How Spark Real Estate Software Reached 100 Customers and Under 1% Annual Logo Churn (Interview with Simeon Garratt)

Introduction and Company Overview

Nathan Latka

00:00Hello everyone. My guest today is Simeon Garratt. He has lived in six countries in over 11 cities. Having helped sell real estate all over the globe, he now runs a company called Spark. A software platform for development projects with a team of 20 folks based out of Vancouver. His goal is to change the way new real estate is sold and marketed. Simeon, are you ready to take us to the top?

Simeon Garratt

00:19I'm ready to go.

What Spark Does and Revenue Model

Nathan Latka

00:20Alright. So tell us what Spark does and what's your revenue model? How do you make money?

Simeon Garratt

00:24Yeah. So Spark, we sell software to essentially real estate developers and project marketing firms for the sales, marketing and management of new development projects. So anything primarily in the presale world, but that could encompass anything from leasing, multifamily or condo. But essentially we are a back end sales management software, essentially a SaaS model business that's you know, pays off monthly licensing fee for us to manage the entire back end process of selling those projects.

Average Customer Pricing

Nathan Latka

00:51And what would you say the average customer is paying you per month?

Simeon Garratt

00:54Average customer is probably paying us around $1,100 a month.

Nathan Latka

00:56Okay. So you're... Mean, that's fairly high. You can afford to put a salesperson on an account that big.

Simeon Garratt

01:00Yep.

Customer Acquisition and Sales Process

Nathan Latka

01:01Okay. And I mean, is that what you're doing? Walk me through how you're getting new customers.

Simeon Garratt

01:04Yeah. I mean, there's bunch of different ways that we're actually getting new customers. I mean, a lot of it... We have an inbounds internal sales team. A lot of us, you know, we're building lead lists, we're outbound calling, we're gathering our sort of our own data. And essentially, our model is very much a timing game. So, you know, it's really about finding the developers that have projects that are launching in the appropriate time frame and then

01:25from there, basically doing proper reach out and sort of doing demos accordingly to that.

Nathan Latka

01:29And what's the total team size today?

Simeon Garratt

01:32We're just about 20 people now.

Nathan Latka

01:3320 people. All in Vancouver?

Simeon Garratt

01:34All in Vancouver currently.

Nathan Latka

01:35Very good, man. I'll tell you what, something's in the water up there. A lot of a lot of companies popping up.

Simeon Garratt

01:40Yeah. Think so.

Founding Story and Background

Nathan Latka

01:41It's a good thing. Now, what's your story before this company? What were you working on?

Simeon Garratt

01:44So actually, I grew up in in Asia. So I spent most of my life in between sort of China, Malaysia and Hong Kong. So I kinda, you know, my family sort of lived there, so my whole life I spent there. I moved to Vancouver about seven years ago and I got into real estate essentially because I speak Mandarin and Cantonese, and a white guy at the time, was not a bad spot to be. Everybody that was

02:05coming to Vancouver was essentially coming from China, buying homes here, and so I kinda got myself into a really interesting niche where I was helping developers, like real estate developers in Vancouver sell projects overseas. So I was, you know, once every five weeks for about two years, I was flying between Vancouver to, you know, Beijing, Shanghai, Singapore, Hong Kong, you name it, setting up events and pre selling condos to investment buyers in Asia.

Nathan Latka

02:28Mhmm.

Simeon Garratt

02:29That's kinda how, I mean before that I'd done a bunch of other things, but primarily that was sort of my foray into the real estate world was really just because I got lucky and spoke another language.

Year Founded and Early Days

Nathan Latka

02:38What year was that? When did you launch?

Simeon Garratt

02:41Launched Spark or or is it Spark. Spark was founded in 2011.

Nathan Latka

02:452011.

Simeon Garratt

02:46I mean, technically 2012 I guess technically would have been our first year.

Nathan Latka

02:50Okay. 2012. And then just to be clear, before that again, you were grinding it out. You were actually doing the selling and stuff yourself. And you said, you know what, I hate flying back and forth every five weeks. I'm gonna build software that's a little, has a little higher margin.

Simeon Garratt

03:01Yeah, I mean it also that you know, I realized it was actually really, it was a huge frustration point for me. So I was actually being given you know, stacks and excel spreadsheets and files and all this you know, this old archaic legacy software that half the time didn't work. I was going over there. I was... I would double sell things. I would have super... You know, tons of misinformation. And it wasn't just with one developer,

03:19know. Was every single developer and project that I worked with was kind of the same process and I was like, this is insane.

Nathan Latka

03:19Mhmm.

Simeon Garratt

03:19You're buy a $300,000,000 tower, yet you're giving me a stack of papers to fly over and do deals with and pick, you know, get deposits and I'm flying back and forth and there's so much miscommunication. Was like, how has nobody built a platform that would make it a bit easier?

Total Customers and Projects on Platform

Nathan Latka

03:35Yep. And now what have you scaled to today in terms of total customers paying you?

Simeon Garratt

03:40So we sort of track our customers in two different ways. So one of them would be projects, so the number of actual projects that we have on the system. So we have just over 600 projects on the market right now that will be spread across 80 different cities. But that would be spread over about a 100 different clients per se. So I mean, sometimes a client is a developer themselves. Sometimes a client is a...

04:04Developers that are clients. So it kind of is a... It depends on how you look at it.

Nathan Latka

04:07Yeah. I mean, but if we want to kind of get a general revenue range, can I take a 100 times $1,100 a month and assume you're doing just north of about $100k a month right now?

Simeon Garratt

04:15We're in that range, yeah. We... Some months are a little bit higher, some months are a little bit lower. When I said we sort of are a straight SaaS model, we also have sort of a professional services piece that kind of tacks onto that, so customizations that are built on top of each individual product. So a developer comes to us and says, Hey, we want to sign up. We've got five users. That's great. You're going to

04:33pay us $1,100 a month on average. But, you know, they might have a $30,000, $40,000, $50,000 customization that sits on top of that. So it's a little bit blended, but I mean, on average you could probably say something like that.

Nathan Latka

04:44When you look at just your pure SaaS business, what did you last month? Would you say just in that?

Simeon Garratt

04:49Just in the pure SaaS business?

Nathan Latka

04:51Pure SaaS.

Simeon Garratt

04:52Yeah. Yeah. So we did we did about $70,000 in pure SaaS.

Nathan Latka

04:56That's right. Yes. You have a you have a really nice mix. Right? The the project stuff helps with cash flow, but you got a nice underlying base every month to work with.

Funding and Equity Structure

Simeon Garratt

05:02Totally.

Nathan Latka

05:02Yeah. Interesting. Bootstrap or have you raised capital?

Simeon Garratt

05:05We've raised a bit of money over the last kinda two years. So the first three years of the company was essentially out of my apartment. Me and five other guys, you know, figuring out what we're even doing.

Nathan Latka

05:13You have five co founders?

Simeon Garratt

05:15Well,

05:16no, not exactly. We had a couple people that were part of it initially. There's only two of us left.

Nathan Latka

05:16Okay.

Simeon Garratt

05:16Kinda like split ways early on and so two of us stuck it out, business partner Cody and myself, and then one of our guys came back about a year ago. So the three of us are now back in the mix, but the original five kind of all dissipated early on.

Nathan Latka

05:36How do you manage kind of the equity structure when you've got two guys that are not with the company anymore, but they were one of the original five?

Simeon Garratt

05:42I mean, we had performance warrants and clawback stuff. So I mean, they left. They basically gave up most of their equity. We also bought back a bunch of equity from some original guys, you know, not that long ago. So we so recouped a lot of that from the earlier guys.

Nathan Latka

05:56That's great. So what have you raised total to date?

Simeon Garratt

05:58Just over $2,000,000.

Nathan Latka

05:59$2,000,000. Okay. And was that an equity round from outside investors or debt or what?

Simeon Garratt

06:04It was it was all equity round. We we don't have any

Nathan Latka

06:04All equity.

Revenue History and Growth

Nathan Latka

06:07Okay. And then look, you're... You said you're doing about $70k a month today in the kind of the pure SaaS business. Help me understand growth. What were you doing about a year ago?

Simeon Garratt

06:13So if you... Let's look at... So our first our first real year in revenue was was 2016. We did about $400k that year. Last year, 2017, we did

Nathan Latka

06:21And that's a run rate or just cash?

Simeon Garratt

06:23That was like what we brought in. So total revenue for the year was $400k. Not necessarily run rate, mean, about 60% of that would have been SaaS. I'm looking at it. I mean, again, we we can break it down on SaaS, but it's changing

Nathan Latka

06:23That's okay.

Simeon Garratt

06:23Hard to hard to know. 2017, did just over a million bucks. And 2018, we're kind of on track to do just over 2.

Nathan Latka

06:43Yep. Yep. Okay. That makes sense. Yeah. Again, if you have 70 that's... It sounds like right now have a basically a million dollar a year pure play SaaS model, and then there these $40,000, $50,000, $60,000 kind of one time projects that make up the other million and that's where you get the two from.

Simeon Garratt

06:55Totally. Yeah.

Nathan Latka

06:55Okay.

Churn Rate and Retention Model

Nathan Latka

06:56Good. What about churn? So again, just speaking obviously about just the SaaS side of things, what's your churn today and how

07:02do you manage that?

Simeon Garratt

07:03We've got less than a 1% churn rate right now.

Nathan Latka

07:05So Revenue or logo churn?

Simeon Garratt

07:08Logo churn.

Nathan Latka

07:09And that's monthly or annually?

Simeon Garratt

07:10That would be annually. Yeah.

Nathan Latka

07:12Okay. Less than 1%. Okay. I'm I'm shocked by that because I assume once you're done selling and development, they don't need you anymore.

Simeon Garratt

07:18So I mean, it is this is sort of the interesting model and why a lot... Why we differentiate from a lot of other platforms in this space. So we actually license to the company. It's not necessarily for the projects. They're actually not necessarily paying us a monthly fee for every project, but the company is paying us a monthly fee. So...

Nathan Latka

07:34Who's the company? Like, RE/MAX?

Simeon Garratt

07:37RE/MAX would be maybe an example, but it would be more like a large developer, like the Related Group or Extell or something like that.

Nathan Latka

07:43Oh, Vornado or something.

Simeon Garratt

07:45Totally. Yeah. So they're gonna they're gonna maintain their base account no matter what. We're also storing all their historical project data. After the project's done. So you know, all their contracts, the conveyancing, all the purchasers, all their demographic data, all that historical information lives inside Spark forever. So those projects, they're always gonna keep something live inside the system whether or not that project's actually selling or not. And so it's not necessarily about like, you know, we

08:08have to resell projects all the time. They're just adding projects to the existing user base that they already have inside Spark and then maybe adding or removing some users as they sort of scale up or down.

Expansion Revenue and Internal Client Growth

Nathan Latka

08:17When you look at the levers you have to drive expansion revenue, get you know customer to pay more in year two than they did in year one. You know, less than 1% gross logo churn annually, but are you in net negative revenue churn annually or no?

Simeon Garratt

08:28No. We're not.

Nathan Latka

08:30Okay. What what what gets you there? So that surprised me a little bit. If you have such low kind of logo churn, my my gut was some of you guys probably were. Why aren't you net negative revenue churn yet?

Simeon Garratt

08:39Well, mean, so there... The way that we... I mean, again, it's kind of an interesting scenario. We're... We've... Like, pricing has changed five times in the last twelve months. So when we're... When I'm looking at things from twelve months ago, I'm looking at accounts that, like, now we would never sign a price like that today. So it's a little bit difficult sometimes to extrapolate some of those numbers and get, a proper, you know, growth metric from

09:00that. But when we actually look at like the clients internally, so we're we're sort of tracking on a quarterly basis the actual amount of growth, like internal client growth that we get per client. And right now we're seeing somewhere between like a 15 to 20% client like internal client growth on a quarterly basis.

Nathan Latka

09:15And so that means if in q one they're paying you... I'm making this up. They're paying you a grand per month. You're saying in q two they'll expand to kind of a grand... A $1,150, 15% growth?

Simeon Garratt

09:25Yeah. We usually look at... So we do all in, similar to how Salesforce would do things. We would... We'd annualize all of our contracts. So they're signing up. They're paying me... Paying us $1,100 a month.

Nathan Latka

09:33Why do you manage... Why do you measure on a quarterly basis then?

Simeon Garratt

09:37Just for... Well, that's how we track sort of our internal... Our renewals and stuff. So everything from a sales team perspective is looked at, I mean, again, this is something that also shifted. We only shifted to annual contracts about a year ago, so some of that, some of those people are still on monthly. But very, very few people would actually be on a monthly, sort of month to month basis with us.

Nathan Latka

09:53Got it. And everybody...

Simeon Garratt

09:53Because

09:55then we would actually be signing them to an annual contract.

Customer Acquisition Cost and Marketing

Nathan Latka

09:58Got it. Talk to me a little bit about CAC. What are paying to acquire these customers?

Simeon Garratt

10:02So, I mean, we only recently just hired our our first sort of like marketing person and you know, we don't really spend actually at this moment, we don't really spend any money actually on like AdWords or, you know, online advertising, anything like that. So the only way to really determine that would be to take our salespeople's times and divide it by the clients that we're bringing in plus sort of the expenses that we use on like

10:22trade shows, etc. So, I mean, it's a very, very varied number. A lot of our clients actually come directly from referral. We have...

Nathan Latka

10:30You pay kickback?

Simeon Garratt

10:31Sorry?

Nathan Latka

10:31You pay kickback?

Simeon Garratt

10:32We don't pay kickback, no.

Nathan Latka

10:32Okay.

Simeon Garratt

10:32I mean, the real estate industry, I'm not sure how familiar you are with it, is very incestuous in a way where you have like a sales director from one place, you know, goes to another place and gets poached and goes to another place. So we've actually been dragged through a lot of different clients just because people have jumped ship.

Nathan Latka

10:47Yep.

Simeon Garratt

10:47And

10:48that's how we got some of our large clients. So we signed one big client and they kinda like dragged us through a bunch of their next career moves. And then from there you get a lot, know, people talk lot, you get a lot of referrals that way. So I mean our, we're actually trying to figure out how to spend money on marketing honestly. Yeah.

Nathan Latka

11:04It's critical. It's critical. You have to figure it out though because if you can't, then there's no way to use other people's money to grow your business, you know.

Simeon Garratt

11:11Totally. And so, you know, the industry that we're in is a very kind of like older brick and mortar style industry where you have, you know, you have trade shows that you go to, but it's not like these guys are going online and saying, hey, what's a new? I'm gonna Google sales software for new development real estate, you know, and if they do, it's gonna be Salesforce that comes up and then they're gonna go spend $500,000

11:28customizing, you know, and spending two years building something that they're, you know, at the end the day not gonna be happy with.

Famous Five Rapid Fire

Nathan Latka

11:33Yep. Yep. Makes good. It makes total sense to me. Let's let's wrap up here Simeon with the famous five. Number one, what's your favorite business book?

Simeon Garratt

11:41Oh. Probably The Art of War.

Nathan Latka

11:44Number two, is there a CEO you're following or studying right now?

Simeon Garratt

11:47I'm gonna have to say Marc Benioff.

Nathan Latka

11:49Number number three, what's your favorite online tool for building your business right now?

Simeon Garratt

11:54Currently, it's gotta be LinkedIn.

Nathan Latka

11:56Okay. And what's your situation... Oh, sorry. Actually, how many hours of sleep do you get every night?

Simeon Garratt

12:00Depends on the day of the week. But I would say, you know, probably six and a half.

Nathan Latka

12:06On average. And what's your situation? Married, single, kiddos?

Simeon Garratt

12:10Single, no kiddos.

Nathan Latka

12:11No kids. None none that you know of. Right?

Simeon Garratt

12:13Yeah. Hopefully. Unless you're... Then I'm gonna find them.

Nathan Latka

12:16And how old are you?

Simeon Garratt

12:18I'm 31.

Nathan Latka

12:1931.

12:20Last question. What do you wish your 20 year old self knew?

Simeon Garratt

12:22I wish my 20 year old self knew more about accounting.

Nathan Latka

12:26Guys, there you have it. From Simeon, he wishes he knew more about accounting. Grew up, you know, kinda Southeast Asia, Hong Kong, etcetera. Jumped into real estate. You know, had a big advantage in learning Mandarin. Then used that advantage to basically go over to Hong Kong, presell real estate back in Canada which a lot of money was flowing that direction. He then said, you know what? I want higher margin, less travel. Let's launch a piece of

12:45software help to with this. That's what Spark does. They sell directly to the development companies. Development companies then use their platform on a kind of per project basis to sell, manage, and then hold on to data over the long term which has allowed them to keep churn very low. Less than 1% gross logo churn per year. They have over a 100 customers paying a 100 or $1,100 a month. So about $110k monthly recurring revenue. They'll

13:05do about $2,000,000 this year as they combine kind of professional services plus that healthy SaaS revenue stream. Again, that's up from about 1,000,000 just a year ago with their team of 20 in Vancouver. Simeon, thank you for taking us to the top.

Simeon Garratt

13:17Thanks a lot.