Thebettersoftwarecompany Revenue & Funding (2024)

hello everybody my guest today is steve cody he's a serial entrepreneur he lives and breathes franchising he started several local and national successful businesses in the technology rental service e-commerce and retail markets which have generated hundreds of millions in sales he identifies the creation of be pro which is again better software as the main contributing factor to his success in franchising his businesses steve are you ready to take us to the top absolutely all right when i hear franchises and i hear process i think engineering you have an engineering background no no actually uh left school in uh in grade 10 uh was very dyslexic my grandfather had saved 1200 dollars so i used that money and i bought a ladder a squeegee in a bucket and started a window cleaning company interesting and uh how'd that do oh really well so it's still around today uh it's been through two different owners we ended up being the largest in our city uh moved from that got into swing stage rentals then we opened up a scaffolding rental company uh then we became a jlg dealer uh lyft company uh sold that to hertz uh what year was that uh that have been 20 years ago yeah it had been a while ago so that's kind of when the kind of when all the different rental companies started uh merging uh we sold our lift company and our bobcat dealership to hertz took a year off uh got into the party rental business what was the sale price on that um many many millions okay it was it was it was good was it did you actually own physical assets or did you it was just you're selling them software no no no no so this is before i started the software so this is myself as an entrepreneur yeah like web i mean i was i was i sold it on my 30th birthday and we had 6 million in debt at that time so it was all when you know you're buying big lifts boom scissor lifts bobcats all that kind of stuff so uh and that's so that took a year off did you own if i want to get in your head when you were 30 here because a lot of our listeners are in that age range six six million in debt you sold it for many m did you sell it for more than the debt did you pull at least a million dollars yeah i did yeah my goal was to become a millionaire by the time i was 30. did you from that deal yeah absolutely okay literally on my birthday so post tax steve sorry even after you pay 30 tax on the on the on the income there yeah no it was a very good deal all right very good okay so you take a year off then what uh my mom was getting married wanted to rent tables and chairs uh did that didn't like the experience so i said i'll get into the party rental business and uh so renting tables chairs dishes and that was uh so we started that night while we're celebrating our 20th year in that business actually and uh driving to florida with our kids so we live in ottawa so it's about a 30-hour drive and i picked up this audio thing called uh audio um cds that we could listen to emeth revisited yep so i don't know if you've ever heard of her yeah and listen to that all the way there all the way back i think all my kids have still memorized it and that was my aha moment where i needed to create a better system to run my business and that's really that's when i started building the software that ran our businesses and then we did that for several years decided to franchise the business um looked around for software and the software we had created was always our competitive advantage and when we started looking for something in franchising we couldn't find anything so we said well let's just modify ours so that we can start franchising with it and sorry define yours though it was a piece of it was a process it was a system software so you would log in yeah yeah at this point it was pure software we called it the ceo at that time so it would you know somebody would log in all your quotes would be there like it drove the whole process for the entire business it would remind you to follow up on quotes you know remind you to cash out at the end of the day you could set availabilities for trucks for drivers uh so literally did everything you needed so steve just to be clear the piece of software you're running today the better software company these are essentially software tools that you've built for yourself and now you've productized so that other franchise owners can use them to more effectively run their franchising operations exactly yeah i see interesting all right let's let's spend the rest of time on on on this idea uh and it's helpful to understand the backstory of how you got into this so thanks for that um the better software company any specific kinds of franchises in particular gyms painters etc or no really anybody really in the services business so if you're doing restaurant if you're pure retail that's not our space but if you're serving people home services window washing carpet cleaning uh classroom gym any type of thing like that that's where we can help you so if you're scheduling and those are also just be clear those are also your customers those are who pay you directly exactly okay on average i'm sure there's a ton of different cohorts here but on average what are these franchise owners paying you per month to access your software uh so the price will range between 100 per location to 250 per location and what we've done is we allow a person have unlimited users uh maybe not a great business choice a lot of people charged by user but our belief is we have a core belief in wanting to make that business become more successful and we believe that our software and our process will help them become more successful and if we start charging by user people kind of play the user game some people are using the system some people are not so we said you know what ultimately we want to we want success is what we want for the business owner so when somebody uh uses our software they can they can sign up as many people as they want to use it because we want everybody using it and you know i mean sorry that makes sense when did you officially productize this what was year one for this company in terms of business launching yeah so i'll just go back a little bit 2013 we had we had developed three franchise systems at that time our son passed away june 2013. we had to sell those companies i was in bed for about nine months uh at the end of that all i had was the software that i had sorry see were you in bed be just because of the loss it was just traumatic yeah yeah yeah yeah so you know so anyways that's uh so at the end of that all i had was the software so august 2014 is when i uh incorporated the better software company that's when we decided okay let's take this software and turn it into a business uh and then we started actually rebuilding it january of 2015. okay and how many locations have you scaled today uh we've got about 4 000 on there right now okay great across how many individual franchise kind of owners are operators uh we i mean we don't give out those are uh i would say probably around individual i'd say around 400 in around there oh wow small and large so just to be clear the reason i asked that question if someone signs up with you on average they're running about 10 locations yeah right now our average is actually a little higher than that but yeah okay yeah 400 customers 10 locations gives you 4 000 locations okay that's great now can i multiply the four thousand locations times your minimum 100 a month price point you're doing about you know north of 400 grand a month right now in revenue yeah we i mean we get we don't give out revenue numbers but yeah i mean we're doing fairly well yeah well and i don't want to i don't want to make up numbers i'm only using numbers you gave me you said 100 per location and 4 000. so i'm just assuming you're north of that okay what does growth look like so where were you if you're north of that today where were you about a year ago so what happened with our company is when we started so we started january 2015 we raised about 9.8 million through vcs i didn't really like that process they were more really focused on hyper growth and valuations so i ended up actually leaving the company last june and myself and my partner gentleman named bruce linton uh we bought it back this january so little transition and so we bought a back really wanting to and we used to serve small business owners when we bought it back we said we're just going to service the franchise industry and that's all we do so how did you know this is i have to break this down because there's a lot of entrepreneurs i think would love to do this same kind of thing when you bought it when you bought it back did the investors get their 9.8 million out or do they have to take a loss yeah they yeah they took a loss okay so uh yeah how did you how did you get them to agree to take that did you really have to leave the company to create leverage they couldn't replace you and then you said hey listen you're not growing a thing let me buy it back yeah we had somebody on the team at the time that i didn't again they weren't bad people i think they're just the business model drives them differently than what i'm used to um and i'm used to like if we can make our customers say well number one you start with making your staff successful and then treat your customers really well and then good things will happen there was one person on our team that i thought should leave the team that was in a leadership position the vcs wouldn't uh let me get rid of them well did the vcs put him or her there yeah so they yeah and they promoted that person the ceo after i left i see uh that person was ceo for about four months and uh figured out it wasn't for him so the the company basically became available uh my partner bruce linton i don't know if you've heard of a company called canopy so they trade on the new york stock exchange he was on cramer's show last night uh bruce so anyway so him and i uh we uh we ended up buying it back and so it was a year ago yeah yeah yeah yeah and january 11th that's great it's almost exactly a year ago so so again you're north of 400 today when you bought it back about what were you doing or what was the company doing when you bought it back uh we've grown sales 55 since we took it back our focus has not been on sales um our focus was really on on just working on the product and building up the product just to be clear though when you say you grew sales fifty percent or fifty five percent that that's i mean that means you grew you doubled revenue yeah okay got it so yeah no no no sorry not doubled half so sorry half five percent yeah yeah yeah so it's 55 percent growth for the year got it but our for our focus was not growth our focus was you know i get that i get that i'm not trying to say that number should be high i just want to know what the number was so so you bought if you're doing north of 400 grand a month today you bought it back and maybe it's doing 300 grand or something like that so you've driven you've driven that growth you're also refactoring the product um where's most the growth come from those and new customers are upselling the historical customer base so our our customers typically are good customers will typically grow internally at twenty percent yeah over here negative churn on yeah so a good franchise system will grow at twenty percent what's the turn under that if they're growing twenty percent what's that same code it's it's negative churn so our customers this year had negative well yeah but give me gross before you add back expansion what's gross turn on that cohort uh though there is no turn that that's what i'm telling you yeah i know but in order to get to net negative churn you have two components of that you have your gross churn then you add back your expansion and then you get net negative that's how you get to net negative churn so you what you're telling what i'm hearing i'm not no i i don't know that number sorry so just to be clear you have no customers you've had no locations go out of business over the past 12 months yeah yeah oh i'm sorry yeah yeah okay so there's there is sure i know i don't know that number okay you don't know what it is okay all you know is that when you take your churn and you add back your expansion your net revenue retention is north of a hundred percent which is also code for you have net negative revenue churn yeah actually i can give it so here's the number so the uh when we took the company back churn was at about seven percent and i think now we're sitting at about three point two percent monthly or annually yeah monthly okay three per two percent monthly churn now now if you have three point two percent monthly churn though right and so you multiply that by by 12 to get the annual number right that puts you at 36 percent annual churn if you only have 20 expansion that means you still have no no that that was a 20 expansion just on those customers they're growing we're adding our own customers as well well no no but when you're doing cohort analysis you don't look at new customer ads you look at the historical cohort that signed up a year ago so if that cohort is churning 3.2 percent monthly that's 38 return annually on 20 expansion you still have 18 churn their net yeah i i i honestly i don't know the numbers that you're that in terms of the the the final number with churn what's the expansion mean though what so when you say 20 how many understand what you mean by that so our larger franchise customers will add 20 internally they will add 20 new customers to their franchise locations exactly yeah yes but so that was but that's specific to that that's just some of your big outliers that's the story that's not representative of any kind of cohort that's just some customers that's what happens exactly okay yeah and that so that's for us that's why we're focusing i mean a big part of the focus is on the larger franchise systems moving forward because you do have the neg we call it negative churn on that cohort if that makes sense yeah well just the question there is then just where are you splitting up the cohorts that could be you know because you can't have 3.2 monthly churn only expanding it two percent per month and have net negative churn you'd still have one or two percent churn there so what i'm hearing you say is you're doubling down an enterprise those guys if you only look at that cohort are not churning three point two percent per month in fact they're expanding yeah okay got it very good exactly what's it costing you to land one of these new customers that ends up paying you caught 100 or 200 bucks a location uh you know when so i mean i'll give you something interesting when we first started the business uh go so when we started back in 2015 we sold both the small business at that time directly small business and we sold two franchises uh when i mean when we started selling into small business our customer acquisition cost at that time i think was about twelve hundred dollars then we are we started looking at the data and the more we looked at the data the churn was high on the small business guys because they would come on they would drop off and then the big part of the reason we're focused on franchise is when we kind of dug into it what we found is any customer that had more than three employees did more than 350 000 a year had more than one location or had to manage inventory they didn't turn as much so we were able to take that and drive the cac i think it was from i'm just remember what twelve hundred dollars down to around it was in the low three hundreds to get to get a new location yeah exactly so pay back there at times so payback period like two three months yeah at that time this year there's been not a lot of focus on sales there's not been we just literally hired a marketing person uh we're just starting to turn our sales on right now that we're happy with where our product is and you and your partner to be clear are the only ones on the cap table there's no investors no we have investors oh you why did you go out and raise more so you raised an additional 9.8 after you bought it back no no no no no wait we we haven't raised a lot at all no so we we've brought in new investors they're good investors so you're looking yeah i mean you know bruce has he just built canopy he's been at it i think five years ago it's a great great company i know that company so how much have you raised over the past 12 months uh we've raised 1.2 okay and what i mean so why do that you have wealth he has wealth why even deal with it at all it bit you in the butt already no the the they're strategic investors they're going to pay off demand i see i see their their marketing they could be marketing partners or whatever yeah yeah they're very very much value-added so we have a longer term yeah would you ever steve would you ever consider venture debt no no i would never no i i i'm not i i mean we've had vcs approach us uh again we've had uh so you know we've had term sheets presented to us and uh i just they're good people they're i i'm sorry i'm not asking about vc i'm talking about venture venture debt is the op people use venture debt when they don't want to use vc because people don't come on your cap table yeah no we're right now we're not looking for any venture debt and it's i don't know i don't think it's something that we would consider okay do you know how internet works well i mean you would go out and you would raise the money i'm assuming from um from a uh from um from who yeah so the reason i'm asking is anytime someone tells me a horror story with vc yeah i asked them well what other options do you look at in the future for funding your company which there are a lot of one of them that a lot of people are turning to is venture debt so when i said ventured out you immediately said no and i'm like well wait a second maybe he doesn't know what venture david knows okay so i thought it had something to do with venture capital no no no no it's it's actually the total so no in other words you don't have to answer to anybody if you raise venture debt no one's on your cap table in other words they can't put a team member in that you hate right that that you didn't leave the company because of so that's what i'm asking is when you raise the 1.2 million now you're in bed with vc's yeah they're strategic they're strategic investors but did you ever consider non-dilutive low touch venture debt kind of model or no you didn't look at it we haven't yet okay i see all right very good let's uh let's wrap up with the famous five number one what's your favorite business book e-myth number two is there a ceo you're following or studying right now i like richard branson number three what's your favorite online tool for building your company besides your own for what story building your company uh you know what i think uh square's done a really good job they're kind of a competitor but they've done a really good job number four how many hours i sleep to get every night five six and what's your situation married single kiddos uh married 30 years congratulations that's great i had five kids we have four now but yeah five kids three dogs that's why you got a full house all right and how old are you steve uh 50. 50. last question what do you wish your 20 year old self knew uh you know just how important not giving up is yep guys don't give you don't give up don't give up come from the guy that left a company with 9.8 million bucks behind it and then said okay fine you know it didn't work with your new ceo let me buy it back now on a discount and now growing it with his sounds like friend and partner a company is called again better software really software to help you run your franchise more effectively steve's been in the business for decades built the software for himself to start now four thousand locations using them paying 100 bucks a month north of 400 grand per month in revenue up about 50 year-over-year from 300 grand a month just about a year ago when he bought the company back 1.2 million raised and in terms of churn and economics 3.2 monthly churn expansion on the bigger cohorts about 20 percent year over year cac spent about 300 bucks to get a new location so three month payback period as they look to scale steve thanks for taking us to the top awesome great job thanks nathan