How Vanillasoft CEO David Hood grew to $10M revenue and 650 customers in 2018.

hello everybody my guest today is david hood he's the ceo of vanillasoft a successful software entrepreneur with extensive international experience in finance business development sales and marketing under his leadership vanillasoft has grown over the past decade from a small startup to a leader in the sales engagement market david are you ready to take us to the top we're ready to go all right inside sales it's a hot space tell me how you guys are playing in the space and what's your revenue model how do you make money uh so actually we've been uh we kind of like to say we're the original sales engagement platform so we've been in this since 2005 before it was really well known um and we're completely uh reoccurring revenue model okay got it and and help me understand what you're doing for customers when they pay you what do they get so essentially what we're doing is we're accelerating the sales performance so again we're a bit ahead of our time at the time everyone was using crm uh they thought this was great for managing leads and as more and more studies came out people started realizing that with crm uh leads were decaying they weren't being followed up on they weren't there was no persistency no follow-up so we're really driving that persistency driving that speed to lead driving cadences so it's really about driving activity you're talking appointment setting lead in sales tracking call recording i mean all these kinds of things yeah absolutely what one of the big things we do is we take marketing qualified leads and help turn them into sales qualified leads um and of course with all the marketing automation up there right now everyone's moving into that you're generating tons of these marketing qualified leads people are dumping them into crms and quite honestly they're dying there and this has been seen over and over again walk me through kind of an average customer what will they pay per year per month to get access to this tech you've built so we actually target the small to medium-sized business so our customers do very quite a bit but they'll be paying usually between a thousand dollars um you know up to potentially fifty thousand dollars a month but we have quite a few smaller customers that are around that thousand dollars a month uh that they're paying for their agents to uh to really accelerate their sales performance that's great and what what team size is that typically if i'm paying you a grand a month do i have five people on my inside sales team usually or what actually no we're pretty reasonably priced so that's usually around a six seven eight person sales team so it depends a bit on the options you have got it and how many teams are using you today how many organizations so we have about 650 700 organizations running uh five six thousand seats with us right now oh that's great okay so and by the way that's not like free those are all paid those exactly that's great can i david can i take the 650 times a thousand bucks a month you guys are north of 650 grand a month at this point uh we're actually north of uh 10 million are at this point yes oh very good good good so a little higher acv than average yeah where were you so if you're north of 2010 today so that would be about 800 grand a month where were you exactly a year ago so a year ago we'd have been about uh 30 below that so we're on a good revenue growth good good good yes so 30 year-over-year growth that's healthy there is most that growth coming from expansion revenue or new customer ads altogether uh and you know when it's coming from both so we're growing existing customers but we're also bringing on quite a few new ones and where how are you getting new customers what what is the growth channel so so far actually we've concentrated mostly on driving inbound leads so doing exactly what we're helping a lot of our customers with taking those mql inbound leads turning them into sqls uh we're actually just starting to ramp up our activity more in the outbound there and make sure that everyone's aware of what this type of software can do for them and are you boot-tripping the company have you raised capital we have not raised a lot of capital to date tell you the truth we've probably raised about half a million dollars since the start of the company in 2005 so been very much concentrated on growing it and making sure customers are satisfied and you know sales come with it i love nice organic non-vc funded growth it's the best kind of growth how have you resisted the urge to take capital i'm sure you get the cold emails every day we do although to tell you the truth like i said we're kind of one of the original sales engagement platforms so back in 2005 2006 it was actually hard to explain to people what's the difference between this and crm um it's now a really hot market money's pouring into it but i think the problem with money pours into markets like that is you get actually companies concentrated more and how can they raise money and how can they drive sales and less concentrated on how can they actually deliver value to their customers so quite honestly i think it's been a huge advantage of ours to have had that 2005 to 2012 type of thing where we really concentrated on delivering value to customers supporting them making sure we were getting it right yep i can tell you're committed you're pushing through an interview with you know cough or cold you're a guy that's you say you're going to do something you're going to do it right absolutely i do apologize for the voice i think it's great i listen i'm i'm i'm in awe i think it's wonderful it's a it's a testament to how you live your life so talk to me about your team how many people today so today we have about 50 55 people on the team uh we're growing it pretty rapidly and where is everyone based i actually have two offices we have one out of ottawa canada and another out of plano texas why plano well actually plano was a bit of a happenstance so uh the company started out in new orleans uh 2005. i don't know if you remember what happened in september 2005 but uh we never got back into those offices and wow so that it destroyed i mean katrina totally destroyed you katrina totally took things out thank god it was a sauce company so we didn't lose anything but people dispersed and so the main founder found himself in uh the plano area and there we go interesting okay when did you come into the picture i actually came into the picture so the company kind of started in 2004 developing a product i came into the picture in 2005. and so we actually okay so fairly early absolutely yeah before we had a product out started the canadian operation two months before katrina so actually it was a very very lucky timing interesting very interesting okay good obviously and then again you're obviously casual positive because you're basically bootstrapped correct absolutely yes yeah well do you actually do you operate cash deposit or do you operate right at break even you're reinvesting everything well we have been reinvesting but not enough that uh it stopped some cash from piling up in the bank so that's nice good problem we're in a good situation absolutely very nice feel comfortable good talk to me about churn what's what's revenue term per year so revenue trend for us we actually one of the few companies that runs a monthly contract by the way just to mention that i think most companies really require you to walk into an annual and we're turning at about 1 1.2 so we're actually i i'd hate to say we're coming with it i think no one's happy with any churn but it's actually pretty good for the industry that's per month uh yes exactly that's great and then if you look at expansion right from the same cohort month over month what does that look like expansion wise we tend to slightly grow over the over the longer term period so we're probably up to three percent um monthly on a month-to-month basis and that's uh on on an annual basis it's actually relatively stable month to month okay interesting so three percent expansion annual and if you're turning one point two percent monthly times twelve that's what like fourteen percent churn that's around fourteen percent sure yeah fourteen percent annual turn three percent expansion so net you're at what is that eighty nine percent net revenue retention something like that exactly right around that and then your new customer additions make up for for obviously those shrinking cohorts so absolutely new customers replaces lost revenue and obviously has been powering us to growth is there i mean in in this kind of space i feel like there's got to be you know i call the churn trough there's got to be some point where there's historical cohorts where expansion eventually more than overcomes the churned revenue do you feel like you have pricing axes set up where that can actually happen or no well there's no question as you look forward you keep going the bigger revenue gets as a percentage the more churn you're going to get as gross revenue so you do need to keep increasing sales but i think one of the other things we've done in the last year's really put a lot of effort into starting to implement programs to prevent churning often that's really just detecting are people having trouble using the software are they are they actually using the system 100 so it's all part of that customer service making sure that we're really delivering value to the customers um quite honestly because we're in the small and medium-sized business market our churn tends to be on the smaller side so these are companies that are trying out uh sales activity for the first time quite honestly trying out tools for the first time so some of that churn is simply sales teams disappearing uh but we have customers have been with us since i think the oldest is now still 2066. we've been for 11 12 years interestingly still paying on a monthly contract not taking advantage of the annual but have been with us for 12 years that's great talk to me about cac so to get a new thousand dollar a month customer what are you willing to spend to get them uh well to give you a bit of an idea in terms of average cost per lead and what we drive through it's around 150 a lead that's across all channels not every channel performs the same way in terms of conversion rates um given that the lifetime value of our customers are generally somewhere around 30 to 40 000 given the size of our customers i mean uh we're quite happy uh you know spending that thousand uh hundred dollars uh to drive men oh i mean that that's extremely quick i mean that means your payback is one to two months yeah our generally our payback is within two months or so absolutely so so 1500 bucks a lead and then if you're spending 1500 bucks for a new customer that means you need what 10 leads for one new customer uh yeah we tend to convert actually right around that about eight so uh that's uh another figure that as with every company we're always working on improving that's great so david what's the vision in the company i mean do you do are you looking at i mean just stay in private just keep building it kind of doing your thing would you ever you know go sell 670 percent to private equity firm and kind of go and do something else with with your life or i mean what's the vision well actually it's a really exciting time right now because as i mentioned sales engagement didn't even exist when we started this company it's about two years old we see huge growth in this market so we're look we're interested in continuing to deliver value to customers we think we've got a unique product it drives productivity and it drives lead prioritization like no other we're really interested in getting out and getting into more conversations so would that involve potentially raising a bit more capital just to allow us to get in front of more people maybe more people are aware of us that's a possibility would you ever consider something like venture debt just to avoid dilution and especially since you have some confidence in your cohort analysis always a possibility lots of ways to finance right but the big thing is is raising money is not the end objective the whole idea of money is can you spend it correctly so that's what we really concentrate on can we actually do something with it well that's why i'm asking right so if you if you have a lot of confidence in that 150 a lead right which it sounds like it's kind of weighted across all your channels and that eight percent conversion the question then becomes how much money can you put in those channels before diminishing returns come in and you said each month you've got some cash stacking up which means you you're holding back a little bit there you're not putting as much in as you could and i'm trying to dig up why that might be maybe we have to put it down to that canadian cautious uh attitude you never know hey there's nothing wrong with that i i'll take that answer that's good all right david let's wrap up here with the famous five number one what's your favorite business book uh so i'll be honest i have to go with the classics and by this i don't mean crossing the chasm i'm going back to the platonic dialogues 300 bc i'm a huge believer in the socratic method i think it applies across business which is first of all understand yourself before trying to understand other people and two is the importance and power of questioning so i've always applied that type of socratic method across how i like to manage and grow businesses number two is there a ceo you're following or studying right now i don't follow or study a particular ceo but i love to kind of punctually look at what's happening in the market so i think right now following the ceos that are having to deal with a lot of these ethical issues employees that are rising up regarding whether it be regarding you know sexual harassment ethics in terms of dealing with particular governments or organizations i love to follow how do ceos deal with crisis so i instead of following one i kind of keep my eye on go okay who's dealing with something really interesting is mark zuckerberg and charlotte sandberg are doing a good job um i i think that there's a a lot of work to do so very very difficult to begin there's a diplomatic answer all right and number three david uh what is uh what's your favorite online tool for building your company besides your own uh so yeah obviously everyone says it wrong i'll be honest i've been using owler a lot lately so i've really kind of gotten uh used to getting a lot of my information from valor so i've got to give them a shout out which part of the data they provide because there's been a lot of people that will say the data is interesting but it's crowdsourced the revenue data is really inaccurate but other things are really valuable what part of valor do you use i i use ali to really just keep up with what's going on in the industry i agree i'm not sure that the revenue figures are exact i think everyone tends to exaggerate their revenue figures but they really keep you up on what's going on what are people doing who's interacting with whom so it's like a new resource for you absolutely interesting okay number four how many hours i sleep to get every night you know what i'm a huge believer in sleep um i've always thought i wouldn't want a doctor walking in and operating on me after saying hey i only got three hours aren't i doing well so i'm a seven and a half hour person that's great and uh what is uh what's your situation married single kids i am married four kids and uh very happy i can't believe i found someone willing to put up with me so that's great i hope that continues to be the case and how old are you i am 51. okay dude take us home what do you wish your 20 year old self knew uh what did i wish my 21 you know what i wish you knew that you have to concentrate on enjoying the good times and not just feel the bad times i feel that for a lot of entrepreneurs the pain when things are going poorly way outweighs your ability to enjoy the times when it's going well so i really wish i could look back on my 21 year old and say hey you should have enjoyed the good times more feel the bad times a little less so that's the advice i'd throw to people feel the good times more and don't feel the bad uh so much coming from david vanellosoft back in 2005 really ushering in the inside sales movement they got a nice head start today 650 customers or grand a month so they've broken or they're pushing about 10 million bucks in terms of ar they're about 30 lower than that a year ago so doing about 620 grand a month a year ago their cash flow positive only 500 grand raised in the space which i love 55 employees between canada and texas 1.2 per month uh revenue turn per month 3 expansion so 89 net revenue retention annually spending about 1500 bucks to get a new customer so two month payback period cohort performs nicely thirty thousand dollar acv or lifetime value uh in uh in those cohorts david thank you so much for taking us to the top it's been great thanks so much nathan