How Test CEO Philip Soffer grew to $9.7M revenue and 180 customers in 2018.

hello everyone my guest today is Philip so far he's the CEO of test IO since May of 2016 and a half sorry has been since May of 2016 splitting his time between Berlin and the San Francisco Bay Area before test IO he held senior leadership roles in product development and marketing at Plumtree software lithium technologies and piazza Phillip are you ready to take us to the top I am all right tell us about test I'm guessing it's in the DevOps space which we know is a very very hot space so what do you do we provide software crowd testing services to companies so if you need your software tested by real human beings using real devices in the real world we have a network of people around the world who like to do that and you can get that done and as quickly as an hour for an exploratory test okay and how is this compared to something you know I've use usertesting.com before it's kind of manual you say who you want to test it and you say go through this process and it's screen records and sends it back to you how do you differ so that's that's really a usability test our tests our functional tests so you give you give some guidance through our interface about what you want to test and what's changed and what we're providing is functional functional bugs basically mmm-hmm okay great and give me a general sense of what customers are paying for this per month on average well the the base price is $3,000 a month for a subscription for a product that we test and when you pay for that subscription you can test as many times as you want and so what we encourage our customers do is basically do a lot of testing and do it earlier in their development process but we also have customers who will test early in their development process that even test in production tests when they do code merges so we're all about trying to shift the testing left and more often when you do this kind of testing but Phillip you said the base is three grand a month yeah okay so you're very much caught up in the enterprise space no I would say we're in SMB space you have small businesses paying three grand a month for testing for some people that would be north of 30 40 percent of our monthly revenue well not not that small okay got it that's why I'm asking right so so enterprise to us means a billion dollars in revenue right we're you know we have some customers that how do you define small-business you said you're an SMB SMB would be like you know 100 to 500 people and you know in the millions of rabid you're gonna make so many enemies on this everyone listening with us in a hundred employees are gonna go well Philip doesn't even care about us well you know there's only so many people we can sell to profitably and we try to target those this is still this is a profitable company it's not we're not sort of one of these high-flying Silicon Valley companies that goes on endlessly with that without profits that's good so profitable your cashflow positive today yeah that's great walk okay so 3,000 baseman and by the way that I don't go to every customer cohort but it's three grand a month a good kind of representation of the average or is it actually much higher than that the average is higher okay like can you give me a general range of what the average might be higher than 3k I'd say the average is probably for new customers that we saw and now it's probably in the four and a half range okay and if you generally you kind of said that very specifically do you have historical customers that have a much cheaper price point you've increased over time why do you phrase it like that yeah I mean so the company is is seven years old now and obviously when it was a start up there they were willing to accept lower prices before they knew everything about what things cost so in those days people signed on with with with cheaper plans and and maybe gap deals that we that we can't sustain any more profitably so you know so some people some people are less than the average but new customers are signing on at our so so how do you handle that because every company goes through that in the maturation process you know folks you came on early maybe give a discount to do you just let them stay at that same price point for the same features or do you kind of kindly ask them to go up to the new price point how do you manage that I think it's a combination I mean we we've we basically sort of restructured our pricing over time and each time we do it we try to get people and do into a new band of pricing that they would be more and more more comfortable with with with a price and and what they're doing with the software or with the service that's great so it's it's you know we don't we don't stick it to anybody but we like to have conversations about it so 2011 you've been building this thing for seven years what have you scaled to today in terms of total customers on the platform it's somewhere in the neighborhood of one hundred and eighty goes 180 okay great and I know you said you're not like some high-flying Silicon Valley company but have you raised capital or you bootstrapped so the company has raised capital in the past so I guess the you know the the headline number that you would see from the 2015 fund raise which is before I got there is is five million dollars so okay so walk me through this dynamic you're currently CEO but it sounds like you're not the founder what would happen there well so I was I was actually recruited to be the CEO in 2016 so the money that was put in the previous year was designed to to to underwrite a u.s. expansion so test I originally is a German company based in Berlin but obviously the biggest market for software testing services is going to be in the US because we develop a lot of software here and so the board understood that it would be been able to have somebody with some Silicon Valley or US experience and so that was the auspice season under which I was I was hired and the company didn't actually have a CEO at that time was that content by the way it was that was that contingent in other words they basically will put five million bucks in but you've got to let us put a new CEO in and it's gonna be Philip no no no okay the money came in before I was before I was so who pursued you who was the person on the team that pursued you as an investor or the early II or the one of the founders or what this is actually an interesting story I don't know how much how far back you want to go but if you go back to 1999 okay fool Jesus Philip I I work for Plumtree which was basically sort of a talent Factory our our our philosophy of poetry was you go and you hire the smartest people that you can possibly find regardless of how much or how little experience they had and so we did a lot of college recruiting out of out of the local colleges and I was at Berkeley recruiting people and I recruited a guy there who at the age of 21 was already incredibly mature and sophisticated in his understanding of markets ended up doing M&A for plum tree then ended up doing private equity and basically he's got a firm and he is the one who introduced me to the test I a team he's an investor in test IO so I basically hired out of college somebody who is now on my board and effectively my boss which is funny and it's yeah it's it's an interesting testament to to longevity in this business was this or just one of the folks from turn River that's right oh very good very good that's great okay good so walk me through funding obviously raised back then you have sense invested that if I take the customer you're just customer Connie just gave me one hundred eighty multiplied by the ARP you just gave me so call it 4500 bucks per month I mean that puts you guys at almost a nine million ten million dollar a hour run rate is that accurate or am I too high or too low it's you know I don't want to quote specific numbers but it's broadly it's broadly accurate okay let me ask you a different question when do you think you passed ten million bucks in air are is that a goal for this year or next year or what that is a goal for soon okay goal for soon good good let's move forward on some of the economic stuff right so in terms of customer growth as you're driving growth you over here are you driving expansion revenue at a great lake at a high rate or is more the new revenue coming from brand-new customers yeah that's a great question and so more of the revenue is coming from new customers but we are focusing now more heavily on expansion than we were as we've matured as a company we've been able to differentiate sort of the hunter from the farmer so to speak and on this on the sales side and so you know previous to about six or eight months ago we we didn't really have anybody who was doing was focused on expansion sales and now we do and and walk me through kind of what growth has looked like Dover over the past year then and we'll jump more into the sales team and how what your team looks like so if you're kind of flirting or around in the general range of 9 million ish today or eight hundred grand per month where were you a year ago oh gosh generally you know we grow 60 65 somewhere in there year-over-year yeah which is you know which is I think been fairly consistent over the last two or three years that that's been the level of growth but what's interesting is that we did that while achieving profitability right that's great you know I think one of the things about being a German company that has been funded with fairly limited capital is that there's just different habits then you have in in in Silicon Valley companies that I've worked at so we we have focused on capital efficiency and I'm being being able to be profitable at a lower run rate than a lot of companies that's great walk me through a you know churn is critical in a SAS business what's your turn today and how do you think about it well so we think about it basically on a on a cohort basis so are we getting better at retaining and expanding the customers that that we that we've been signing on and so you know a couple years ago we were not so good at that come on Philip tell me how bad I'm not gonna I'm not gonna give up but what's bad though north of what's bad in general not not for you specifically but in the industry well I think the industry is a is a is a weird term because you have to segment it in a lot of different ways right like if you're a system of record kind of SAS SAS company then you're stickiness is very high because the switching costs are extremely high because you hold the data whereas for somebody like us we're a service and we basically aspire to be for our customers the easy way to turn on software testing in the way that you can turn on more servers if you are if you're Amazon if you're using AWS or Google cloud or whatever so we operate under a slightly different set of assumptions than if we were a system of record but anyway we're in our latest cohorts we're close to 100% net revenue retention per year yeah for for the for the on the on the cohort basis yep so that's a combination of you know expansion revenue you know more and more making up for any lost revenue that's yeah that's great kak what's kak look like today and how aggressive are you being on payback periods well kak is is good for us I mean our kak to LTV ratio is is is really good and so I'm not gonna I'm not gonna quote all the numbers but we we don't spend a lot of money on marketing so our customer acquisition costs are fairly well what's your what's your total team size today Philip I'd say the team totally in both geographies is 40th and and what are the two geographies where you guys based so there's a group here in in the United States in the Bay Area and then there's another group in Berlin Berlin okay so forty people and how many of the 40 are based on like sales or marketing or onboarding well sales is sales I would say is about half of those people marketing is is one full-time person and then we have a customer success team as well which is you know not sales and not marketing you know more in the onboarding side I guess you'd say and that's the best time okay so call it 27 people you know maybe 28 people told that's you know out of 40 that's actually a pretty significant chunk right so you're not doing any direct paid spend but if you did take a fully weighted CAC you do have significant cost with obviously all those salaries what do you like to see like how quickly do you like to get your money back in terms of payback period um 3 to 4 months ok that's super healthy now was it was it really bad when you joined because again they had 5 million bucks of play money and they were kind of overspending on acquisition or no no it's it's never been bad I mean this has always been an extreme a capital efficient company so I you know as long as I would like to take credit for like going medieval on CAC that was I was definitely now not what we were doing and and you know I think where we've gotten better we've gotten a lot better at sort of the onboarding process the customer success process I I don't put those folks as part of CAC I put them as because they do they're not just about acquisition of the revenue they're really about the lifetime customer success and retention so I think about those folks differently than I think about sales people are marking that's interesting but I mean if you didn't have that team right and these people you could say we acquire the customer but they churn after three months cuz they weren't properly activated that activation team is crumbing it's critical to you being able to hit your payback period targets and your lifetime value targets for sure it is yeah for sure it is interesting but it but it's just a it's it is a different kind of spend than the sales and marketing stuff yep yep interesting last few questions before we wrap up with the famous five are you raising capital today uh not that I want to talk about and it's not I mean I'm like I'm not raising capital yeah if you did have additional international ten million bucks where would you spend it have you identified kind of a growth Channel yeah I mean I think we have historically spent not as much as we might on on marketing specifically I get sort of getting our name out there sort of brand recognition kinds of things and so if we were marketing aggressively to what I call the enterprise companies that is companies that are really big that rely for example on Alice reports and so on like we're not we're not in that world yep yep QA Symphony just went through an interesting merger the combined company is probably gonna be called between eighty eighty-five million bucks and ARR if they approach you and say hey we want to buy you guys for 80 90 million bucks you sell the company I couldn't answer that but I mean obviously like everybody's got their price let me ask you a different question whose decision is that to make do you have enough of the company where it's your decision it really kind of turned river or any other investors I think it's it's a board level decision obviously to so yeah yeah very good all right Philip let's wrap up here with the famous five number one what's your favorite business book so I'm gonna go a little rogue on this one I I think business books as a genre are not my favorite genre so I don't read too many of them but I read books about business especially sort of an interesting interesting story so I let me give you a a few that I've read recently and then one that's not about business that I always yeah give it give it to me alright so you should read bad blood about the thoroughness situation that's a fascinating book and it tells a cautionary tale you should read American kingpin about Silk Road and Ross Ulbricht and sort of his rise and fall which is a you know I think almost a Greek tragedy level of story and then II this is a book that I tell everybody to read who's working in a start-up it's not about a business it's the making of the atomic bomb by Richard Rhodes which is in my mind the greatest startup story of all time because you had the brightest people you had an amazing fundraising process but a pretty hard to please board and then you had a literal deadline and the story of how that all came together and and how it works is incredible number two those are great number two give me a CEO your falling or studying right now so my favorite CEO is Glenn Kalman from Redfin I I just I I worked for him at Plumtree and he was an amazing person and I always knew that he would be an amazing CEO and it's fun to watch and they're absolutely they when when did they go public it was it was what a year ago or pretty recent it was it was last year and then they had you know a nice run up and then you know Glenn who is compulsively honest said on his investor call the other day that he thinks that the real estate market is softening and you know the stock lost 25% of its value overnight but I you know I I think Glenn is gonna win in the end yeah number what's your favorite online tool for building a business oh gosh for building a business that's I mean so you know what do we use I mean we use the the stack that the stack that has outreach in it LinkedIn sales navigator like these are the tools that we use a lot for prospecting I have one tool that I use in my personal life that's made a big difference for me lately so I get a lot of spam phone calls and I installed this thing called Robo killer that blocks them it's been a material improvement in my quality of life as I get like 10 spam phone calls during the day and a great Robo killer number for how many hours of sleep to eat every night I you know I strive for seven I usually do get maybe maybe six and a half ok and Phil what what's your situation married single kids I'm married I have three kids oh wow okay and how old are you how old am i yeah yeah I'm 47 I asked that because I like my audience feel and say oh I'm like I'm 47 too and I thought I couldn't be CEO or have my own startup but look he's do it Philips doing it I can too this old guy can do it good last last question your Philip what do you wish your 20 year old self knew oh gosh you know there's some personal things and then there's like maybe some professional things I mean I think my 20 year old self thought he was gonna be an academic and I think I would tell that person be open to alternative possibilities always and I think I would tell any twenty-year-old cherish the ones that you love and and and be close to them because you don't know what's gonna happen and and you might lose them sooner than than you think guys there you have from Phillip cherish the ones you love and also on a business side of things remember there is life outside of academia he in 2011 was sorry not he but in 2011 test IO was launched by some founders in 20 years later 2016 after a five million dollar round of funding Phillip joined the company they're now serving 180 customers kind of doing functional testing in the SMB space each customers paying caught for five grand per month they're kind of in the nine million dollar a our range open a past that ten million marks soon net revenue retention they are flirting with one hundred percent mark obviously a really healthy place to get above willing to spend three to four months of first year a cv on acquisition most of acquisition cost is tied up in a twenty seven person or twenty kind of person's sales team they got forty people between san fran and berlin again growing nicely at about sixty to sixty five percent year-over-year philip thank you for taking us to the top all right thanks Nathan