How Smith.ai CEO Aaron Lee grew to $26.7M revenue and 3K customers in 2024.

guys smith.ai is doing what did 1.5 million Revenue last month over 20 million run rate that's more than doubled from a year ago they've got 600 folks on the team and what they're doing is they're helping folks do they you know work with customers much better in a more efficient way whether it's voice inbound chat inbound messages they're using AI to power this but I'm like most AI companies they have real Revenue again Voice Web Chat outbound SDR as a service launched back and caught 2015-2016 after Aaron sold his first company red Beacon to Home Depot then stayed at Home Depot through 2015. hey folks my guest today is Aaron Lee he's the co-founder and CEO of smith.ai and former CTO of Depot his former company red Beacon won the TechCrunch 50 startup competition in 2009 he's one of the funding founding Engineers sorry at Google video and holds a PhD in computer science from Princeton University now building smith.ai which is human centered AI customer engagement Aaron you ready to take us to the top yep absolutely excited to be here happy to tell you more about Smith Ai and some of the excitement in the AI development on customer engagement we love that what years were you with Google video uh it was in 2004 very early on I joined Google and back then Google had web search image search but video was a new thing so uh I built a team with my another engineer and before we know it it's a team of like 100 people and that was 2004 to what year did you leave uh 2008 wow that's an eight yeah when I joined like Google had 2 000 employees when I left it was 20 000 like 10x wow okay so um so that's do you go right into red beacon in 2008 yeah so I left in 2008 exactly on the month of the financial crisis and uh start with like the other two ex-googlers and um we thought wow I mean that's a good time to build company and uh and that's how we started wrapping interesting so so what happened with rugby can you sell it you shut it down you what'd you do with it yeah so we spent a year has done building the company and uh back then you have to remember like there were no funding at all we say great we're gonna bootstrap the company we're going to build the product test down and uh by the time we launch in TechCrunch and took the top prize in 2009 like uh we start like we actually got the funding within like less than a month from ramrock and a Mayfield how much did you raise seven and a half and what evaluation uh I actually don't remember I think it was like yeah probably close to uh 30. yeah and then what happened after and we just took the money expanding to Nationwide and uh replicant was a platform to connect the homeowners with a home improvement professionals and uh when we start expanding the platform to Nationwide uh we got the notice of Home Depot and turns out Home Depot has been thinking about it for quite a while because they actually have two size Marketplace the pros like the contractors and homeowners now what size did you grow red Beacon do before you decided to exit in terms of Revenue we're talking like a million 10 million something in between yeah I think it was some somewhere like 10 plus okay around the time but um but I think the biggest opportunity is Like Home Depot has all the ingredients they have the distribution channels 2 000 stores they have the two-sided Marketplace homeowners and the pros and they're also very excited to get into the like building their connection between the homeowners so if you go to any of the Home Depot store today you will see my work there I think they rebranded as like Pro referral that's very cool what did you guys I mean it sounds like you're building something red Beacon it's doing well you have more than 10 million in Revenue what did you like about the Home Depot offer why did you guys accept I think like when we accepted the offer like we were looking at how do we expand it to even faster to to even like adoption right we could raise money but on the other hand when we raised the money we only got the money we don't get the network effect we don't get the distribution channels Home Depot actually provide all of the above and we got like very significant support from the density our friend Blake and uh it was our biggest sponsor he saw the opportunity to expand from like products which is like selling the stuff on the Shelf to services and are you able to share a range of like what multiple you guys sold for uh I actually don't remember yeah okay what was it an amount that you mentioned the the valuation on the raise was 30 million ish valuation did you sell for more than your valuation so that everyone made money or was it more like a remote like the investors are very happy uh all the employees are very happy yeah okay okay just raise one rank and okay yeah oh what's going on there YouTube good to see you guys now imagine this you love watching these interviews with SAS Founders but imagine if we took all of the valuation data out from over 2807 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is what private equity and red is if you sold the whole thing outright now what's cool about this is this is not built off random data again you guys hear these interviews on YouTube all these datas are built from real-time valuation data points Founders share with us on the show so traction 1.2 million seed round 3.7 raise they sold 22 percent of their business go in here and filter by the event maybe you only want to see companies that have sold the whole business well here are a bunch that have been acquired the valuation and the multiple maybe you're going out right now and you're raising your seed round well go in here and look at all this recent seed deals that went down what they raised what valuation they raised at and what percent that they sold there's never been a larger data set of SAS valuation than what you can get now inside of founder path and we're thrilled to bring it to you all right we're gonna go back to the YouTube video here in a second but if you want to check 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services settlement side now they're multi-billion dollar bill so they already have that significant like interest and incentive to make it really a big business I see so Aaron is it fair to say more than 90 of the total deal price was upfront cash yeah I would say so yeah okay got it and then okay so they buy you um how long do you stay at Home Depot I actually stay uh we've got the quiet in early 2012 and I stayed till uh 2015 like almost three years and that was really the time it took to like take out idea and our model and our platform and expand it expanded to Nationwide and that was when uh what I just tell you a little bit about the Home Depot terminology like they call this like a Improvement professional the pros and they think about it as more like these are the pro Community because that what they need is a little bit different than the homeowners so you need to build a platform to connect these two sides of the marketplace and that was when we when I was seeing a lot of challenges from the pros that they just don't have the time and the money and the know-how on dealing with like customers if it's going so well why'd you leave uh it was part of the thing that like uh you need to remember so I I work in uh Google from 2000 people to 20 000 people when I was at Home Depot the size of the company were 400 000 people it was just very very big like it really comes with like the distribution channels the customer base but at the same time it takes a little bit longer to get the new ideas so one of the reasons why I started Smith AI was the fact that the pain point for the SMB which U.S is about 30 millions of them is they don't have the time and money to build up their own team and as a matter of fact they even approached me and say hey Home Depot had huge call centers can you guys handle my customer calls and tax and SMS and Facebook Messengers and of course when people couldn't do it because the call center was built for the corporate use and not built for their their kind of like the pros and that was really the the Genesis of the idea that came from it's like how can we build something that served this very large underserved community so Smith AI was launched in 2015 or 2016. it was like we hatched the idea in 2015 with my co-founder Justin Maxwell and he was at Google and I said like I have this amazing idea like come join me like uh we both are very passionate about SMB and I think we launched towards the end of 2015 with like just a few beta customers the full launch was in 2016. okay and did you guys just split Equity at the start 50 50 or did you get more because it was your idea uh I think we've got more not because I think we we have the similar idea it was just like we bootstrapped the company so uh in the first few years we actually didn't take any salaries like like all the entrepreneurs out there we put in our own for money from what years 2015 to what year you did not take a salary I we it lasts for three years I think to 2 000 probably 18. interesting and can I ask how much of your own money you put in the business at risk oh hundreds of thousands of dollars yeah yes it's not not small amount it's significant yeah yeah um okay okay so so let's before we get the full story of Smith I want to take a snapshot of where it is today can you give us a customer story someone paying for Smith today yeah so uh if you're running a small meeting business and you have no time to hire people you have no money to afford a full-time like front desk receptionist and you also don't have the technological know-how on blending between Ai and agents that is when we come to help so they will sign up on a website we say Okay Nathan how many calls are how many chats are you getting per day or per month let's say oh maybe you're getting like 20 calls per day that would be like uh 600 calls per month and then we get you a package and say every month you pay a monthly subscription amount if you go over that then you pay for the overage if not then that is the amount that you need to commit to it's very I I would call it a vanilla SAS model plus kind of the uh the usage consumption if you go over the quota I see so all in what is the average customer pay you per month to use the technology yeah so it's a brand like I would say close to a thousand dollars like okay like of course we have like a smaller business that pay a few hundred dollars we have bigger businesses that pay like close to ten thousand dollars per month so is your largest customer right now like a 200 000 a year contract uh I don't remember the largest one but we have different kind of surfaces so we actually have three things we have the voice inbound we have the web chat SMS and Facebook we also have an Alban SDR as a service so people tend to play a mix of these services like when they start using us because they want us to be the One-Stop shop to handle in-band outbound Omni channel 24 7. Yeah you mentioned Services is your gross margin above 80 or 75 or no uh actually we we we're we're not at that like level yet because one of the part that we are blending between Ai and the human is the human cause is significant so I would say our gross margin is 60 plus that's a six zero percent yeah that's not terrible um exactly if you look at all the tech enabling the business UH 60 is actually pretty good yeah that's not bad at all um got it okay and how many customers are you serving today total we have thousands Like Houses yeah close to one thousand three three thousands wow yeah okay and how many do you think you can get to by the end of the year oh I think we can actually get to about like if we are lucky we probably can get a five to six thousands interesting so if three thousand customers at a thousand a month I mean you guys are doing like 300 Grand a month in Revenue right now uh actually more than that uh if let let me see we are doing I think like a few months ago we crossed 20 million dollar annual run rate oh you're doing wait I'm missing something because you're doing way more yeah but like a thousand is actually close to like it's a blending between different services so like we have let's say the Alban one uh people are paying like thousands of dollars because they're using us as more like a uh SDR as a service team for the chat it's a lower one because like uh the ASP is actually lower yeah so if I'm sorry just to be clear like last month in June you're saying you did more than 1.5 million in Revenue that puts you more than a 20 million run rate that's right oh wow okay so if you did 1.5 million last month what were you doing exactly a year ago do you remember I think it was about half of it okay so what drove all the growth expanding into current accounts feature upsells Etc or brand new accounts altogether I think most of them are actually uh like uh going from like one service to another service like cross-selling yeah another one is like we actually and adding more kind of features so people actually paying more the upsell and also we're attracting businesses that are more mature like meaning they actually have high core volume higher chat volume and on top of that uh the outbound Services we started about a year ago is where people say Hey you know not only do I want you guys to answer the inbound call I also want you guys to make the outbound calls and that is like I call it the sales and marketing side of things and so are those full-time employees at Smith how many full-time sdrs do you have at Smith so uh the team that we we have we have about total I would say they're headquartered plus agents about more than 600 people okay so the whole company is 600 full-time employees today yeah okay and guess how many of those are sdrs that you will sell at some 60 margin yeah so we actually have a mix so we have a team like we call like kind of I call the universal agent where they can handle in bang or Alabama depending on the time of the day and the day of the week right because sometimes you have more out Bank than in Bank sometimes you have more impact than Outbacks interesting what's a geographic breakdown of the 600. North America oh wow okay um interesting um how many of them are engineers um so we have about 25 Engineers wild okay very interesting story what about how have you capitalize the business so if you think about a model right so we it's a network effect that means the more people who use the service the lower the cost that we're gonna be so that's number that's how you capitalize number two is really AI right if you look at like AI in the past I would say before the check GPT we're using AI for like transcriptions we're using AI to do like real-time language like Spanish to English we're using AI to do some I call the behind the scenes back-end processing now with the GPT we can actually do kind of like more from them we can have an AI voice bot to talk to you that can collect your name your email your phone number we can actually have a conversation with you and the outcome of the conversation is we have the anti-core flow we know where your customers are calling you from the time of the day the day of the week where did they call you from and what they're calling about so if you look at the cost and the chat today check GPT they're using all the public data public information but there's so much information that is not public like all the calls in the chess for the company and for the businesses they're not so we have all the advantage so you have a unique training set you're arguing that your moat is that you have a unique training set that the other the rest of the world doesn't have exactly and on top of that if you look at all the generative AI they can afford to make mistakes but for us we can't right if the business is saying hey we charge like 50 like afront kind of like reservation fee and other business they charge nothing we have to tell the exact right answer every time we cannot make up an answer I think that is where the AI becomes a little bit challenging because of the accuracy like AI hallucination latency right if you look at GPT sometimes it takes three to four seconds yeah wants to come back so to speaker on capitalization have you raised Equity to date and if so how much yes we did we did I think together like we raised like with us Angel Investors and the safe note I think I was close to thirteen one three yeah okay and what was a safe note cap was it capture on capped I think it was kept yeah okay what did you do like a 30 million cap 20 million cap do you remember oh it's much higher than that I think it's it's higher than that like it was like close to more like a hundred yeah wow okay that's really rare but you were able to get that because you're a repetitive entrepreneur you have a track record but that 100 million cap on it on a that was a convertible note right uh I think we have multiple convertible nodes the the one early and the years were like I was talking about the most recent one but the early ones was much lower but I think the two things that people really like one is like this is my second time so people like this thing for like kind of like repeat fungus number two we actually have very significant Revenue traction if you look at all the AI companies today they have a nice I call the UI wrapper on top of AI or chat GPT but the revenue is very lacking right it's unproven well you've been on Aaron you've bet on yourself though too right I mean if you've raised seven million on on notes and you raise 13 today you guys put in 6 million yourself before the notes is that accurate um no no when I talk about the seven million uh that was in the first my first company my first startup I'm talking about Smith AI we raise a total of 13. yeah 7 million was a seed round in 2019 correct right at 100 million dollar cap um no that was a much smaller cap I don't remember the exact Capital that was like way early I see it I see so so most people want to see around they're selling 15 20 of the company were you serve in that same range in terms of the conversion I think so yeah okay so that would be like a 20 million cap or something like that is what you're saying is you left that note open you quote let it roll and you raise an additional 60 million on that over the past three four years yeah we uh we kind of like opened a new note because of the uh the revenue attraction so it wasn't like expanding the previous note like I think we have multiple safe notes was much closer to a hundred and when did you do that last close what year I think it was like two years ago okay so 20 20 21 you did the last goes at 100 okay and that's when you were doing about uh what you're doing like four or five million in Revenue at that point of time right what year did you pass a million in Revenue do you remember oh that that was so long ago I don't remember that yeah but my thing in 20 yeah I think I don't even remember but my research my research says you passed that in uh 2018. 2018 yeah that that could be right that could be right uh the first year was always difficult right 2016 we stopped building the product we're getting traction kind of the MVP yeah and now the product is like fully built like we're just like leveraging more and more AI yeah so are you guys profitable today are you burning money each month we're burning money how much oh that I don't remember but oh come on you don't remember that Aaron that's the most important thing well actually the burn is like not that significant that's why it wasn't at the top of my mind like 100 under 100 000 a month just a few hundred thousand dollars okay and you say just a few hundred thousand for a lot of people that's a lot but for you because your scale that might not be that much I mean so you guys have it sounds like more than 5 10 million in the bank more than 24 months of Runway yep okay got it so burning something like 300 Grand a month more than 10 million in the bank you have Runway what's the next move product hiring acquisition yeah I think right now we're very much focused on sales marketing because like people love the product people say wow that works right I mean it asks it allows them to expand the business but then when we look at like kind of the the product side we need more AI talents we need to build up our that kind of muscle because it is where you can take your gross margin to the next level sales marketing is another way that we can drive more growth yeah very cool what we're rooting for you this is a great story let's wrap up with a fan ms5 number one favorite book um I would say uh I'm just reading about the one what was the name um well crossing the castle is one that like is my favorite classic like it's just so like it just stayed true for that case that's one of my favorite books it's a good one number two is there a CEO you're following or studying um I am actually very impressed by Microsoft CEO like um number number three what's your favorite online tool for building Smith favorite online tool um you mean on the development side or development side um well we use GitHub we use notion we use like check GPT we use like um assembly AI yeah so just there's really a lot of tools that we use number four Aaron how many hours of sleep do you get every night oh actually I would say I do six to eight hours that's great and situation married single kids I saw a ring on your finger yeah married uh three kids all girls yeah that's awesome and how old are you uh me I am uh 40 plus 40 plus what's something you wish you knew back when you were 20. oh I wish I had a mentor that tells me about how to build companies guys smith.ai is doing what did 1.5 million Revenue last month over 20 million run rate that's more than doubled from a year ago they've got 600 folks on the team uh and what they're doing is they're helping folks do they you know work with customers much better in a more efficient way whether it's voice inbound chat inbound messages they're using AI to power this but unlike most AI companies they have real Revenue again Voice Web Chat outbound SDR as a service launched back and caught 2015 2016 after Aaron sold his first company red Beacon to Home Depot then stayed at Home Depot through 2015. Aaron thanks so much for taking us to the top thank you so much Nathan one more thing before you go we have a brand new show every Thursday at 1pm Central it's called Shark Tank for SAS we call it deal or bust one founder comes on three hungry buyers they try and do a deal live and the founder shares back-end dashboards their expenses their revenue our poo CAC LTV you name it they share it and the buyers try and make a deal live it is fun to watch every Thursday 1 p.m Central additionally remember these recorded founder interviews go live we release them here on YouTube every day at 2PM Central to make sure you don't miss any of that make sure you click the Subscribe button below here on YouTube the big red button and then click the little bell notification to make sure you get notifications when we do go live I wouldn't want you to miss breaking news in the SAS World whether it's an acquisition a big fundraise a big sale a big profitability statement or something else I don't want you to miss it additionally if you want to take this conversation deeper and further we have by far the largest private slack Community for B2B SAS Founders you want to get in there we've probably talked about your tool if you're running a company or your firm if you're investing you can go in there and quickly search and see what people are saying sign up for that at nathanlacka.com forward slash slack in the meantime I'm hanging out with you here on YouTube I'll be in the comments for the next 30 minutes feel free to let me know what you thought about this episode and if you enjoyed it click the thumbs up we get a lot of haters that are mad at how aggressive I am on these shows but I do it so that we can all learn we have to counter those people we got to push them away click the thumbs up below to counter them and know that I appreciate your guys's support all right I'll be in the comments see ya