your I called him up after that, follow-up. Not once, not twice, three times, four times, and the fifth time he picked up.

09:17>> And I told them again what we do and so on and they Jay, real quick.

Nathan Latka

09:21Can we spice I'm to your left in the back.

Jay Hakami

09:23>> I'm sorry.

Nathan Latka

09:23Can I spice this up for a second? How big was the cease and desist? I mean, they threaten you? Like how big was the lawsuit?

Jay Hakami

09:27>> The lawsuit was basically if you don't stop collecting data from us, we're gonna gonna hit you with a million dollar fine. A million dollar A company doing that.

Nathan Latka

09:37That's my profit last month. I can handle it.

Jay Hakami

09:39>> Yeah. Not really. When we're doing $25,000 in MRR, I'm not sure how we can afford it. So Neiman Marcus, you know, Neiman Marcus was the hiccup we had, but we turned that to an opportunity. After the conversation, he did not know exactly what we do, didn't understand what we do, And he turned me to the CIO. Okay? So we had a conversation with Sarah. Don't forget the last name. Sarah, we had a conversation with her. She

10:08>> said, okay, if you're collecting data and the brands are happy with it, why don't we sign an NDA with you? She said, NDA sounds good. Let's get the NDA on board. We got the NDA, we signed the NDA, we collected, we continued to collecting data from them. And then I said, wait a second, why don't we get together? I mean, you're in Dallas, we're in New York, it's only a plane away. We got together with them,

10:28>> we met with them, we had a conversation, a beautiful conversation with a senior, merchandising manager who's still in place right now, who's a great friend of mine. And he he In the middle of the conversation he said, why don't you just take all the distribution to our suppliers? I was like you, stunned. Take all the distribution to us. What am I going to do with all the distribution? And no. Our model was all about the brands,

10:55>> not about the retailer. So he says, yeah, take the distribution, take the data distribution, we'll give it to you one feed and you give it to all the all the others. I said, okay. Exclusive? I mean, that was a little chutzpah on my part. He looked at me and said, you're from New York aren't you? I said, yes I am. He said, no, not exclusive. We have another vendor that does that and they're doing a so

11:20>> so job but we want to bring another vendor, another supplier, partner into the fold. So we said, okay, we'll take that. We put a program together. Some of it was freemium for those who just want excel spreadsheet, you know, weekly report of their sell through. For others, we actually developed an app. Those are the premiums. Those are paying customers.

Turning the Cease and Desist into a 54% MRR Increase

Jay Hakami

11:39>> Fast forward from a problem, from a cease and desist letter, we developed an app for the retailer. Okay? And that resulted in an increase of about 54% in our MRR. You'll see it later on. Yeah. Because you have to remember, all the Neiman Marcus customers that want their sell through data has to go through us or the other vendor. So initially it was 5% Us, 95% them, 10% today, I'm happy to say we're actually managing 92%

12:12>> of Neiman Marcus vendors on our platform. Okay? So that story actually evolved because then Saks Fifth Avenue heard about it, met with Marc Metrick, the CEO. We had one meeting and that meeting he said send me the contract. Have you ever had that before? That was my, by the way, that was my only time. So we got the contracts and Saks Fifth Avenue is a completely exclusive opportunity. There's nobody else. There's no other other mechanism to

12:40>> receive sell through data. And not only that, they've taken this next step which enables us again to grow to get their buyers to look at the same app. Now you got the buyers and the sellers looking at the same application which is an ideal in our world. Right? You got both looking at the same thing as opposed to Monday morning conversation back and forth. You have one platform for both. And that evolved into, Bergdorf Goodman and,

Saks Fifth Avenue Exclusive and Platform Expansion

Jay Hakami

13:08>> and just three weeks ago, Saks Off Fifth signed up, Nordstrom, Bloomingdale, and so on and so on. You understand. So this is this is how our business evolved from a problem into an opportunity.

13:21>> So the first million for us was an accident. You know, we're just selling brands and continuing to, you know, to move, just to sell brands and multi multi type retailer data sources. This is by the way our first sales forecast. Can anybody, appreciate this? And then a little note of paper and okay. There's Maggie London and it's stage three, and stage three is a is a demo, and this is what we expect the return, recurring revenues

13:48>> to be, and and SU stands for, setup. You know, we have a setup fee. By the way, can you see at the bottom of that page? Tommy? That was a sold account. So we sold it. That was number four. That's a sale at the contract signed. And that two months later was my first churn that we discussed before.

Hitting Revenue Targets: From Chaos to 2,000 Brands

Jay Hakami

14:12>> So that's what happened. Then so what happened, as far as hitting revenue targets, know initially it was chaos. I mean, I was out there selling. We had a technical guy walk with me, two two guys in a bag going and showing what we have. And a lot of it was PowerPoint to be quite honest. We kind of evolved into five to six to 10 to 12, brands. In, in twenty seventeen, eighteen we got into the retailer.

14:38>> Remember the Neiman Marcus story? Okay? This is where we started really pumping it up. And today obviously we are we are doing business with over 2,000 brands across the the globe. So if you're if you're familiar with the luxury company, any luxury company that sells into Saks, Bloomingdale's, Neiman Marcus, Nordstrom, most likely it's a customer of SKYPAD. Because they have to get their sell through through us.

15:08>> So this is how we evolved to to grow and we just signed Saks to a fifth, another retailer, and we have about five more for this year. So every time we get a retailer, it's an uptick in revenue for us. This is the partnership that I think Nathan was saying to me. How do what about partnership? The partnerships. We don't have any other partnership beside the retailers. As long as we get a retailer, it's another 100

15:30>> to $150,000 in MRR for us because all their brands come in and they're the one funding the program.

Sales Team Structure and Retailer Partnerships

Jay Hakami

15:39>> Today, obviously from chaos to five sales people, today the organization is is much larger. We have a production QA department. We have a whole group of customer service, we call them analyst squad. We have a sales team of six, that actually manages, manages all the sales. So we have account manager. We don't really call them salespeople, you know. We call them, program owners because we want them to own a program. We have somebody who owns the

16:08>> retail relationship, somebody who owns the enterprise accounts, someone that owns the, net new enterprise accounts, someone that owns the, the singles which is the, you know, brands that only want us to get data from Neiman Marcus or from Saks or from Selfridges in The UK. Doesn't make any difference which retailer. So you got the small brands, you got the big brands. So they're the brands that we do business with, obviously, Michael Kors, Tory Burch, L'Oreal. I

16:33>> mean, I can continue on, but

Nathan Latka

16:35Jay, before you go forward, I'm in front of you to your right. Yes. How much total headcount is are the orange boxes? Like, what's the total headcount expense monthly on the orange boxes?

Jay Hakami

16:45>> That's our sales team.

Nathan Latka

16:46Yeah. Know. What's your total headcount expenses per month?

Jay Hakami

16:49>> Per month, we're spending our cost on the sales and marketing right now is not that big.

Nathan Latka

16:58A range is fine.

Jay Hakami

16:59>> It's 7% of revenues for Okay. A little bit less. And I'll tell you why. Because again, when we land a retailer, when we sign a data distribution with a retailer, all their buyers become our salespeople. They go to the brands, they go to their suppliers and say, if you want to sell through data, you got to go through these guys at skyit. So we just signed Saks OFF fifth, that's a great ad. We don't need too

17:25>> many salespeople. Everything is online, you go on to the website, you log in, you put in the information, you put your credit card, and you're and you're going. Enterprise is a different story. Enterprise is when you we have a company like L'Oreal that has 25 retailers across the globe that we collect and cleanse and populate data for. Obviously they're paying a much bigger bill. Much bigger bill than someone who's only

17:53>> using us for one retailer.

Nathan Latka

17:55Jay, just think this is impressive, right? You have $10,000,000 revenue business, there's five people basically on the sales team. Most people at that same range have way more account managers. So I mean can you provide a little more detail? The account management team, are they on like a quota basis? And if so, what's like the general base and what's the general commission they earn if they hit the quota that you set?

Jay Hakami

18:13>> Okay. So the the account man the reason we have we don't have that many salespeople because you have to remember at this point, when you get to 10,000,000, you become a brand. Okay? So people know us in the industry and people come to us. So we don't have to do the cold calling and the and and the heavy marketing, that we most of us have done for many years. So right now, we have more opportunities than

18:37>> we know what to do with, number one. So definitely need to add another one or two head counts there. But but I can tell you, I can assure you that we do not need a whole lot of sales people because once we get a retailer on board, everything is automated. We automated the process of onboarding. Not the enterprise. Enterprise is a little more tricky. Takes us a couple of couple of months to get them. And not

18:59>> because of us, more because of the customer. But on a single, single retailer, we can we can onboard almost online without even a call.

Nathan Latka

19:07Jay, rapid fire here and then I'll shut off, I promise. What is the quota you have for your account managers annually?

Jay Hakami

19:13>> They need to do about a million dollars

19:19>> ARR.

Nathan Latka

19:20And how much commission do you pay them if they hit that?

Jay Hakami

19:22>> They would probably make about 150 to 175.

Nathan Latka

19:26And is that about double what their base is?

Jay Hakami

19:28>> Double their base, exactly.

Nathan Latka

19:29So they could earn about $400 Okay, base plus commission with so I'll stop interrupting, but that's good comp No, that's good comp data.

Jay Hakami

19:35>> By the way, another another issue, you know, we we came from a reselling environment. You know, we we didn't know what we couldn't even spell SaaS twelve years ago. I thought it was with with one a.

19:49>> But having said that, we are as a system integrator, you actually that's exactly what you do. You pay salary and then if you make your quota, you're you know, you make double, you know, the income. I don't know. Most of my salespeople never made that. I don't know why, but they never made that. But in the SaaS business that we're in, it's a little bit different. And they the people are gonna get are gonna do more

Churn During the Pandemic and Customer Retention

Jay Hakami

20:08>> than that this year. But we don't need too many. That's really it's it's too many it's too many cooks in the in the one one part.

20:18>> So as I mentioned to you before, once we get the partnership going, we actually hit, we actually increased our MRR by 54%. So partnerships, if they add value to you, are really good things to do. They need They must add value to you. And by the way, our relationship with the retailers is is amazing. We have quarterly calls with them. We come in with programs every time. We're very active. With the other vendor that I mentioned

20:44>> to you prior, with Neiman Marcus, they're not even talking to them. So if you're not talking to your customers, you're losing something. They're losing something. You're not gonna get much ahead if you don't do that.

20:57>> During the pandemic, now you have to remember, we're in the retail space. Stores are closed, people are not going to the stores, orders are being canceled or delayed. I thought I need to change profession and dental school was one of the things I was thinking about. Okay? So sitting there at home, we thought we're going to be out of business because retail is out of business, we're gonna be out of business. Lo and behold, our churn,

21:22>> and by the way, this is funny, I was with Nathan about four or five years ago on one of those videos that he does And he asked me about churn. I didn't even know what churn means. Because we didn't have much churn in our business. He said to you, how's your churn? How's your churn? I said, pretty good. Pretty good. I think we're doing alright. He said, give me give me You know you know Nathan I

Nathan Latka

21:43>> felt

21:43like I a water was coming for you.

Jay Hakami

21:45>> Yeah. Give me percentages. I said, 3%, 4%. He didn't know what I was saying, know. Obviously today it's one of our biggest thing with looking at churn because you get 2,000 customers, you scale up. You have 2,000 over 2,000 brands, you feel when there's a churn. But our churn before the pandemic was 1%. Very, very sticky business, 1%. During the pandemic, we almost doubled to 1.8%.

Nathan Latka

22:12Monthly churn?

Jay Hakami

22:14>> Monthly.

Nathan Latka

22:15Logo or revenue?

Jay Hakami

22:16>> Correct. I'm sorry?

Nathan Latka

22:17Logo or revenue?

Jay Hakami

22:18>> Revenue. Revenue. You know, I don't even track logos. I really track by revenue. And you know why? Because the revenue pays for the milk in the refrigerator. Logos is high fives, you know. So during the pandemic, what we did is we befriended our brands. We said, listen, I know you're going through some hard times. Here's a couple of months of reduced rates. How else can we help you? We got a call from companies like LVMH and

22:47>> Kering, which is Gucci, Gucci and all those guys. They said, how are you guys doing? So all of a sudden, this pandemic actually allowed us to see that we're essential to their business. So when there's bad news out there in retail, they wanna know, the brands wanna know. When there's good news, they wanna know but they're, you know, fat and happy. But bad news travels fast and they wanna know. So we continued churn actually did not

23:13>> go a whole lot as we expected and obviously I did not go to dental school as a result.

Three Key Metrics: Booking Windows and Planning

Jay Hakami

23:21>> The two other metrics that

23:25>> I wanted to share with you today is, and it's kind of an eyesore here, is the way we look at our business is we're looking at the first, at the last three months of the year, what are we booking in terms of enterprise accounts? It takes us about two to three months to get them on board. Whatever we're booking in the last three months of the year will actually result in billing in the first

23:51>> quarter of the following year. So it's very important for us to plan ahead and we're looking at what are we booking so we can bill early next year. And the second metric is taking a look at the first quarter of the year, where what are we booking in the first quarter of the year and obviously we give a lot of incentive to the salespeople during that period, the first quarter, because if we get the booking in

24:17>> the first quarter, most likely we will be billing that same year. That's the way we look at our metrics. And it's very important because that allows you to plan ahead and also plan for resources, plan for technology, plan for expansion, for anything that you do, those two metrics. So obviously everybody's looking MRR, ARR, churn, CAC and so on. These are the three that we are looking at as a business.

24:46>> So I just talked to you about, I just took you through three big moments in our lifespan, hitting the targets, how we hit those targets And then we talked a little bit about, you know, three three metrics that we are, that we are focusing on. I'll be happy to answer any questions.

Nathan Latka

25:06Jay Hakami, guys. Give it up.