SmartSuite Revenue & Valuation (2024)

founders 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 below 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 founder path or latka next event we'd love to see you in person in the meantime though enjoy this recording it's a good one so we're going to focus today really based on nathan's request on on kind of a journey and let me get this slide figure this out real quick here we go kind of a three-part story from being an operator building a company becoming a leader in the space selling that company kind of transitioning to an advisor investor where i then invested through either directly or through some venture groups and about 400 companies set on the boards of lots of companies beyonce got bored with that and wanted to move back into the operator space kind of with the next journey which is a pretty typical story for a lot of founders that are probably in this room that once you're an operator it's hard not to be an operator and i also found that i wasn't a great advisor i was an okay advisor but i always wanted to actually do the work and the founders don't like that like they want you to advise stay out of their business i wanted to actually get in and do some of the work that was there so to kind of kick things off we're going to start with the story of a company called archer technologies archer was a company that i founded in 2001 i'm going to share just some basics of the company with the products and the revenue to set the stage and then we'll jump into kind of lessons learned things that we did right and then things we didn't do so good that i would would have changed that's there so from a growth perspective uh what's interesting about archer was that we were profitable in the first year of doing business and i'll share with you how we did that in just a minute it was a very different market back in 2000 2001 there wasn't a lot of funding that was available 911 it just happened things began to kind of shut down so we really had to focus on we were bootstrapped as well through year eight we really had to focus on customers and revenue and how we could hire employees and you'll kind of see the growth rate here through the last year when we sold the company we're around 33 million excuse me in revenue as a company we focused on uh seven core products i'll share the idea in just a minute but the overall idea was to help manage security and compliance processes in the same way that a business would manage accounts payable accounts receivable hr those types of processes and organizations we had seven core solutions that we eventually had in the company each of those solutions were priced at fifty thousand dollars a pop an average customer for us was around four hundred grand with some add-ons uh that were there okay and i'll tell you the story and how we sold that in a minute which is interesting as well so here's kind of the basics of the story so my background prior to founding archer was i had the opportunity to build the global cyber security practice at ernst young and i had the chance to travel the world we had about 1500 consultants in that practice i meet with customers to understand how they're managing security in the organization mainly from an aspect of things were going online they had online stores online banking was coming on and they needed us to help them understand how do we secure those systems so that we can stay online so the opportunity was for archer was to take that service that we've been providing at ernst young and turn that back into a product that we could sell and manage as a process and organization the challenge that we had was that it hadn't been done before and as a small startup with the big idea how do you approach people with a new way of thinking about how to manage security and organization right at the same time archer was bootstrapped from day one um we didn't take funding until year eight which i'll share some of that in just a minute um from you so we didn't have a lot of capital i put in i think 750 000 to start the company to kind of get things kicked off the market focus for the organization uh started with financial services moved into telco moved into healthcare moved into technology at the end of the day i think we had 76 of the fortune 100 where customers after like the first six years of the company so mainly enterprise level accounts an average customer would have 80 to 100 000 users of our product inside of the organization renewal rates were pretty interesting over nine years 97.6 renewal rate so we only lost three customers in nine years two of those customers were because of acquisitions by another customer uh that had them one of those was lehman brothers that went out of business that was there so we found that things were very sticky that was there we sold the product as a sas offering but sas wasn't really around in 2001 so we approached eds which was our first customer with an idea and said hey we can come in and solve this problem for you we're going to treat it as a process and oh by the way you're going to pace the same amount of money every year and they said well how much money is that and i said eight hundred thousand dollars and they came back and said we'll pay you 1.1 million dollars and i'll share why they said that in just a minute so they became our very first customer before we ever wrote a line of code so i went to eds with a little three and a half inch diskette for those of you that remember diskettes had an html version that basically was a powerpoint that showed all the different screens on how things would would look and at the end of that presentation they stood up and said we need your product how soon could you have it developed if we move forward with you and i'm like oh my god like i don't have a developer we haven't written a line of code so i just shared it with them i was just up front and said hey here's where we're at it's an idea i've got everything documented we need to go build it it's there and i'll share a little bit more in just in a minute about that um the next thing that we did i told you in year eight um we raised capital for the first time uh in the organization not because we needed cash you saw from the prior screen that we were we had a pretty good cash flow in the business it allowed me to take some money off the table as a founder and it really opened up to stop thinking about money every day you know every day i would come in the office and the first thing i would look at is the bank balance just to make sure that we were in a good position to pay everybody that was on the team but it freed me from that and it allowed us to really grow the business in the last 9 months to 12 months after that investment from bain and if you go out into one of my breakout sessions after this i'm happy to share more information about what was so valuable with the bain relationship that we had and then what happened after the bain investment was that in year bain came in in year eight and about seven months later we were started getting approached by outside organizations about partnerships acquisitions we weren't planning on selling the company at that time but it just happened pretty quick so we went from bain came in and invested i think it was a 70 million dollar pre it allowed me to take some money off the table they bought about 20 of the company they allowed the employees to cash out a portion of their stock options at that time so it was it was kind of a good event for everybody looking back it wasn't a great event because then we sold the company for 200 million dollars nine months later that was in there which the employees would have kind of hung on to those options some of them so as nathan was saying when we when we found out that we needed to kind of start a process and people were looking at us bain capital came in and said look we need to hire an investment banker we need to create a deck we really need to go after this to make sure that we get the best price for the company you have an offer in hand but the minute that they know you have a deck an investment banker and that you hire the best of the best they're not going to retrade that value with you right it's only going to go up from that point forward so it allowed us to send this deck out not to the world we were pretty selective i think we sent it out to about seven organizations that we thought would have interest back in in this space three of them responded um only one of them was super serious and that was emc and they wanted to do the deal in four weeks in one month which was unheard of uh emc i don't know if if you emc has eventually sold to dell a couple of years ago but they had 43 000 employees i don't remember their revenue but we were their 51st acquisition so they were a company that grew by acquisition they had a team of 40 people on the acquisition team that that that's all they did was go from company to company analyzing um and then onboarding companies that were acquired uh by the organization so this deck this memorandum that we put together allowed us to get an offer for 187 million but what was key when when we got to the loi here is that we also got to keep the cash that was in the business so the deal was really north of 200 million because of that simple item and the way we got to that point and it's key for a lot of founders that i work with is understand how much working capital the business needs make sure that that is communicated in the memorandum so that you can negotiate through the loi with hey here's what i need and in this particular case the business generated enough free cash flow each month to more than pay for the business needs so it allowed us to sweep about 15 million additional money out of the company so let's focus on here's what we did right this is what i wanted to spend most of the time talking about and i'm getting old and it's hard to actually read the monitor in front of me with the with the items but the first thing that we did right at archer was we listened to the customer and what that really meant was the first year and a half of the business i spent my time not in the office i was at customer sites i was at eds watching them and learning how they would use a product like this inside of an organization of 80 000 people i thought i was a pretty big deal ceo of a company they put me in a phone closet that's where i said there was it had you know all the tech was in there i had my little chair in my desk and i couldn't even do meetings in there i had to walk out to meet with everybody but i just sat there and watched and listened to how they would use it i was on the phone back to our development team saying add this feature add this other feature that's in here and then i would quickly iterate back with the organization to say hey is this what you meant and we did that then with credit suisse first boston with lehman brothers with goldman sachs and that allowed us to really get the version one of our products to where it needed to be to sell to the remainder of the financial services companies the second thing that we did write was we really thought about who we were trying to sell to and for us it was the top 30 financial services companies in the u.s and the reason for that was that those companies if if we were in one of those companies it was easier for us to go to a tech company a telco company or a healthcare company and say goldman sachs is already using archer shouldn't you take a look at that right so we decided to focus just on those top 30 we broke it down into groups of 10 and we would only sell into those 10 one at a time so the sales team which was my wife would come back and say i've got this other opportunity i'm like is it in financial services is it one of those top 10 no forget about it people marketing team would come in and say hey we have an rfp forget about it we're only selling into these 10. and people were frustrated with me in the first year and a half two years but what happened was we sold 29 of those 30 companies and that's what launched us to sell to everybody else right was at the beginning we were very focused on on who we were selling to why we were selling to them and then it gave us the momentum to go to a microsoft and to a dell and to an ebay with some credentials to say hey here's you know city goldman lehman who's using the product with our products what i didn't mention at the beginning was that we were one of the first no code platforms ever developed back in 2000. anybody remember who the the first sometimes i call in the second no-code platform really was salesforce right before that there were things that were kind of in that space but that salesforce and archer were the first two products that really took a no code approach to solving a problem that related to a process so every customer could go in and configure that process just a little bit differently but it was one code base so across our 100 plus customers that we had every one of those were different none of them had the same ui look and feel branding but they were all on a single code base that was there so that was a huge advantage for us from a people perspective we found that the best people for us to recruit were coming from some of the big x accounting firms and the reason for that was that let's take accenture as an example when when somebody would come out of school and go to an accenture they would spend two to three months at a boot camp learning about process automation and how to serve clients and that whole process they kind of came out of that it's like a mini mba type program and if we could find those people in year three so they've kind of they've they've had time at customers they've been through the boot camp we could bring them in teach them our business those people just excelled and what i didn't mention about archer at the beginning was that we sold that company in 2009 but that company now does 700 million a year in recurring revenue 90 plus percent renewal rates going public this year i don't know i hear numbers anywhere between 5 and 12 billion but it's going to be a big it's a big number what's fun about that is a couple of those accenture people that are hired in year three now run the company not the ceo but they're the two two main folks that are there of the folks that we had in the company there's probably 50 people that have been there over 15 years now since we exited they stayed in continue to run all of them came from the ibm accenture deloitte kpmg kind of background that was there so the main theme there was understand who you want to hire and try to find people that are already trained to bring in you know back into your organization then if we go to the next slide talk a little bit about because there's a lot of people here building inside sales teams which is your third lesson learned here talk to us a little bit how you structure that inside sales team how many reps quota targets things like that sure so one of the lessons learned was that we should have done inside sales earlier bain capital came to us and said hey this is a growth engine you really need to get going we had four sales reps that made up the in the 2008 number that you see there we had seven sales rep that made up the 2009 number the 32 million that we had and i'm happy to share this kind of in the breakout in more detail but bain capital came to us and said hey here's seven portfolio companies that we have that use inside sales they use this process called the sales bus let's go visit them talk with the sales team leads understand how they're doing inside sales some of them were just getting started some of them were doing millions of dollars a month in revenue a sales bus includes seven people that's on a bus that has a leader and six people around the bus around the outside each person is organized based on their sales in the last month from seat one to seat six that's in there so everybody knows exactly where everybody else is at what we learned and what they taught me from that is that first off always try to hire a full bus if you can which is seven people but if you can't hire in threes the reason for that is the best sales people are competitive you hire two it's okay one could always be better than the other one and the other one's okay you hire three it's a little different dynamic that's in place i was deadly against inside sales to be honest at the beginning didn't think that they could sell enterprise software in the first months we had one of our inside sales reps sell an enterprise deal in germany over the phone there was no zoom any of that that was just over the phone sales call an average rep for us did a million two to a million five per year when emc came in they're a sales focused company those numbers doubled and in some cases tripled per sales rep like we had on our enterprise sales team we had reps that had quotas of six million a year that was their inside sales reps two and a half million but for us when we first got started uh a million and a half two other things that we learned very quickly that i wish i would have done different is that the global market's much much bigger than the u.s market so get your internationalization ready multiple languages on day one it's much harder to do that after the fact that's in place we spent way too much time and attention trying to get ready to go to market globally in year six and seven we should have just did that in year one that was there the second one is architecture matters we had the same problem we should have focused on our first feature should have been you know scalability and speed and we were focused on features first and that bit us in the butt in year six as we really started to grow and again it so we had to pause for about a year to kind of get to where we needed to be from an architecture perspective so john as you move into part two of your presentation you're being super humble so we're gonna change this to interview style is that okay right it's way easier trust me um so let's do interview style talk a little bit about why after you sold emc you decided to go into the advisor role you i mean did you know you're going to be bored doing this i did not and there's a couple things i i first off i thought i knew everything because we were pretty successful uh that was there which was i i learned very quickly probably in year four or five of that that there's a lot of different ways to do things and the way we did it was just one way i have friends that did it a very different way that were even more successful so what was the style you were taking equity in companies was it mainly b2b sas or how did you style the advisor shares you were going after was that part of your standard deal yeah so i invested either directly through companies mainly in sas companies that was there so i would take in a lot of cases i'd put in 250 was kind of the minimum number that we would put in and then i would take an advisor role or board seat inside of those companies i found pretty quickly that it wasn't good for me to be the only person in a deal that the companies that had other people like me or venture folks that were in the deal were more successful so then i kind of pivoted to more venture investing so i have about 11 venture companies that i work with that i've invested in their fun they invest back into companies and then they reach out to me when they feel that i have expertise in a particular area that can help the entrepreneur and that worked much better for us and then going to the smart switch story this was so fascinating because you ran emc you ran archer profitably you're growing like crazy did you guys see part of the bain deck already i think you already shared that right yeah incredible story so how does your brain now switch to think of okay i'm gonna do pre-revenue for three years i'm gonna spend 12.5 million bucks on mnp i'm going to hire over i think hundreds of contractors how did you get your brain in that space and why did it take so long and so much money in your opinion sure well let's talk about the idea first that was in place so you know as i've visited and work with these 400 venture companies that i had one of the first questions that comes up most of the time is what's the infrastructure that we need to have in place as an organization just to get started right we need sales and marketing and hr and i.t and customer success products to do things and i got really frustrated with always having that discussion and the idea from from smart suite was to transform the way businesses get work done by providing a single platform that could manage any workflow process or project in the company right so it's basically taking hundreds of point solutions that people have building that into a framework where all of that can be in one core platform so you don't need all these different sales tools marketing tools hr tools you just you've got one product that provides 90 to 95 of those capabilities right from the beginning so the lift was massive right it's a big idea we it we knew it was going to take about two years it actually took two and a half years of development time about 100 developers that we're just working night and day to kind of if we go to the next slide to kind of build out all these core capabilities in this platform that would make that a reality and once those those capabilities are done flip to the next slide well talk real quick you did something here also interesting i i joke that we're not far away from somebody launching a sas company and taking it public and they're the only employee you have remote.com you have these things you can just hire a bunch of contractors i'm just someone's going to do it one day um talk to me about why you went this route i mean you had what are the numbers you hired hundreds of contractors yeah so we basically we have no employees in place i have two co-founders we hired teams of people inside of companies i think we have five different main companies that we work with from a development perspective so we have a mobile team we have a web team we have names because people are on the computers what's the mobile team you used yeah so we use e-creative out of ukraine i'll talk about ukraine in just a minute we use gearheart out of ukraine and then we use a company called agency enterprise out of california that does a lot of work for spacex so they're kind of our high-end developers we way overpay for them but they're really really good come on what's the way overpay 12.5 million yeah they go for about 175 an hour uh for their for their core developers right um the ukrainian folks are typically in the 50 to 75 dollar an hour rate that's there similar quality but the u.s folks have a little more experience working with big data uh some of the more complex architecture issues that we need to solve so it's out now right over 200 workflows you've now launched talk to me about the building up to the launch six weeks ago okay so what i'm gonna do is on the count of three i want you guys each everyone just say how much monthly recurring revenue you think he's doing now sort of six weeks in after building for three years okay ready monthly recurring revenue ready one two three okay so the average is about 12.5 k across the sample size of 118 people uh are you comfortable sharing what mrr is today yeah i'll share the range so we're in the 85 to 90 uh k per month range uh right zero to a million bucks in a this is why mike you need to come in because i'm like i'm gonna grow this guy spend so much money on mep but now the way you've built your tentacles into so many distribution plan things pre-launch you launch you go from zero to a million dollar run rate in basically four and a half weeks is incredible so speak a little bit to the distribution tactics you set up pre-launch comparison sites things of this nature yeah so i think the first thing we did was we've automated the process to come in with a trial account so we make it super easy for someone to buy enterprise level software uh by clicking on your site and starting a trial it's ten dollars our base pricing starts at ten dollars per user per month and then all the way up to our enterprise is 35 dollars per month per user everything that we've done is organic so we reached out to a lot of the comparison sites and filled out surveys uh for them to do our requests for them to do reviews of our products just name a couple of those sites yeah we started with product hunt you know actually you know g2 cafeteria um just that whole group of sites where they actually do product reviews and let people come in and and view your product a lot of them as have signed up as affiliates through our affiliate program as well what's your kickback on the affiliate program so we've had um so far we're i think we're today we're like 325 affiliates that have signed up we offer them 50 commission of the first year revenue so that allows us to have a sales force that's kind of international from day one and then it ends 50 year one ends at the end of year one so basically we're we're overpaying for those customers in the first year but those customers we wouldn't have without those affiliates so i don't feel like we're overpaying we're breaking even but in year two we'll start making money on on the deals the affiliate springs how many of the 325 affiliates have earned at least a dollar already i don't have an exact number but i would say probably 35 there's a lot of them are have accounts that are in trial right now that will convert after 30 days and so the interface looks incredible uh right uh you can speak maybe a little bit to that here if you want um before we move into other takeaways and wrap up sure yeah so what we found when we when i started meeting with customers was that the biggest single thing that they needed from a work management platform was the user interface that focused on the people that actually do the work which are people ages 23 to 38 is what we found so we i sought after and tried to find a person or a team that could help me with the ui that had done something different that i'd never seen before and i happened to find a guy of all places in bulgaria in sofia bulgaria i went and met with him he's just interesting and different how do you find these people like what do you do on craigslist and it's like bulgaria you i just got online and used my network i looked at upwork fiverr like i just tried to find the top people and just looked at the style and the type of work that they'd done story had never worked in this industry before but he had that eye and that style that i liked that was there so i met with him we spent two or three days together we just hit it off i mean he's just a super great guy and he was just super excited and i said you need to leave all your other customers and you need to work with me a hundred 100 just me and after the first end of the first three days he said deal but you met him through fiverr or i met him through upwork yeah this is a this is also a tactic that i see over and over but very people will say it publicly but this is a great way to find great talent because you put up the same project so you have a design spec to 30 people on upwork you pay them all their rate you collect all the designs then you pick the best one i don't know i'd fly to bulgaria fly and meet them and then try and move them full time so he's now is he basically now full-time with you he is yeah his team so he's got a team of three or four people that work with him very reasonable rates for that team um and they got rid of everything else about a year and a half ago so they that's basically our design team anything else you want to add in before you take it home i'd just say we did the same thing on development side we found our our core people in all places of the ukraine i'd never been to ukraine before so i flew to kiev met with the first person that was there i still remember after about an hour i'm like oh my god i found the perfect person with the right team to actually build a product like this and i've been searching for like six months and found them there uh fast forward about six months after that i was searching for a mobile team well john hold on so obviously the sensitive you know there are things happening right now talk a little i mean how is your ukraine team doing or i mean i don't even know the right question to ask how are you thinking about those guys yeah i i wanted to mention that at the end it's they're in a difficult spot and you know they're people just like us they talk like us work like us i mean they're just normal people they wake up one day and they're getting bombed and we have people in cities that that don't have places to live anymore they don't have gas electric power they're cooking outside with fire they can't leave the cities that they're in it's just incredible some people we can't communicate with for two three days at a time until they get a mobile single to to just send a text to let us know that they're okay from a business perspective it's been challenging with the work that we're doing but we've kind of got that worked out in the last week or so so it hasn't affected us but there's about 60 people there that are just outstanding people that are are really struggling and there's a lot i mean when you look at all of the speakers and everyone's ft head count or full contractor head count about well about 35 40 of the speakers have team members in ukraine um i don't uh makita's not here but you'll hear from him tomorrow uh yeah i mean raise your hand if you've hired talent in ukraine and they're phenomenal right i mean look at that it's right phenomenal talent so obviously um sending the best you know thoughts prayers everything else the best thing i think we can do is just feature their stories talk about their talent and celebrate them and hope for the best exactly to be honest it's only going to get worse for them for a period of time so it's not going to get better anything you can do to support them you can go to our website smartsuite.com we have a little link at the bottom that...