How Troops CEO Dan Reich grew to $1.1M revenue and 200 customers in 2018.

hello everyone my guest today is dan reich he's the co-founder and ceo of troops a venture back technology company that is building artificial intelligence for work troops is working with hundreds of companies and has raised about 17 million of venture capital he's also co-founder and president of tula or tula a health and beauty business that has created the world's first probiotic based line of skin care products he's been involved with companies that have raised over 100 million of venture capital and have exited for over 1 billion in mergers and acquisitions before troops he started a software company called spin back while he's which he sold to buddy media and then to salesforce.com for about 850 million bucks he was a bs in electoral and computer engineering from the university of wisconsin-madison is a contributing writer for forbes and has been named silicon alley top 100 by business insider dan are you ready to take us to the top i am what's up nathan all right nice to have you man so quick clarifications on the history here so um spin back you sold that to michael the guys at buddy media did you stay with the company through the salesforce acquisition or no i did not i actually left the same day we closed the deal with salesforce i knew the deal was gonna happen and i knew that i wasn't gonna go work for salesforce so i actually sat down with mike and i'm like look i'm an entrepreneur i want to go start another company i'm too young to go work for a big company and i basically uh you know worked it out so i could leave the day we closed okay and i want to get a sense of i always like to get in the brains of where my my folks are when they actually launch the next company so i mean was that was your exit the 850 million was obviously the exit buddy media to salesforce you know not i don't think your exit to buddy media but what i want to know is your exit tubebuddy media was that to that point your life your most significant financial event yeah i would say so okay um and without obviously you don't want to disclose the exact number but give me a sense of kind of in your head was that like comfortable money was it like i can do whatever i want the rest of my life money was it like jet money generally where were you yeah look it's uh let's put it this way for the time of my life i was 25 26 it was you know the most amount of money i had ever made and uh but certainly not i can go retire on a beach money right so you know let's get a good little bump for that moment in my life it was go travel the world for a month and then get back to work jump back into a new company yeah all right so for me yeah that's right and did troops come right after spinback or did you focus some of your time on this health and beauty brand no it's funny when i left when i left bloody media salesforce i didn't really know what i was going to do i just i had a few ideas for a few different businesses but really had no clue but knew that if i were in that routine sort of my brain would have probably got a little bit numb just clocking in and out every day and so didn't know what i was going to do decided to leave my parents thought i was insane because it was financially in my interest to stick around for at least another year but i saw i hit eject and what ended up happening was had a few different ideas and actually a venture capital firm called me up and said hey dan we're looking at a few different businesses that we want to invest in seems like you would have an incredible perspective on these businesses would you mind taking a look at them with us i mean so what happened that's code for we secretly want to get you addicted to make you the ceo of one of them well so i think i think from their perspective they wanted to win these deals and they figure that if i got involved i might be able to help them invest or get into the deal and so what happened was we looked at a few different deals together and a lot of you the companies i actually loved and so we ended up coming up with a relationship where i would leverage their balance sheet they would leverage my experience operating background to do deals together we would both invest uh and a few of those worked out quite well to the point where they're like hey look why don't you just work out of our office and sort of you can continue to invest with us as you think about what's next and so i did that for about a year and what year was that that was uh that was man 2012 13 i think um you know i did that for about a year five blocks from my apartment which was incredible and uh yeah look begin to think about what you know what i want to do next do i want to do this venture capital thing do i want to start another company and so i remember having a ton of meetings with entrepreneurs trying to raise money and i remember you know i remember really conversations going one of two ways either i'd have an amazing conversation with an entrepreneur and just be really jealous that i wasn't doing that or i'd have just a horrible conversation with an entrepreneur and say man where did that hour of my life go and i'll never get that back and so you know realize the vc route at that time wasn't for me wanted to start another company again um and so ruminated on a bunch of ideas and stumbled into the health and beauty company which i can unpack and then realize i needed to get back into software which which became troops so let's fast forward yeah we'll skip health and moody let's go directly to troops so what year was the company founded we started troops in the middle of 2015. okay 2015. and for those of you that for the folks that are not familiar with it describe quickly kind of what you do so troops yeah so you know at troops we believe that every company on earth needs a way to manage information on their revenue their customers their pipeline we know that category crm we know salesforce to be the leader a problem with it and many like it is it's incredibly painful to use right like you log into an interface that looks like it's from the 90s with a bunch of fields forms buttons and boxes um we just felt there had to be a better way and so the way we think about the world is you know man what's the easiest most delightful way of interacting with software today we felt like and still feel like it's uh messaging you know at the time we started the company six the top 10 apps in the world were messaging apps and so we're like man what if you could chat with your crm like what if you have almost like you're an like whatsapp telegram you know maybe intercom now these kinds of things yeah that's exactly right and this is you know before slack was even really a thing we just felt like man these things were so pervasive in our personal lives that it was inevitable that uh consumer software would be as good and as delightful in the work environment you know we spent over a third if not more of our lives working that was just an inevitability in our mind we felt though like no one had ever thought about work software in this new consumer-ish way um and so at troops our mission and thesis and question was like what if you could interact with your business systems and serum much like you would with a human in a messaging interface and so that was really like the question grand experiment um or contrarian point of view that we had and uh yeah we just set out to try to to try to prove that so fast forward to today what is troops in a more literal sense we are the leading uh the leading application most specific application on slack that connects mission critical systems like salesforce your calendar your email uh with slack which in our minds is like the new operating system for teams um so that's what we're doing today interesting um i don't want to go down every customer cohort but on average what's the customer pay you per month for this product so on average our customers pay us you know many thousand uh per per year they'll pay us many thousands of dollars per year okay and is that do you price like per seat do you have a per seat cost that's pretty average or no we do have a per seat cost but it ranges depending on the size and scale of the company okay so for example we have customers that have several hundred to a thousand users using us and we have companies that have you know five to ten users yep yep so if we call it kind of 3 000 a year that might come out to call it 250 bucks a month and a typical team might be 5 10 20 people something like that yeah on average it's it's more than that okay i'm trying to get a sense if you're more enterprise or you're more kind of mid-market smb well so yeah let's unpack that so for example some of our customers include guys like wework looker slack envision flexport square um so are they enterprise or the smb you know it depends on how you define it yep yep okay it makes good sense and then you said kind of leading application on slack i have to kind of hit you on that and say well how do you know what are you measuring that by is is it number of api calls per day you're the slack app that has the most or how do you measure that yeah so i i would say it's more qualitative slack is actually one of our investors i think we're the first series a investment they ever made and um you know they tell us quite frankly they're you know they they look at the whole ecosystem and look at what are the well who are the companies that are like really pushing the limits in terms of sophistication and possibilities on their platform and we're sort of top of the list got it what okay so 2015 you launch you develop you develop you integrate with slack you know that's kind of the new operating system you're kind of piggybacking off that whale smart what have you scaled to in terms of total customers using you guys we've got about we probably now have you know over you know 2 000 companies using us in some way shape or form um and those are paid though right not free so so some the bulk are free were now we've been moving in a paid direction so we have a several hundred uh paid okay and so walk me through that transition so when did you decide okay enough with the free stuff we've got to introduce a paid a paid option a lot of people get stuck on free for life and they end up going bankrupt yeah for sure i mean when we started the company you know i come from a generally a b2b background so i'm always used to building stuff and asking money for it but for troops because we were trying to solve old problems in brand new ways we're like before you even mention the word revenue like would people use the thing would they interact with it would have worked so that's what we wanted to figure out first for i would say the first year and a half of the company in fact we didn't even want to mention the word revenue because we always felt like for the next you know next five ten years in this category the companies would win that would look more consumer in nature um they wouldn't be this big heavy enterprise piece of software that you like drop and deploy and manage and people would actually like on-prem servers you know slas yeah exactly and and even moreover you know like if you if you go to an office at any company and you look at the software that they use to do their job i would say categorically most people just don't like the tools that they use i mean there's a reason slack is the fastest growing business app of all time i think the reason is the way of interacting with that software is just human and enjoyable and so the question for us is could we mirror that delight in this category of crm so that was that was question one so for the first year and a half we set out to prove that and then turns out it worked uh people love this and so once we hit that threshold we're like you know what okay now it's time to start making money and so we just came up with a price and just threw it out into the wild so what year was that by the way the first pay wall first paywall was uh last year oh wow okay so this is fairly this is fairly new now you could afford that because you raised capital so you could pay for your team you're engineering all that without having to ask for money your customers pay yeah that's right yeah um okay good and then you said i think you're 2 000 total folks on it a couple hundred call maybe 200 300 paying i mean can i take we'll say conservatively 200 times that three grand a year price point and assume you guys are doing what 600 700 grand in ar at this point uh it's more yeah okay and which of those so which of those numbers am i underestimating the arpu or the customer count the revenue per contract right as i mentioned we work we work with some bigger companies as well they pay much more than that um which that's good no that's good um uh i want to learn more about your team and kind of if you're folks if you have an inside sales model you know a high touch model before i do that though so i mean when do you think you pa it sounds like you're you're north a million bucks an hour at this point when you pass five million when you think that happens yeah good question look a lot of it has to do with how the market evolves i mean you know slack is growing like crazy they're now dedicated to building out a very very big sales organization and as you know they're very focused on just growing period i think if you look at slack and where their roots started it was really in the developer and i t world and um and so now to expand they want to get outside of that world so where would they go well they would go to the ceos cross heads of sales cfos and we have those sort of conversations the questions that those guys care about are very much in line with like how are we going to make more money how do we increase shareholder value how do we increase our forecasts and pipeline management and really everything related to customer facing teams and um that hasn't even started yet by the way the slack competitors are also just equally focused on on this as well you look at microsoft teams you look at facebook products facebook for work so the way we feel at troops is this category hasn't even really started yet which is pretty exciting to us what's growth rate so if you're north of a million bucks an hour today take me back a year where were you this was just like when you're a couple months after you launched your paywall probably oh we had no money okay so august 2017 was pre-pay wall that's right okay got it good so so kind of you know in terms of if you just measure not off company life but off terms of paywall life you know zero to a million bucks in an ar less than 12 months is pretty good yeah you know we're pretty pretty happy with it to give you perspective for the bulk of the time we didn't have any sales people either it was just me and my co-founder uh scott doing most of the customer calls okay just two so yeah round up the team for me so just two of you guys co-founders we have three so myself one of my co-founders scott who heads up growth and then we have another greg who heads up technology and engineering okay great and what's the total team size today we're about 20 people today all in the uhr we're all new york in uh the flatiron area the bulk of which our engineering our engineering theme is the biggest theme followed by product and then followed by uh sales and so when we started again we said look we think we know how to do business development and sales and marketing we think we can play that game all day long but let's first and foremost see if we can be a product company much in the same way that slack is a product like company or envision as a product like company or square is a product like company we think the companies have a product led moving forward will be the ones that win dan churn is critical in a sas business obviously you know this what's your turn today and how do you think about it how do you manage it our churn is less than four percent today okay is that annual or monthly and logo or revenue that is that's a good question um i would need to double check that but you know our trend is very low and we the reason we think it's very low is twofold one one the uh price point we think is reasonable we always felt like let's not gouge our customers eyes out for money let's price the product fairly um i've seen many companies just price way too high and inevitably and sas get undercut by the next startup and the next startup then free then some other alternative business model um so reasonably priced but also again think about slack it's inherently public and viral in nature so the minute people turn troops on it becomes public to the organization once that happens it becomes second nature around the way that they do work so you know hubspot is a good example their customer of troops they manage all of their leads using troops the lead comes in it gets um it gets inspected and then routed intelligently to the right team member around the world that is how they run their process now um and so to turn that off would not be such a simple thing and same is true of most of our companies as another customer put it you know culture amp is another customer customer of ours he's like look we use many tools uh segment is an example he's like three people at my company know who what uh segment is but every single person knows who troops is because it's part of the public fabric of the organization and so i think that's another reason why return has been pretty good talk to me about cac what do you pay to acquire a new customer um we've spent you know we've spent the arm uh now whatever the cost of sales with regards to the accounting executives so we have two three account executives now we have three accounting executives now we don't do any marketing um you don't do any paid advertising it's all been today word of mouth on search is how we've been acquiring customers fully deluded though when you include the salaries of these obviously guys now don't disclose their obvious salary but i mean are you willing to spend up to a year of first-year acv on acquisition or is it six-month payback period or north of that what do you kind of aim for our payback periods uh it fluctuates but it's called six months six months okay six months is actually that's extremely low for the amount i would say extremely low for the amount of capital you raise typically when you see one rate 17 million bucks at your revenue level their payback periods a little bit longer because they're investing in that growth yeah i mean it is part of the reason and again the way we think about the world is as i mentioned earlier we think the market is still so early and so if you look at slack and the other ecosystems they're just now beginning to invest in use cases that coincide with our use cases and so our attitude has been look let's not get ahead of ourselves let's not overspend or get too aggressive if we think the market is still maturing let's just quietly build product let's perfect it let's make sure the customers are happy and we don't have a weekly bucket and once we feel good about that we can begin to get aggressive and lean into uh the product that we built i've seen way too many companies that out of the gate there's a bunch of money products okay they spend on growth they spend on sales they acquire customers and then guess what happens it's like air on fire problems every single day with churn and happy customers the product isn't working they were sold false false goods and what i'm hearing you say is you've got 17 million bucks still sitting in the bank we have most of it still sitting in the bank that's good stuff walk me through before we wrap up here when was the last funding round so believe it or not we just did a series b a few weeks ago it's public but we didn't do any press around it um so we raised another about 8 million just a few weeks ago okay that's good let's wrap up here dan with the famous five number one what's your favorite business book good to great jim collins number two is there a ceo you're following or studying right now um i mean jeff gives us yeah you know hard to ignore yeah number three what's your beside your own what's your favorite online tool for building your business troops is that is that said beside your own oh uh favorite tool for building a business i'm a fan of the google products number four how many hours of sleep to get every night okay so pretty healthy we'll call seven there on average and what's your situation married single kids married no kids no kids all right and uh how old are you i'm 32. all right dan take us home what do you wish your 20 year old self knew just just uh just go for broke and keep you know don't be afraid to fail um i know that i knew that then but i think i know that now more than ever just get off the sidelines and just don't be afraid to fail just get in the ring guys go for broke he's doing it he had a small win call it you know travel the world for a month kind of win back in 20 when he was 25 years old sold his company to buddy media before buddy sold the sales force he said you know what i'm going to give up some upside in terms of money in my pocket leave early free up a year my time got re-involved in it with a vc firm and a health and beauty product before founding troops in 2015 which is more and more becoming part of the social fabric of companies as they look to put more information into their crms and just communicate in a more human way over 200 companies now using them on a on a monthly basis and on a paid plan over 2000 companies using using them in general they raise 17 million bucks north of a million bucks in arr at this point that's in under a year of introducing their paywall less than four percent logo churn per month you know totally willing to spend about six months of ltv or six months of of uh uh you know monthly rp on acquiring these customers which right now is really just a three person inside sales team their team is 20 people based mainly in new york city dan thank you for taking us to the top right on thanks nathan