How Tru-Signal CEO David Dowhan grew to $4.8M revenue and 16 customers in 2018.

hello everyone my guest today is David Dohan he's the chief executive officer and founder at a company called true signal he brings a successful track record of executive leadership at growing both private and public venture backed companies and has been a pioneer in online marketing since 1997 David are you ready to take us to the top let's do it all right tell us about true signal what's the revenue model and what's the company do sure so we're predictive analytics and data company really focused on helping digital brands and mark tech platforms use data for more effective targeting so that's kind of in a nutshell revenue model really I mean the company's been around since 2012 and so we've we've had actually a couple of different revenue models we started out looking a little bit more like an agency where we're kind of managing campaigns directly for brands didn't like that model it's hard to make that work guarantee revenue models just doesn't really exist in the media space and so within the last it's a kind of you know it's 18 months or so we really flipped the business around and really focused on establishing ourselves as helping the Mar tech stacks out there with our technology integrating our technology into their solutions to help power some boats other people's Mar tech stacks and really in doing that we turned it more from media driven kind of month-to-month model a more - I would say more of a SAS inspired model where we're having some kind of minimum monthly revenues associated with our integrations but then we are we partner with our with our customers to build products together and grow them so there's some upside potential as well business so the model is kind of a SAS inspired I would say and what would you say the average customer pays you per month just so we can get a sense of what size you're playing with sure so the average kind of minimums that we see across the board about $25,000 per month okay minimum or is that an average that's that's the that's a minimum okay yeah so again relatively small customer base so we have 16 or so active customers and so we have a minimum and then we really partner with folks to kind of get the upside so that's that's the model what do you mean by that partner with folks get the upside sure so when the the 25,000 or so per month kind of covers the cost the integration the support but what we're really doing is we're helping our customers grow revenue and so most of our contracts have a revenue share model to them so as we build products together and we we staff to help them take it to market provide support so it's very much a channel model almost like we think of ourselves is a little bit like an Intel Inside forum our tech so we're powering some of the capabilities of the Mahr tech stacks but then we partner with them to really sell it and turn into real revenue okay got it um so you have two revenue streams one is a revenue kind of cut the others to pure SAS plays that accurate yeah that's right and the pure SAS but there's sixteen people paying a minimum of twenty five grands you guys are doing north of 400 grand a month just from that stream is that accurate that's correct okay got it and generally speaking how fast is that growing where was that stream call it 13 months ago in December 2016 yeah that well that stream was about half of where it was oh wow you know about 12 months ago right in terms of like signing up additional partners so we you know given the nature of our business there's you know maybe 80 or 90 or so players out there that we could potentially partner with and so you know we're well on our way to kind of knock and some of them down so it's not a massive customer base but we do get integrated we spend a lot of time nurturing that relationship Co selling so my objective really is to get customers kind of a minimum of 50,000 a month and we like to see customers closer to 100,000 per month kind of recurring in that that's a mixture of course of the SAS plus the upside models so yeah that's really what we shoot for that's good now did you iose oome you guys did you break 5 million in AR last year with both streams together yes got it will you break 10 million this year I don't weigh 10 I'd love to we're it's some of these things take a little longer but yeah we shoot for 10 that's what that's what the board loves to hear best eh yeah it's uh yeah you mentioned a board how much have you raised so interesting story so true signal was actually incubated inside of another company called I bureau so I was an employee the bureau we started out with 2 employees more of a skunkworks kind of bootstrapping if you will so the company was funded by the parent company for a number of years a bureau was just sold to TransUnion in a public transaction back in October so it was part of that transaction we had a couple of choices we could either you know potentially be acquired with the parent company or spin out and so the board saw a lot of big upside potential so we raised a 5 million round and spun it off as a separate independent company back in October of 2017 so smart I want to dive deeper here so others can do the same thing at their companies if this happens yeah which board made that decision the acquiring company of Ebro or the Ibero board prior to the acquisition the bureau board prior yeah okay so the II Bureau board prior to that so they now was the cap table at that point they own some percentage as the company and then you and maybe your other co-founder own the other chunk yeah that's right so as part of the as part of the the corporate structure there was the parent company and then there was two kind of in corporations under that parent umbrella company so the cap tables were completely separated a lot of work was done on the legal side to be clear to make sure the IP has been separated that's one of the big issues you're gonna get into right especially for technology and data company how is the IP commingled so we did a lot of things to make sure those are separated both physically as well as illegally and documented well so that when it came time to do the spin-out you know it was an easier transaction but that's because really smart people had done things for the last three years to kind of get us ready for that event what portion did Ebro own of the portion of true signal before the spin-out so so the parent company called X Tech was the holding company so they owned 100% right so obviously there was some you know ownership to employees you know did you own anything the board helped I do yeah yeah I do I did on some but not anything like they owned a hundred percent yeah so a private company same balance sheet there was separate equity plans for true signal any Bureau okay so I think what you're getting at is kind of what kind of kind of kind of overall ownership it was roughly kind of an 80/20 split right so 80% it was kind of owned by kind of the board really as well as the 20% was employees got it so 20% was you the co-founder maybe other employees and an option pool 80% was owned by the parent company you once the spin-out happened you said we need to go raise five million bucks to essentially buy out the 80% and now VCS on that 80% are you able to sell only maybe 20% and increase your option pool for employees well it turns out it was the same the same VCS kind of funded it they don't do it before right so we have very supportive board they you know kicked in some more money so they kind of retained their ownership share and took a little bit more obviously right as part of the as part of the spin-out so that's how we did it no let me let me ask you this as a guy that can kind of go out do his own thing you're doing all the hard work that an entrepreneur would do if they owned a hundred percent of the company except you've got kind of capital partners why didn't you just go out and start from scratch instead of going through all this work of separating and making sure as a clean cut yeah so a couple of reasons one the business that were in is heavily it's pretty heavily capital intensive right so to be in the data business you need to you know you we license data from many different places so we're licensing you know on the order of you know a couple million dollars worth of data every single year that's just kind of a fixed cost of operating right so some of those sources if you don't mind me asking are you talking like full contact yeah so name and address with things like past purchases the kinds of people the things that people bought online and off light demographic data census data vehicle ownership voter registration files right summarized credit information so is a trick to really do this well you have to have a pretty broad spectrum of data and that's extremely capital intensive right I'd love to bootstrap it but man that would require you know writing a two million dollar check before you made dollar that's just because you're paying on these two that collect the data you know a number of cents per record yeah that's right and the interesting thing about the model is it's pretty highly leveraged that's a fixed cost to the to our business so the more I use the data right the you know the closer to get to break-even and then after you break even it's a pretty highly leveraged model right because you're kind of your fixed costs are really going to be people the data cost and that's about it there's very few marginal costs associated with the business so as soon as you hit that inflection point you're happy right from from a gross margins perspective got it so you said when I check out the number right you said you're doing two million so in your expenses on data yeah couple million in yearly expenses on data right then you have the staffing costs on top of it right so kind of data processing a couple million dollars is required to kind of kind of that's the to kind of hit the data cost but it gets better over time obviously with scale does so even even if you scale your custom raise to scale revenue which that doesn't require you to pay for more data records from those same sources no it turns out that we're licensing the data on a SAS smile it's a fixed feed like annual to license the data and we have you know unlimited usage rights of that data that's interesting those companies they have unlimited they don't try and put a record up there to upsell you later on yeah I know they don't I mean that's that's just been the history of the data licensing business now there's rules and restrictions on how we can and can't use the data we can't resell it for example so there's you know there's some colors around it so we have to make sure we're using the data appropriately and legally but um that that is the history me look and from from a revenue model we're taking a little bit of risk on the data upfront right we're paying upfront but then you know as the business scales we kind of you know reap those rewards on the back end you sound like if anyone listening everyone's to run for president you'd be the guy to hire to manage the data operation huh yeah well we have dabbled in the in the analytics on the on the voter Sun it's it's a it's a fascinating dynamically moving market so pretty exciting is it clear to you looking at this past election why everyone got it wrong when you understand start understanding where they capture their data from interesting um so I'm more reflecting on someone to be analytics right and so my read on how people misread it was really a function of the way that people got data and feedback and survey is a little bit antiquated right the the nature of this the way these you conduct surveys my sense is that's a little bit out of step with reality right so unless you're doing a really good job of balancing the population people using mobile phones people responding to emails people responding to you know to tweets right it's really difficult to get a representative sample of the US population so that's that's my kind of analytics take on it is this the survey methodology is not caught up with the reality of the way people communicate with each other right tak what are you spending to acquire these customers you know I haven't looked at it lately but you know a decent amount right if you think about it and these are some of the biggest brands in the world right so the sales cycles on some of this is gonna be six to nine months so if you imagine you know carrying a bag bag carrying salesperson you know six to nine months going to the trade shows like meet-and-greets it's it's a it's it's a it's a pretty hefty tax we're talking like a hundred grand two hundred grand I mean what do you think no if I had to a verge it out I would say probably closer to kind of the forty to fifty thousand dollars is kind of what it would be that's not bad though if you're there p.m. you twenty five grand a month your payback is two months basically yeah it's not bad yeah it's not that small now have you out seven out of five million to do the buyout in the first place you raise an additional capital or no don't have not and you know don't intend to knock on wood right yeah so you know that we're we're you know obviously keeping a tight eye down the burn rate keeping it tidy on the growth rate so those are you know things that I look at on a regular basis to make sure we're tracking what do you look at when you look at burn rate do you do that as a you know a multiple of cash and bank and try and keep that in a range or how do you do that sure so we you know build some forecasting models we have enough of an operating history that we understand kind of AP and our AR flows right so as you know revenue flows in as cash payments flow out we have a pretty good understanding of the rhythms in their business now when people pay so that's one thing we we keep an eye on the other thing we keep an eye on and you know we like to do is pre pace right so from a cash perspective we have a number of clients that are happy to prepay us again taking a page from the sass playbook so if you can get a major brand to pay you prepay couple hundred thousand dollars up for it's always a good thing from a cash perspective and then you know just really mindful on return on investment right so one of our bigger expenses is related to marketing costs right so getting in front of people attending the events so we already do some pretty detailed ROI analysis to just for bang for the buck right I'm not about what event you're most bang for your buck out any sponsor sure so there's there's a handful of there's we just went to a Consumer Electronics Show CES Vegas and that was a huge ROI and again not because we sponsored some big booth we we were very stealthy about it we rented a suite at the Aria we invited specific partners to that suite and we just had you know face conversations face to face conversations and so there's such a high concentration of our prospects at the meeting it was very efficient and the other thing you get is serendipitous meetings right so you're at a cocktail party you run into an old buddy or a friend of a friend and it's a way to prospect in a way that's a little more I would say gorilla as opposed to could we spend $50,000 and get on stage for talk that you know maybe a hundred people attend you can't write they're happy to take the money but that's not the approach that we've taken so CES is a great one in that regard for our industry what would you say you spend you know on Mont each month on average on paid channels ah tiny super tiny less than what it yeah I mean less than a thousand dollars oh well okay yeah from the from because I mean unnecessary sponsoring an event or something yeah I for sponsoring events so you know from Marketing perspective will spend you know this year roughly half a million dollars or so nice that's flight for the event everything yeah that's all that that's exactly and what's your team size today we're 27 people ok where are you guys all base we've got so I'm in San Francisco we got an office here about six or seven people here we've got an engineering team a great engineering team based in Minnesota of course of all places we got people in New York people in Austin people and people in Chicago so some of the sales folks are and support people are spread throughout it's good last two questions here on economics what do you assume a customer is worth to you over the lifetime I know it's a tricky one yeah tricky the [Music] sodium yeah I mean a minimum that we want to see us is six hundred thousand right if you think about kind of one year the recurring revenue six six hundred thousand is really kind of what we would like to shoot for full of minimum production it's really tough to get out of bed for less than that given the given the model right yeah that's essentially two and a half or three years of contracts right yeah that rails yeah that's right do you look at any churn metrics considering the base is so small or no you know we we don't at this point just because there's not enough of a baseline under this new model under the old model I'll tell you what we're chasing media dollars the churn rate was very high because it's it's one month commits it's on it's easy on Easy Off so under the old model it was it was not good which is why we flipped to this new model so again we don't have enough history there if I had to look back over Laskin a year and a half our churn would be roughly good you know it percent on an annual basis revenue or logo logo yeah I haven't looked at it on a revenue basis on a daily basis the others have that's pretty good okay good let's wrap up here with the famous five number one what's your favorite business book David crossing the chasm it's a good one Jeffery more beautiful orange cover number two is there a CEO you're following or studying right now I'm a big fan of Bezos okay number three what's your favorite online tool for growing the business Skype okay that's good and number four how many hours of sleep to get every night so usually eight but we just got a new puppy so it's down to five and a half not asleep that's an expensive puppy so current situation married single you have kids married with four kids and one in college so what is it oh wow four kids okay and how old are you I'm just about 50 I turn 50 in a couple weeks Oh congratulations okay good last question take us back to your 20 year old self David what do you what she knew I would say that really gets back to just really good hiring practices right so I think it's a the amount of money you waste with a bad hire is a multiple of what you'd expect right so forget the difference in salary like a bad hire can set you back six months and hundreds of thousands of dollars in losses so be really really good and also be really honest when you hire someone right they're the worst thing you want to do and I've been this in my career where you hire someone and you know you don't want to be in a situation where they don't know what they're walking into so be really candid with people in interviews the good bad and the ugly right and so if you're forthright and honest you'll you'll establish that relationship from the beginning so honesty and pay for the good town to do a good job of finding because it's worth every penny they're doing between five million and ten million per year David with trigonal true signal says hire smart otherwise you can burn a lot of capital and they've got about 16 customers paying on average 25 grand a month for them to understand really how to understand the data going through their marketing stack and really making those that stuff more efficient they've got a team of about 27 people based all across the country super healthy economics 8-percent logo turn annually growing almost doubling year we're actually doubling over a year so December 2016 about half what they're at today David Congrats on the growth and thank you for taking us to the top all right thank you