How TRACTIAN CEO Jonas Vargaski grew to $32.2M revenue with a 446 person team in 2024.

hey folks my guest today is igor marinelli he's the founder and co-ceo of traction which makes it easy for industrial teams worldwide to detect when their machines are going to break the company just reached a million bucks in revenue and is preparing for a series a they were the first iot company in to be funded by y combinator and prior to that igor was building an app to predict health chronic diseases blue ai which failed miserably but it always happened welcome to the top thank you so much nathan how bad did it fail did you raise a bunch of capital and everyone lost money or what it failed exactly because i didn't raise so let's start with that but basically like uh in our health chronic diseases app we just basically couldn't find product market fit so it was really hard me and my co-founder would spend a lot of time building the attack and just basically forgot to just navigate the problem very interesting okay so but you say you failed because you didn't raise capital no of course like i think not raising capital was was just like we raised a a check of an angel of 75k um not so relevant because like you know money there's three things money can't buy friendship love and and product market fit so uh we spent so so long trying to figure that out and it just wasn't the right timing it wasn't um the right product even we just like so we were solution focused instead of problem focused and i think that was the main reason that it did not succeed interesting okay let's talk about traction who's paying you for this tool what's your customer like so our customers just really the front line workers of every industry like an industry it's just really cool because everything that you that you consume everything that you wear that you use in your day-to-day this mic for example uh isn't by some industries and in the front line there are the maintenance managers that are suffering from sudden breaks of their machine so uh those are really the the persona that we're tackling him in solving their problems so interesting okay so the the line workers obviously aren't paying directly on their personal cards though the company's signing up for it to protect the line workers and machines breaking exactly we're basically the industrial os and we are better serving the long entrance industry that for long they just basically they cannot have any prediction of any idea of when that machinery is going to break and because of that they cannot plan their routines in advance as well so and the only way really to do that is by combining software and hardware and just basically providing the best in class iot that we can so explain to me like embryo is one of your customers you list on the home page right so again they're using it for online monitoring asset management sort of all in one place but for them specifically what's the piece of hardware or the frontline machinery that they're monitoring with you so they monitor basically all the machinery that produces the airplane so uh if you think about there's a bunch of modern engines compressors pumps um turbines generators uh all basically rotational machine so i've done computer engineering not mechanical engineering but we learned along the way and just the only part that we're not monitoring is the airplane itself everything else uh we're monitoring and their assets uh parts just basically to provide a decision a better decision-making process of when to do the maintenance in a specific asset because if an asset fails or goes through an and breakdown or a downtime that can cost a lot of money and sometimes the security issues for industries as well yeah well and people can die uh to put it bluntly um okay so how are people paying you for this what's the average customer paying per month well our average mrr is basically um 3k per month so um and those customers they have around uh 60 sensors as an average and and just like 60 sensors just like 30 of what they could achieve but it's part of the rollout model so they start with 30 of the critical assets in the industry and then from three to three months they reveal it and like now we want 30 more and 30 more and 30 more and just roll out more sensors to more areas to cover more of the the critical uh part of their their mission basically your packaging for this sensor that you send out it looks beautiful it's called smart track what's it cost you to produce that piece of hardware so the hardware nowadays it costs um a hundred dollars per unit and um actually is a it's a very good payback because we can we're able to to provide it as 45 dollars per month per cent sure so in terms of hardware payback it's like two 2.5 months sometimes sometimes four months if we consider the delay of an industry to actually start putting you in their payroll so uh but it's really fast fast uh uh payback for the hardware now do you is that is that 35 a month per sensor on top of the 3 000 a month software fee or is it included no that's that's all included so if you divided like uh 45 bucks for 3 000 you can see like the average of the sensors that we have in yeah so so i guess if each if each person if each customer has 60 sensors installed on average uh and they and it's 35 dollars per sensors per month that's like 21 000 per month for one customer is that right no no no not exactly okay tell me what i'm doing yeah no basically because like if they have 60 sensors they're basically paying 35 dollars it's it's it's uh 2100 right so so oh sorry sorry i had an i had extra zero i had an extra zero you're right 60 sensors 35 bucks a sensor per month that's 2100 bucks a month there and then the other thousand bucks a month is the software fee basically of course yeah exactly so putting all together in the package that's almost basically 45 uh dollars per cent for per month if we're considering all included you know yeah yeah yeah but but really i mean is the sensor a loss leader and that you're like you're really paying for the software ongoing in other words like when you went out and like raised capital do you say we're a hardware company or a sas company well we're basically a sas company but like we have a a difference that we decided along the way to also embed it into our own hardware i mean like iot isn't that commodity that we think it is especially because of installation time setup time and so on so if you really nail down the hardware part you can go to go to market more easily and you can just have like more successful customers that are paying more expanding more and that you also can upsell more so uh of course we tried with some pieces of hardware already existing in the market but like they don't have that good experience of installing it and forgetting that the sensor exists so basically like a good hardware is when you go install it and you just forget about its existence and just focus on the software part yeah so how many customers do you have today we have 100 companies so how many sensors are out there in the wild today they've installed yeah we're like um around 3 000 sensors that it's already going on the market and so this um basically like some of the other clients they already they already have like some old versions of our our hardware as well so like it's just evolving a lot so basically operationally saying it's three thousand sensors and this month we had basically like a thousand sensors more added to the market so four thousand sensors so we're growing at a pace of thirty percent each month 4 000 sensors you have 4 000 sensors out right now then yeah they are arriving at this moment at the client but basically like by the end of the month we're going to have 4 000 and for example so this month we grew like we're almost getting there at the end of the month but we'll be for sure 30 percent grow so iwork can i take 100 customers times 3 000 bucks a month are you guys doing about 300 000 a month right now in revenue yeah it's basically like that's how much we're achieving um what's actual though i think you're probably doing a little bit less than that right exactly so the thing is that if you take the cohorts of the last three months you have this average and if you take the cohorts of the last like 12 months you have a just basically like a smaller lower lower average yeah yeah exactly so what's our today our mrr today so we just we just hit like 100 100 000 yeah that's awesome man congratulations do you remember where you were do you remember where you were exactly a year ago wow a year ago we were at like a ten thousand dollars from now oh amazing okay very cool yeah that was driven like a 10x grill what's driven most the growth is it new customers or more sensors for your same customers we are a bit divided into that but honestly like from last three months from now we had a lot of uh very much increase in in terms of the uh the upselling of the current base so uh i'll say like 70 is new acquisitions and 30 is actual customers that are like asking for more so even though we're not focused on enterprise we focus on on smbs but mostly medium business we are seeing a increase of the of the average and mrr like i would say yep growing nicely okay talk to me about how you've capitalized this are you bootstrapped or have you raised we've raised 3.7 million bucks and in sea ground uh that was a y coordinator together with summer capital and other us funds and also now we're just like thinking about series a we still have runway to go almost like 12 month runway still um but probably we'll be raising something in between 10 or 20. uh we still need to close our projections so the 3.7 million seed round that was closed this year yes that was closed on march this year okay cool and most people are selling like 10 to 20 percent in their seed round is that about what you guys sold yeah probably about it okay cool so you're talking like a 25 to 35 million valuations something like that our valuation was a bit lower um it was from basically the range like in between 15 and 20 million dollars post mine how do you think about valuation obviously you want to preserve your equity in the business but you also want to bring on these partners i think like honestly we're just we're just thinking about what's going to get the company bigger and how do we achieve more market faster so um i don't really see like i have x left or y left like we still have in my partner we still have more than half of the company all together so we're just really aligning to that that like whatever is best for the growth of the company you know it's better um to have a piece of a huge cake than just a whole cake of yourself of nothing right and and so did you and your co-founder split at 50 50 at the start yeah okay got it and did you guys set up an estop pool for your employees yeah we have a 12 um um stock options interesting okay so so this could be something like 12 for them 30 for each of you so that's like 72 and then like investors on maybe the other like 28 something like that yeah yeah yeah yeah yeah very cool healthy cap table love this business you're dude you guys you probably already know this your net dollar retention in like a year two years three years it's gonna be through the roof because no one's gonna uninstall all this all this hardware exactly i think that's the main that's the main strength of our business actually like uh we we we're able to consistently if we stop selling right now stop new acquisitions the company will for sure double in a year just with the the current uh um customer base if we consider no turn right so it's just like what is your turn today uh our return today is like 1.5 percent month maximum uh got it to call like 18 annually but what's your expansion revenue over over the past year do you know so which is yeah over the course of this year we've done uh the dollar based network expansion rate was basically like 118 percent one eight zero no no one eighteen percent one one eight okay got it yeah got it so you've got 50 you've got 18 churn 36 expansion for a net dollar retention of 118 exactly yup those are pretty healthy numbers that's very cool all right how do you sign up more customers so we just just figured how to build like a very good go to market focus on the s b because they're basically the most unassisted we also we also do some enterprise but it's really not the focus right now um but basically we we we just like bet a lot in outbound and and inbound marketing nowadays so uh we're having about like the thing is how do we increase acquisitions right because our sales conversion rate so from a qualified leads and we have about like 100 qualified leads a month to an actual sale it's basically like 27 some months like 25 the conversion rate so our convention rate is really high but because like those those customers are very uh let's say we have like 300 000 uh in brazil summing up all latin america we have like 600 000 companies to to achieve and basically it's like how do we achieve them faster and and a lot of this answer is basically producing content and producing webinars and courses as well to just get very close to this persona that it's kind of exclusive in this market so uh we had to be very careful to build like basically a very uh original uh sales funnel in terms of understood site looks good we're running out of time here quick question on team how many folks full time today we nowadays we have like 60 people six zero and how many how many engineers engineer is basically like summing up all the companies basically like 40 people are engineers and and the 20 other uh we're talking about sales and marketing all right let's rapidly we're with the famous five number one favorite book my favorite book for sure is hard things about hard things i think very known in silicon valley but uh it's really good number two is there a ceo you're following or studying well um i i'm studying a lot of the new ceos uh that are like taking down the companies and in us so for sure google co after they they they replaced and so why i think there's a lot of learning in terms of how they're looking for the market in the next steps number three what's your favorite online tool for building traction favorite online too that's good well i gotta say i love hubspot i don't know what i would do without that number but i also love some other some other tooling like retool also helped our business to do like internal tooling very cool all right number four how many hours of sleep every night wow i'm generally like burning the midnight oil but i'll say about six hours a night and it's not because i it's not because i wake up early it's because i go to sleep very late anywhere what's your situation married single kids i'm married with a married wife actually yeah how many how many kiddos if any no no kids yet and no dogs so no kids figuring out the dog park first all right all right anywhere how old are you 20 what 24 24 okay last question something you wish you knew when you were 20. that i had dropped out college faster guys drop out faster traction is helping frontline workers manage the quality of those frontline tools they use to understand when they need maintenance and things like that they were doing ten thousand bucks a month in revenue a year ago now a hundred thousand dollars a month in revenue great model where it's iot plus sas really high net dollar retention they over six three thousand four thousand sensors installed they have 100 customers that pay about 45 bucks per month per sensor plus software on top of that so scaling quickly 3.7 million raising their seed around a valuation of 15 to 20 million scaling quickly with 60 folks on the team 40 engineers igor thanks 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 1 pm central it's called shark tank for sas we call it deal or bust one founder 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