How Stella Connect CEO Jordy Leiser grew to $7.9M revenue and 300 customers in 2019.

hello everyone my guest today is jordy liser he's the co-founder and ceo of stella connect a new york city-based software company that helps businesses drive engagement performance on their front line teams he help stella connect clients include many of the biggest and most service focus brands in the world including walmart mercedes-benz warby parker and many others all right jordy you ready to take us to the top let's do it okay so tell us kind of paint the picture for us what does cell connect do and are you guys a pure play sas model we are a pure sas model and as you described our business is all about helping frontline teams mostly customer service teams get the best out of their people engage their people and measure you know who their best people are and who their bottom people are and how to get those bottom people up um it's a tough job doing customer service all day long and so our tools and products help make it more fun and help them do their job better what is um good at warby parker is is measured by what audience surveys after a cs rep engages with a person or what yeah it's it's driven by a few things one of them is customer feedback so right after an interaction the customer the end customer will get a request for feedback with the photo of the rep they just talk to a little bio of their interests and hobbies that really humanizes the experience uh and and the brand and then the customer can can basically suggest a reward or some sort of recognition if that person went above and beyond jordy how how do you convince like if i just join warby parker i get a great pair of glasses i leave and i get a little email with the cute little face of the customer success rep that helped me and they're like you know what do you think what was he a five or a 10 i never fill that out so do you do you bribe me or how do you get those actually filled out yeah well that's the problem we're solving is that most people don't fill out any of those yeah they get like a two to three percent response rate and our company our our request for feedback are 30 to 50 what's the secret the secret is that we're humans and humans want and crave human connection and so i don't really care about the brand i care about the person and so that's the the secret sauce is that the person providing the service and the person receiving the service they realize this is about human beings it's not about some nameless faceless corporation so if the customer succeeds named you know joe james you might say hey nathan uh you know joe james next raise is dependent on like if you think he did a good or bad job help him out give him a rating something like that yeah no we just say hey what did you think of your interaction with joe uh and then we asked him hey do you want to reward joe do you think he did something do you want to like suggest he gets a a steak dinner he gets movie tickets oh fun and people actually they crave this sort of engagement and gamification when it comes to people because we've all been in a situation where you have an amazing experience and like you wish you could do something nice to suggest that this person gets something good but you're not going to fill out this like 20 question survey about the brand nobody wants to do that yeah no no the only time those get filled out is if there's such an emotional visceral reaction that it's worth it and that's usually when someone's pissed not when they're really happy it's they love you or they hate you and then get anything yeah all right very interesting let's break down the economics on this bad boy so what's the company going to pay you on average maybe per year per month to access your technology so we're a per seat per month sas model subscription model so just like the crm businesses we integrate into those businesses so salesforce and zendesk uh et cetera and so uh the pricing for us ranges any anywhere from uh 10 bucks a month all the way up to 40 50 bucks a month per seat yeah and so it's a traditional sas uh sort of business model i want to get into the actual typical like team sizes you're signing up so would you is it fair to say the average first year contract for you guys is what 50 60 80 100k where do you think it is uh we have teams of all sizes and shapes so we have we start at roughly five to ten people on a team and we work with uh brands like you mentioned walmart has many thousands of reps and so those contracts get well into the six figures so it just depends on the size of the team really interesting okay is there any team size that's too small that you won't accept because you know it won't work roughly five i mean again like if you're sitting with your team there's a lot of like high fiving and kudos and listening and helping them out that that you really you don't need necessarily something where you're having your customers kind of outsource that for you but once you reach five or ten i mean the business owner and the manager needs some help to scale that yeah yeah and if you look across again i know averages can be deceiving but just for the sake of time when it can't go down every cohort if you look at your entire customer base and then all their active users the seats they're paying for what would you say the average team size is on your on your platform um i mean we actually just looked at this i mean it's actually pretty split amongst the different cohorts that we have we've farmed more of the smaller customers just of course there's four of them but uh but yeah we have uh i think the three cohorts though are sort of like you know early startups maybe five to 25 seats and then you have like the 100 to 500 seats and those are kind of your middle stage or mid market businesses and then you have the thousands and then you actually have what i call the super enterprise which we don't work with today really and that's like the the tens and tens of thousands and there's only a handful of those companies out there but you think about verizon and at t and chase those types of companies are there are different beasts because they have you know they have 50 000 people around the world uh it's like it's a small army so it's just a different kind of stuff so are you north of and i will go more i won't go more specific than this but generally i mean are you north of like 200 000 seats a year kind of using you is that a good kind of chunk or no no not 200 000 seats so we're we're sort of um we're in the uh high five figures let's say kind of mid to high five figures in c count what's your growth goal to get to by the end of 2019 do you think you can break 100 or 200 um i mean we actually don't think about seat count we think more about a dollar and sort of arr for for us and so but obviously they they correlate but we're also trying to expand the value of the product and so if we can deliver more value in there for raised pricing or add modules and you know with a with less c count growth we can get to a bigger scale and a more valuable product for our clients so um but yeah we're trying to roughly kind of you know between 60 and 80 percent growth uh each year is sort of how we're thinking about it in a modest you know sort of modest but aggressive sort of mixed did you did you hit that trailing 12 months you grew by more than 60 percent yeah yep congratulations it's great well hold on i can't congratulate you yet i would love this if this is a bootstrap story but have you raised we have a very complicated raising story in history oh uh i mean i don't know how much you want me to give me this simple version if you can uh the simple version is we've raised uh 50 million dollars plus to date having built an entirely different business that we pivoted away from and actually recently spun out a month ago which was the bulk and majority of that funding was for that legacy business um and we had you know we had the biggest enterprise customers in the world on that legacy business what was that business by the way what's that what was that business it was called stella metrics and stella pulse they're sort of like uh brother sister products and so we recently spun that out to power reviews um and did in connection with that spin out raised the new round of funding to focus exclusively on stella connect and it was a long and complicated and hard-fought story um but now stella connect is is what was apparent to us it's definitely the winner and so we wanted to put all of our eggs in uh so how much did you raise just for that spin out uh in connection with that we raised uh this wasn't necessarily proceeds from the sale but we raised uh through the vc's um an 11 million dollar round last month or two months ago okay and how much of that actually had to go to the parent company for the right to spin this ip out versus operating operational capital all of that capital went there were sort of two transactions done simultaneously so the spin out happened and that had its own deal in economics and then the raise was 11 million dollars interesting this is one of the mentors in the race was zendesk as a strategic investor that they put in about 11 million they didn't put it in most but they were this is the first investment zendesk has made in a startup and so they were a contributor in this round no that's why yes i haven't heard them doing that before that's great congratulations um how did you manage expectations i imagine investors that put in part of the 50 million are going wait this is if you think this other thing you're spinning out is the most valuable thing i want to be on that cap table so the investors um the investors have stick stuck with us the entire time so there's been no change in in the profile of the investors we've had some you know challenges along the way where we had to do some difficult things with the cap table and people had to you know take concessions and there was a lot of moving pieces but the investors have been unbelievably supportive um to make this possible so the investors that put in that 50 they all to some degree are on stella connect's cap table oh yeah all i mean all of the major investors have and they all actually invested in this last round just restructured it could have been their fifth round of funding for the company all right so 11 million into this new idea and when did that happen what year did the spin out happen uh it was literally uh announced in february so oh wow okay and how much what's the team size today just on style connect uh 45. and how i this is a kind of a sensitive question but i'm curious how aggressive are you being in terms of growth and burn i mean i assume you're cash flow negative at this point but how you know how aggressively yeah we are cash flow negative but it's funny because i've you know i've lived the story now i went all the way you know we raised like i said all that money we built a huge team and we've had to go through the the rings of fire and now i sort of know like you know growing is great but growing when you're not exactly sure why you're growing or how it's working or what your clients are experiencing so uh we're being aggressive but like i said kind of shooting for that like 60 to 80 percent year on year growth is the target yeah yeah so when you i mean can i try and quantify burn are you burning less than 500 grand a month uh or around there no less than that but not i mean we're in the zip code i guess yeah yeah that's fine the reason i ask is because i always someone like you that was just through the ring of fire in your head you're going okay how many months does 11 million get me in terms of runway right so that's what i'm trying to back into you raised for like yeah i mean generally i'm of the belief you know about 24 months of cash when you try to raise but i'm also now in this stage of our cycle where we can get to a place that the business breaks even and we're profitable with this round but leaving open the optionality that if we continue to see that kind of growth you know we're going to want to step on it and so we don't want to you know pull back if we're if we're seeing that we can actually move a little bit faster of course yeah yeah when did so when was the first line of code written for this new product even though back in the day it was part of another company yeah yeah the first line of code was written in 2015 it was launched in 2016. um so we're really only you know about three years into the story we already have hundreds of clients like i said some very big brands on board so i really was the reason why we decided you know we really got a pivot and put all our eggs into this basket yeah that's great no and so how many customers have you scaled to you said a couple hundred so like three hundred four hundred few hundred yeah yeah that's great okay very good and then i mean we can do math right if you're high five let's just say you said high five figures in terms of seats so we'll say north of 50 000 seats at 10 bucks a pop i mean you're north of half a million bucks in mrr at this point uh yeah that's great by the way that's great i mean i you know this because you just went through it but you know we've interviewed about almost 2 000 ceos and the ones that have the highest leverage and this is going to be an obvious statement but the ones that have the highest leverage are the ones that get their ar to funding ratio as close to one to one as possible so it sounds like if you're at kind of a kind of a five-ish you know you're halfway there to getting up to the 11 so you have leverage to go out and raise unless i mean would you wait that long to raise additional capital if you saw obvious growth yeah we're farther along than that okay you know we're being as efficient as we can but yes i mean i've been first of all you know i've i have an obligation in raising as much money as we already have to know that that's you know all the 50 million dollars has still been invested so it's it's not you know i still feel like we have we have a big business to build here and so um i want to try to extend the runway as much as we can while continuing to push it as much as we can so when when is the right next time for you to be raising an additional round of capital how do you make that decision yeah i think there's you know there's the there's the do we have a thing phase and then there's the do we know how to build a repeatable you know process phase and then there's the do we know how to scale it and so we definitely are past the do we have a thing we're in the middle of do we you know do we know how to do the product market uh go to market kind of uh repeatable thing and we're getting pretty good i mean now that we're in the uh you know seeing reps hitting quota and we're seeing renewal rates expansion hat like there's just still some dials that you want to see and then when one you start to realize where your demand get you can start to twist the knob and see that deliberate kind of twisting of the knob and start to see it go uh once you know those channels it's really the go to market channels that are really working that's when i feel like it kind of doesn't matter how much like if you can go then you know like the investor model like the vc models you should be pushing it once you know you can turn the dial and you know what's going to happen yep yep no of course so so what right now is a heart like what pro forma do you have the least confidence in right now where you want to test it a couple more times before we have confidence is it like the closed right on a new sales rep hire is it a specific channel and direct paid spend what is it yeah i think it's the ch i think it's the channels for us i mean it's so we're inbound outbound and events those are the three main channels that we focus on we don't do channel sales you know meaning selling through other companies so wanting to see some more predictability around um both you know or really all three of those inbound outbound events so we've seen a lot of success with events and so we do these you know little events we do some larger events we do other company events and we're starting to figure out if we can kind of you know replicate these sorts of thought leadership dinners and and and roundtables and other sorts of thought leadership things um we can create a community and so once we figure out you know exactly what the economics are on that i think we might be in pretty good shape to go to the next level do you have economics yet around around kind of gross revenue churn annually and does your expansion more than make up for that yeah yeah last year we were uh we were right around 130 in our net dollar base and peel that onion back a second so what was just on a gross level what was gross revenue churn um it was in the low teens okay so 12 13 something like that and then you know the 1 5 40 145 in terms of expansion yeah 13 gross 43 expansion gives you 130 net which is healthy by the way that's really i mean i would i would consider world class to be 140 150 i mean you're getting up there yeah and that was like the surprise for us that the land and expand if you the product when you know it's working and this is what we did not see in our other business which is why you know we really started to focus on this is when you when you have a land and expand model where uh very similar actually to zendesk and you know there's a lot of other companies that have this where once one or two teams start to use it and they start to see success then they will help spread it in the in the company in the organization we don't have the benefit of selling into hr and then selling into finance and selling in the market it's not one of those types of products we sell into one group but what that group does is they might buy it for one team that's based in dallas and then they have another team that's based in costa rica and they have another team that's based in canada and so you know our goal is to get in with one team show them what it can do and then they will help uh drive us the rest of the rest of the org that's smart last economic question before we wrap up with the famous five um how aggressive are you being on cac so a doll you know a dollar out are you happy to get like 50 cents back in or a dollar you know dollar new arr yeah we think about cap uh or cac in the payback a little bit differently because it's a land and expand model and so for example you have some large companies that start to use the product after testing it and it costs us a lot because we have an enterprise uh or sort of mid-market rep getting into that company they might only be paying us 15k over the course of the year and it might have cost us a lot more than 15k to get in that business but then it's really the 12 and 18 and 24 months later that we care about because it's a land and expand model so uh you're just not going to see the same sort of payback period and actually similar to us you know reading through different s1s and um you know these two by the way qualtrics the same thing zoom in qualtrics both you saw the same pattern 25 months something like that i think zendesk is is way north of 12 maybe 18 to 24 so we're def that's sort of our that's sort of our game yeah i mean they can by the way they can only do that because they have so much cohort data they have so much confidence in their expansion data and they have machines around it where they'll they'll pay two two and a half years of a you know of value up front yeah um so okay so let's just put a bracket you're happy to spend between 12 and 18 months because you have 40 plus percent expansion on cohorts is that right yeah yeah very cool all right let's wrap up with the famous five number one what's your favorite business book [Music] favorite business book um fooled by randomness number two is there a ceo you're following are studying right now uh yeah hard not to follow dara but um yeah let's leave it that uber yes yeah number two is number three what's your favorite online tool for building your company um uh i really don't have one honestly that's for you for you at this point it's got to be like you know you know uh carter or some cap table management software yeah he actually just signed up for carter so my cfo is like there you go all right number four how many hours of sleep breaking every night uh well i had my first baby a couple months ago so very little congrats that's great so what five or six uh way less than that a few months ago now it's like the low quality sleep but call it six but very low quality fair enough okay and then situation married and one kiddo it sounds like married with one kid how old are you i'm 36 35 35 last question what do you wish your 20 year old self knew uh how long it takes and how many bumps and bruises you're gonna get even though i knew that i didn't really feel it i didn't really hear it you know i knew it but i didn't know it yeah guys there you have it stella connect helping big enterprise brands like warby parker gather better feedback on their cs reps which enables them to give rewards more appropriately this was a spin out so the company after the spinout raised about 11 million bucks but had raised 50 million prior to that all the same investors though are doubling down so they still believe in the vision over 300 customers right now north of 50 000 paid seats at 10 bucks a month so call it north of four or 500 grand a month in revenue right now probably maybe well north of that economics look really good 13 gross return 43 expansion expansion so 140 net revenue retention as jordy looks to scale the business further jordy thank you for taking us to the top all right thank you