How Userful Reached $5M ARR and 500 Enterprise Customers in 2022 (Interview with CEO John Marshall)

Introduction and Guest Background

Nathan Latka

00:00Hey, folks. My guest today is John Marshall. He's a CEO and board member at Userful, leading provider of AV over IP solutions for enhanced video communication. He focuses on developing and implementing strategic growth initiatives for the business, launching the company to new markets and expansion through new technology and channel partnerships. He's got over twenty five years of experience in the space. John, you ready to take us to the top?

John Marshall

00:20>> I certainly am.

What Is AV over IP

Nathan Latka

00:21So what is AV over IP?

John Marshall

00:23>> AV over IP is this transition that's occurring where you used to develop AV solutions in a siloed way. So if you had like a video application in a given room, you only saw it there, you couldn't transport it to elsewhere in the corporation. AV over IP lets you move it around.

Example Use Cases for Enterprise Customers

Nathan Latka

00:40Give me an example of that for people listening right now that might have their own offices.

John Marshall

00:44>> Sure. So for example, if you have a desire to have a video wall that's showing entertainment content, you know, or a better example, in your lobby of your building of your corporation, you walk in the lobby, you've got all kinds of entertainment playing, welcoming your guests to the corporation. That content probably comes from a server that's in an IT closet. Historically, you'd have had to put the server right next to that video wall.

Nathan Latka

01:07Oh, I see, I see. Okay, so now you can have one central location in your office and put it out to seven different screens on eight different floors and six different venues across your building.

John Marshall

01:17>> Absolutely right. And we used to have an AV department, everything's moving to IT. So it's that evolution and that ability to distribute.

Pricing and Average Contract Value

Nathan Latka

01:24Very interesting. Okay. And so what are companies paying you on average per month to use this technology?

John Marshall

01:29>> It varies by application. Right now our platform supports three different applications, one for control room usage, one for digital signage, and one for meeting rooms, screen casting, different price points for each. But overall, you know, we typically see around $30,000 of ARR per customer.

Nathan Latka

01:50Yeah, that's interesting. Okay, so, and if someone paying $30,000 per year, how many streams are they managing? Like what's that package probably?

John Marshall

01:57>> Again, it varies because like, you know, you can do many more screens for digital signage. That's not real time. If you're doing a control room, that's mission critical operations, and you're trying to stream high definition, high resolution to that, very large video wall, like you might imagine for like NASA's command and control center, that's a lot more, that's a lot fewer screens because it's higher resolution.

Nathan Latka

02:20I see, okay, interesting. So it's a combination of number and screens, resolution, and product based upselling.

John Marshall

02:25>> Absolutely. And number of source devices that you're muxing together.

Product Tiers and Upsell Model

Nathan Latka

02:29Number of source, okay, that's what I mentioned. Are there any other like utility based upsells? So number of source devices,

02:36resolution.

02:38So there's a number

John Marshall

02:39>> of other things that you can upsell for, but model that we typically go for is someone will come to us looking for one application or one solution need, and then we'll sell them the platform with the promise of them being able to expand to those many others, those five, six other use cases. And so that's usually our expansion model.

Nathan Latka

02:57Okay, based off use case. Got it. Very cool. Okay, put this on a timeline for me. When'd guys launch?

Company Timeline and SaaS Relaunch

John Marshall

03:02>> So we launched this whole offering in April 2020. Great timing,

Nathan Latka

03:07But when did you launch it? Because I have in my notes that you guys were launched in 2003.

John Marshall

03:12>> So the company was founded in 2003 and sought product market fit for technology it had created for a very, very long time. I joined the company in 2018 and said, we need to create an enterprise AV over IP platform redirecting from lost, you know, product market fit to actually finding product market fit. And so we developed a brand new product from 2018 to 2020, relaunched in 2020 on a SaaS model instead of a perpetual license model,

03:40>> and the company took off.

Nathan Latka

03:42Interesting. Okay, so how many customers are you now serving today?

Current ARR and Customer Count

John Marshall

03:46>> 500 enterprise customers, and we're at around 5,000,000 ARR, around 6,000,000 contracted ARR.

Nathan Latka

03:55Oh, what's going on there, YouTube? Good to see you guys. Now imagine this. You love watching these interviews with SaaS founders, but imagine if we took all of the valuation data out from over 2,807 interviews I've done manually. Saves you a lot of time. Well, we've done this. We've built it into the beautiful interface inside of Founderpath. Check this out. I'll show you how you can access this in a second, but you log in, you connect

04:18your Stripe account, you see your valuation real time. You can see what it changed over the past eighty eight days and even set goals for valuation this year. Now the secret evaluation is there's many different ways to value a SaaS business. So the reason you're gonna see three or four different valuations inside of your Founderpath dashboard, this is all free by the way, is because depending on who's doing the buying of your SaaS company, you're gonna

04:42get a different valuation. A VC is gonna pay a different valuation, Private equity firm is different. If you're gonna do a minority sale, that's different. And if you sell the whole business, that's a different valuation. You can see all those when I hover over here. Right? So the teal is what a VC would pay. Yellow is what private equity And red is if you sold the whole thing outright. Now what's cool about this is this is

05:04not built off random data. Again, you guys hear these interviews on YouTube. All these datas are built from real time valuation data points founder share with us on the show. So traction 1,200,000 seed round 3.7 raise. They sold 22% of their business. Go in here and filter by the event. Maybe you only wanna see companies that have sold the whole business. Well, here are a bunch that have been acquired the valuation and the multiple. Maybe you're

05:30going out right now and you're raising your seed round. We'll go in here and look at all this recent seed deals that went down, what they raised, what valuation they raised at, and what percent that they sold. There's never been a larger dataset of SaaS valuations than what you can get now inside of Founderpath. And we're thrilled to bring it to you. All right, we're gonna go back to the YouTube video here in a second, but

05:52if you wanna check this tool out, if you wanna jump in and sign up, you can check it out for free to get your valuation at this link, this link, founderpath.com/products/valuations. Or if you go to founderpath.com and hover over products, click on get your valuation here, and go ahead and sign up to give it a whirl. Again, all that valuation data live right inside the platform. I hope to see you there. All right, let's jump back

Funding History and Capital Raised

Nathan Latka

06:18into the interview. That's amazing. Okay, so $5,000,000 of ARR today. Where were you exactly a year ago? Do you remember?

John Marshall

06:25>> In terms of ARR, I actually don't remember.

Nathan Latka

06:27Or MRR. Do you remember MRR middle of last year?

John Marshall

06:30>> No, no, we focus on ARR. Would have been some, out a year ago, it probably would have been around 3,000,000.

Nathan Latka

06:36Okay, so you're almost doubling year over year. And have you guys decided to bootstrap the business or raise capital?

John Marshall

06:42>> We've raised capital, but we've raised a modest amount. We've raised 10,000,000 series B financing. Prior to that, we raised about 3,000,000 in seed money.

Nathan Latka

06:52Okay. And that series B was this year?

John Marshall

06:54>> That was.

Nathan Latka

06:55Okay. 10,000,000. And then three, the 3,000,000 was pre or post you joining in 2018?

John Marshall

07:00>> That was post.

Nathan Latka

07:01Okay. Got

Pre-Marshall Company History

John Marshall

07:02>> The company had no ARR before I joined.

Nathan Latka

07:05So no funding either?

John Marshall

07:06>> Correct, no funding either.

Nathan Latka

07:08How did they last fifteen years with like no product, no revenue? I mean, how did the founders pay for food?

John Marshall

07:15>> I like to differentiate between selling a license, a product slash solution and a platform, right? So they were selling licenses. They had a good technology that could throw stuff up on a screen, but they didn't have an application specified. So they weren't good at knowing the needs of a control room operator or what the needs of a retail chain that wanted to have digital signage for menu boards or for whatever it may be. And so they

07:42>> didn't optimize. So they were just selling licenses and doing it on a perpetual model. And they had bootstrapped their way for twenty years.

Nathan Latka

07:50Wow, very interesting. Okay, that makes a lot of sense. So what, I mean, there might be companies right now that are stuck like this company was in 2018, they went out and found you, but why is a guy like you gonna join a company that's been stuck for twenty years?

John Marshall

08:02>> Well, I came into the company with this AV over IP vision. I mean, I've been working in AV networks.

Nathan Latka

08:10Yeah, but why not launch it from scratch yourself and own a 100%?

Why Marshall Joined Instead of Starting Fresh

John Marshall

08:13>> Because the amount of technological depth that's required to have a complete platform play is challenging. There's a lot of protocol work. There's a lot of technology that needs to be integrated. And this company had already brought all that technology together, and I was able to leverage like the ten plus years of relevant technology into a product market fit in just a span of two years.

Nathan Latka

08:36I see, okay, but when you're joining, obviously you need upside in this, right? If you're gonna be CEO, how much equity did you ask for?

John Marshall

08:43>> I asked for a certain percentage, which has been, as I've proved out the model, as I've converted it to a SaaS model and gotten the product launch and gotten 500 plus customers, my equity position has increased.

Equity and Incentive Structure

Nathan Latka

08:55So you said something like, I'm making these numbers up. Hey guys, I really wanna get, you know, see a path to me owning 10% of the business. I'm happy to split that up in terms of option grants as we hit revenue targets. And what you're saying is you've sort of earned those option grants as you've grown over time. Is that the right sort of way to think about it?

John Marshall

09:10>> That's absolutely right. But then also with the round of financing, that new investor comes in and says, Hey, you can do even more. You know, there's opportunity for us to give you some additional upside.

Nathan Latka

09:20I see. So, there's an ESOP pool that's being set up and then automatically granting you another chunk of that out of the ESOP pool just to keep you incentivized long term.

John Marshall

09:27>> Exactly right.

Nathan Latka

09:27I see, very interesting. Okay, that makes a lot of sense. What's the total team size today?

Team Size and Growth Rate Target

John Marshall

09:32>> We're approaching a 100 people and we are in a sales led model. So we're heavy on sales and sales engineering as we go out into the field. We've got a pretty decent global footprint. We've got a Europe, Asia, and North America teams. So we're expecting that we'll be able to maintain that growth rate of over 85% for the next three years consistently. So we're pretty enthusiastic about that.

Series B Dilution and Valuation Discussion

Nathan Latka

09:59Isn't that too slow though? I mean, you've chosen to raise money, which means you have to grow faster. 85% is not interesting to these VCs. You've gotta be at like 150, 200% at your stage year over year.

John Marshall

10:10>> Yeah, but I don't think VC is the only financing model that you have to consider.

Nathan Latka

10:13Yeah, but you already raised it. You already raised I agree with you, but you already raised it.

John Marshall

10:17>> Yeah, but as you look forward to where the next financing's gonna come from, you can look towards growth equity and private equity, and they have a different model than venture does. And as long as you enter the equation with a vision for having the flexibility and conveying that flexibility to venture and your growth equity, private equity interested partners, then your model can hold.

Nathan Latka

10:39Interesting. Most folks today are doing series B or selling between 10 and 15% of the business. Were you guys sort in that same range on your series B?

John Marshall

10:46>> We were in that range, yes.

Nathan Latka

10:48Okay, fair enough. Got it. So you got a 10 to 15%, You raised 10,000,000. So you're talking like 80 to 100,000,000 valuation, something like that in that range.

John Marshall

10:58>> Yeah, I would like to have that. It's very good.

Nathan Latka

11:00Yeah. Yeah, very cool. Well, that's what you did, right? If you sold 10 to 15%, you had an 80,000,000 valuation or higher.

John Marshall

11:05>> Yeah, in terms of you're discussing pre money and post, but I don't hang

Nathan Latka

11:08my on

John Marshall

11:11>> to liquidity.

Nathan Latka

11:12Yeah, well, I mean, valuation, I mean, if you sell a 100% of your business before you exit, you own nothing. So you gotta manage dilution as you're growing.

John Marshall

11:19>> Absolutely, no, no, I completely agree, but I think that your true valuation comes down the road.

Nathan Latka

11:25Well, we hope. I mean, look, there's lot of companies right now that sold a big valuation three months ago and they're gonna have troubles growing into it and they're gonna

John Marshall

11:31>> be And that's exactly my point, right? If you took a valuation four months ago, that's certainly changed five months later. So your true valuation, I mean, I think your valuation's driven off your ARR and your core metrics and you've got to stick to those markets. It's going to fluctuate with multiples and the like. So I just think being, as an entrepreneur, stick to your guns, know what your corporate value is, and don't necessarily have a short

11:56>> valuation mindset in sight. That's my 2¢.

Sales Team and Quota Structure

Nathan Latka

11:59No, that makes good sense. You mentioned your sales heavy. How many folks carry a quota at the company, a sales quota?

John Marshall

12:04>> We have 18 of them who have quota.

Nathan Latka

12:06Interesting.

12:08And when they are fully ramped, what do you expect them to be hitting in terms of quota target?

John Marshall

12:12>> Well, we use the SaaS industry metrics of, you know, three to five X, your comp should be guiding your quota, but, you know, we're looking at the, you know, 1 to $1,500,000 of bookings.

Nathan Latka

12:25Yeah, means they can earn 200 to 300 ks of full on target earnings if they hit it.

John Marshall

12:31>> That's justified number for enterprise.

Nathan Latka

12:33Yeah, and now you mentioned you have a, it sounds like a powerful upsell model. Net dollar retention today, I imagine is way above, it should be way above 100%, right?

Net Dollar Retention and Expansion Strategy

John Marshall

12:41>> The answer is it's over 100%, but we only just launched those six expansion products, the three expansion products. We're launching three more in the fall. Okay. So our lead indicator right now is logo capture, right?

Nathan Latka

12:56Yep.

John Marshall

12:57>> And capturing as many of those as we can, that will give us the opportunity to expand in 2023.

Famous Five Rapid Fire Questions

Nathan Latka

13:02John, makes sense. Let's wrap up here with the famous five. Number one, favorite book.

John Marshall

13:06>> The Brothers Karamazov.

Nathan Latka

13:08The Brothers what?

John Marshall

13:09>> The Brothers Karamazov by Dostoevsky.

Nathan Latka

13:11What's a Karamazov?

John Marshall

13:13>> I was a Russian literature minor. It's a famous book like War and Peace.

13:17>> Interesting.

Nathan Latka

13:18Number two, is there a CEO you're following or studying?

John Marshall

13:20>> Yeah, I'm a big fan of Chris Riegel who founded and launched a company called Stratacache, now a multi billion dollar company out of Dayton, Ohio.

Nathan Latka

13:27Number three, what's your favorite online tool for building Userful?

John Marshall

13:31>> Grit. I think in this day and age, I think any CEO who's navigating a pandemic, great resignation, remote work, recession, and the like, I think grit trumps all.

Nathan Latka

13:40Grit. So, just to clear, that's not an online tool. That's just a characteristic you think folks need to have.

John Marshall

13:44>> When I'm online, I'm showing grit.

Nathan Latka

13:46Grit. Yeah. Hear you. Alright. Number four, how many hours of sleep do get every night?

John Marshall

13:49>> About five.

Nathan Latka

13:50Okay. Not not a ton. You can start on five?

John Marshall

13:53>> Absolutely. I'm getting old.

Nathan Latka

13:55Okay. And so what's your situation? Married, single, kids?

John Marshall

13:58>> Single with two Eagle Scouts.

Nathan Latka

14:00Oh, very cool. Okay. And how old are you?

John Marshall

14:03>> I'm 51.

Nathan Latka

14:04Last question. Something you wish you knew when you were 20.

John Marshall

14:07>> I wish I knew to drink more champagne as W. C. Fields used to say. Celebrate the small moments in life and don't get overwhelmed by the big stuff, you'll survive.

Nathan Latka

14:17Guys, userful.com, if you have a big conference room with, or a big office, a bunch of different conference rooms, can install it once and say Floor Number 3, stream to all your conference rooms on Floors 12345, video walls, you name it, all from one central location. He had this vision, joined up with Userful in 2018, raised $13,000,000 to build this product, officially launched in 2020, scaled from 3,000,000 in ARR to 5,000,000 ARR over the past twelve

14:38months as they look to keep scaling with their team. They've got over 500 enterprise customers, I'd call it 90 to a 100 folks on the team as they're looking to scale here over the next twelve months. John, appreciate you taking us to the top.

John Marshall

14:48>> Thank you so much.

Nathan Latka

14:50One more thing before you go. We have a brand new show every Thursday at 1PM Central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU, CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every Thursday 1PM

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15:59up for that at nathanlatka.com/slack. In the meantime, I'm hanging out with you here on YouTube. I'll be in the comments for the next thirty minutes. Feel free to let me know what you thought about this episode and if you enjoyed it, click the thumbs up. We get a lot of haters that are mad at how aggressive I am on these shows, but I do it so that we can all learn. We have to counter those people.

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