How Smartbear CEO Frank Roe grew Smartbear to $139M revenue and 13.7K customers in 2020.

hello everyone my guest today is Justin Teague he's responsible for smart bears strategic direction and overall operation before his role as CEO he served as smart bears CEO and president when he oversaw sales marketing project product management and strategy functions as well as execution for the company he came to smart bear from bullhorn where he was CEO Oh prior to that Justin are you ready to taste to the top yeah I love it let's go all right tell us what smart bear does and what's the revenue model how do you make money yeah so we are we focus on helping companies through the digital transformation anybody that's developing a software application today to accelerate their commerce or internal processes and we're the quality tools provider behind those applications so our customers are the the bank you use and and the guys you order your pizza from as they build out their web applications or their mobile apps we provide the lightweight flexible quality tools making sure that it runs and it runs as expected and when 10,000 people try to log in at once and order a pizza it doesn't crash so it's like if someone's pushing code on like a continuous integration schedule you are part of a testing product processing process pre-release or you're the first test once it's out in the public you got no we we want everybody to be doing quality pre-release and the quality markets moves from sort of traditional QA groups into now what you're talking about a DevOps continuous deployment environment we're testing is shifting left into the developer world we we serve both masters ok and walk me through how people pay for the product is it a pure place ass yeah so we part of our disruption and we're how we're sort of being transformative is we run our entire business model off of a trial and by concept so we even even all the way to the point where we have a couple of leading open source tools in our market and so we want to create a completely frictionless buying and using experience let's say for our customers and as such they'll trial they'll buy they'll saw they'll sign up our products can cost anywhere from a hundred dollars to a couple thousand but it's a to pay-as-you-go subscription model and and some of them are pure cloud SAS delivery others are on you know desktop weight adjustments a breakdown pay-as-you-go and Sasser many people say two very different business models is it paint is it like there are buckets of subscriptions monthly that get you a certain usage and once you pass a usage special you got to go to upper bucket yeah it sort of depends on the product but yeah so we have a product called cross browser testing for example that's a pure monthly pay as you go you can take your application and instead of having some sort of labs or a bunch of phones in the background you can test it on its many configurations and devices you want that's sort of a ticket to the game and then you if you if you have to have spike usage you pay for spike usage and then we have other tools that are traditional annual subscription payments okay um I want to break more into your story and avoid going down every customer cohort so if I forced you to pick an average like what's the average customer paying you per month would you say well yeah I'll give you a better one our average transaction is about $2,500 okay monthly or annual annual so that's an annual yep that's helpful and will acquire about 7,000 customers a year that way okay very interesting that's a great book great so take us give us more the back story here when did you launch the couple old were you there when the company launched are you joined after I did join right after it so uh the company was launched by an engineer that really wanted to solve problems for other software developers and with this aunt concept of frictionless and much easier way to go grab an application deploy it and use it and when he or she do that there's about 2003 okay and that was a code collaboration product where engineers could together keep keep track of the code and and who was making changes and whatnot along the way we found very similar companies founder led passionate software engineers that were developing tools to fix problems for other software engineers in the development environment and embracing this idea that you should be able to download try and if you're getting value then I want to buy it I don't want to go through you know days and weeks of evaluation and so we've accumulated over the time a collection of products that serve this need with the same methodology and philosophy across the software tool I'm sorry the quality tools market again fast formula store how did you kind of move from C to join the company than CLO than CEO yeah so I joined because essentially we were hitting a point where great technologies but the company really needs it to scale and so how do we go take this you know we have 20 million downloads a year for example we process about 400,000 leads people that raise their hand and say hey I'm trialing I'd like to buy and so the operational efficiency of now trying to figure out how do we manage this and then expand would like to add or build more tools to our portfolio to serve this need and so I came in at the point where the investor said great products we love this you know try and buy high velocity concept help us really optimize it and make it scalable what year was that two years ago okay so you joined in 2015 SC oo or directly as CEO came into CEO oh and transferred to CEO okay and was that part of a funding round where you and AI are somewhere and they said we're not Rea putting the money in unless you bring on you know Justin yeah so we just sold to Francisco partners in in the in the in the spring I had transition to CEO before that but it was part of building smart bear 2.0 the next trend transition of our company so the initial creators I assume cashed out and now you're taking it under kind of the private equity firm practice is it a private equity firm private equity yeah so how much capital had to had the company raised before the private equity firm took it over so the company had so we acquired smaller companies along the way founder led one of them for example was as small as a million dollars it's now about forty five million dollars of our of our revenue those many of those founders are still here cross-browser testing and that I mentioned earlier in that company and so we make them part of our innovation centers which is why we have six locations around the globe but but that's sort of the genesis of how we how we got here but wasn't ourself have you raised outside capital before the exit remedy huh yeah great question each of the companies had their own sort of self funding model or bootstrapped and then a the previous investor put some funding behind it in order to buy and roll up so how much had smartbear raised just smartbear not the companies you bought just smartbear yeah I don't have the exact figure out how much smart Birds okay more than what definitely I think it was in a million-and-a-half range a lot no no not a lot the company itself was in the couple million dollar range when it was first put together with another company got it okay so there's a lot of like mergers M&A you know sell that part bring this part on kind of stuff going on yeah yeah and we're we're sort of I would say entrepreneur friendly right you can build a million dollar company get a payout you know get get a payout to us right and then become a become part of the company where we have innovation centers that are still driven by our founder led owners what do you have today now in terms of total customers on the platform so we are gonna be a 10,000 customers okay many many more users of course hundreds of thousands of users and we're approaching about a hundred million dollars yeah I was gonna say so do you think you'll break that you have about 3540 more days left in the in the year we will break it this year our targets just under yeah we'll definitely break it next year okay now what I'm doing my math on here so if I take 10,000 customers times that $2,500 a CV average you just gave me obvious that's 25 million annually and missing 75 million bucks of revenue where is that yeah well they're in so two answers one the beauty of recurring revenue so we have a we have an existing customer base that 2,500 transaction is our new software transaction our new customer acquisition and we have an expand model so we have customers that for example in the you know we have developer tools so five developers writing the next mobile application download and like it it spreads and we might wake up one day to you know two years later and find out that there's 200 users in the same account got it okay you swim if I mean if I take if I take the hundred million divided by twelve so eight point eight million ish or maybe eight point whatever eight million per month right now divide you know and divide the ten dozen customers into that they're paying much closer to like you know eight or nine or ten grand a year versus twenty five hundred grand a year on average yeah tote a verge customer pay you're right got it what you were giving me was the average year one contract value is 2,500 the average new yeah that the AB sorry they be super clear the average first-time purchased the average first transaction I see that makes complete sense so okay that makes sense no help us understand the growth so take us back twelve months where you at sixty seventy eighty million in AR what was broke what's growth over the past one month...