How Waveapps CEO Kirk Simpson grew to $25.2M revenue and 20K customers in 2018.

hello everyone my guest today is Kirk Simpson he's a serial entrepreneur and co-founder and CEO at a company called wave which he's led to nearly 3.5 million small businesses registered with a hundred million in funding raised from investors around the world he believes in giving back to the tech community as a mentor and an angel investor Kirk are you ready to take us to the top all right let's go all right very good so FinTech is obviously hot there's a lot of companies kind of pushing that 80 to 100 million dollar a our our range Expensify comes to mind you know I said then I got the venom folks on which is doing top down you know ERP solution related things you're in the space too but it sounds like going after SM bees tell me what you do and how you make money yeah so first of all we actually we don't love the SMB title because in some ways if you look at the US Census that's anywhere from businesses with one employee to 500 we think there's massive differences in how those businesses operate we like to call we're going after SB small businesses zero to ten employees under two million dollars of revenue most people aren't aware about ninety five percent of all businesses in North America are in this size and we're aiming to give them better financial management tools we give away our invoicing and accounting software oh I don't know hundred percent for free and then we monetize by putting payments payroll lending offers etc in the application and get those deeply embedded into what the small business owners to do it and you're owning all of these were I think I mean look I look at coming to like cabbage they do one of those things and I have five billion in loans outstanding do you integrate with him or you compete directly with them in different spaces so we've done the partnership route you know our payments business for instance was built on top of stripe we get to a point of scale and quite frankly our users want us to deeply integrate it and so most of this stuff over time we've been building ourselves and again the goal there is no small business owner wants to be doing this stuff they're not passionate about accounting or invoicing or payments or all that kind of stuff they're passionate about their business and so how do we make it super simple and integrated for them to onboard in to payments and payroll and other things we feel like we've got to we've got to control more and more of that experience for them and so for the most part to your question we're building it ourselves interesting all right give me give me some averages here like average Custer would you say they pay you per month I know you have probably 10,000 cohorts for an average sorry you broke up with me broke up on me for a little bit so average of what Nathan yeah the question was on average what are one of these SMB is paying you per month I said I know you probably have 10,000 cohorts but on average what would you say yeah so up in the 70 to 100 dollar range in customers for all of their transaction processing etc that's okay so I mean that's a fairly competitive price for a small business jump in and do all that yeah yep give me more the back for here put this on a timeline when did you launch we watched right around the beginning of 2011 so we've been in market for a little while and you know feel like the product etc is getting to a place you know one of the mistakes that I made I'm pretty open and honest about areas where we've done well and where we've made mistakes one of the mistakes that I made early on was we went too broad with the platform too quickly and over the last few years we've sort of said to ourselves let's go through every single one of the those verticals to make them you know be super competitive in terms of the product offering that we had it have in the market we're getting to that place now but as you mentioned at the opening I mean one of the most amazing things about the model that we built is we're signing up almost 80,000 small businesses and month on our platform and so the distribution is oftentimes the hardest thing for software companies going after this market we've really cracked that code and now obviously our goal is to get more and more of them to use us to drive more and more of their activity through us and to get them to to paint services over time yeah now Kirk when you when you throw out those numbers in the in the SB space I can't help but think of my friend Gail right when you look at Constant Contact and she was never respected in the public markets in terms of app you know that the product we were you know sorry the price to earnings ratio because she would add that amount but she would churn about 50 thousand right of these customers so walk me through your turn today and how you manage that yeah so we're a private company I'm not going to give you all the inside scoop but but overall I would 100% agree with that and I would say the difference for us is that you know churning out of an email software program is a lot different than churning out of an accounting and payroll and payments and invoicing software and so we really see industry low churn rates once we get them into that active State they will stick for a long time we got as you mentioned before we got a lot of cohorts and we've looked at them over time churn rates are not necessarily the issue it's driving more and more of that adoption because as I mentioned before small businesses aren't passionate about doing accounting they're oftentimes sitting on the sidelines with Excel and shoeboxes and all that kind of stuff how do we get them to to buy into this how do we make it easier and easier for them to on work and most importantly Nathan how do we begin to deliver them insights so that they're not failing most small business owners fail because of cash flow problems mm-hmm and that's because they're very unsophisticated and how they run their business they're running it off of their bank balance month if so it must be successful we need to be delivering them better insights so that they can be better business owners so Kirk tell me I mean you have a huge car to work with big sample size and a lot analysis when you look it let's just say gross logo churn per month and maybe not talk about yourself but talk about the industry as a whole what do you think is a good number to be below when when you look at the epididymis --is I would say look at companies like public companies like ADP in payroll or paychecks or others you basically get to a place of the boat I think they would say 80 to 82 percent retention on an annual basis yep in small business you're gonna have to your point before you're gonna have 10 to 15% that are gonna naturally go out of business and so we call that kind of uncontrollable churn when we survey these guys they're like listen there was nothing I could do it wasn't your fault wasn't your software etc I just I went out of business yeah I succumb to 80 80 percent you know retention would say come up to maybe two percent grow slow go turn per month and they were saying that's probably healthy target for this kind of space I would agree on a monthly basis correct am i dealing with kind of a five year life right yep and how are you so are you better than that are you below two can we say you're below 2% yeah we're seeing that we're below 2% that's great congratulations that's not easy what do you know you've got to get a new user to do in the first day or two to make them like exponentially increase their lifetime value yeah I mean things like connect your bank account so you're importing your transactions send out a couple of invoices except a couple of electronic payments those kinds of things those are huge signals of success long term and I imagine because of this price point you can't afford to put too much touch on this thing with an inside sales team so you've got to build trust quickly so they connect our bank account in a no-touch way how do you do that in a UI yeah I mean you've you've hit the nail on the head like we're we're closing in on 200 people in the company we all have a single sales rep that works here not an inside sales rep non notice I'd say and a model wouldn't work at the price point it 100% wouldn't work and so you know listen you've got to have good product and designers good product people and designers obviously and most importantly you've got to be ruthless in terms of your testing cadence right constant optimizations of all of these screens and funnels and you know to your point when you talk about something like payroll onboarding you know ADP as an example they'd have you know a whole suite of whole sales reps and implementers that are walking small business owners through setting them up we're trying not to do that so we're zero-touch through the onboarding now payroll onboarding is hard and so you know you got to be really iterative and you got a look at interview a lot of customers watch them on board to see where the friction is and just be ruthless about removing it everywhere so launched in 2011 testing rigorously no-touch $70 price Bob times for all these things walk me through the kind of success you've had how many customers are you now serving today so hundreds and hundreds of thousands of small business owners are using the platform to run their business and tens and tens and tens of thousands are you know paying us every month and I won't go much deeper than that and our opportunity you know I gave you the signup number so lots of people at the top of the funnel we just got to continue to rigorously push on driving more and more of them into an active state yep so when you say when you say tens and tens basically minimum 10,000 maksim a hundred thousand in terms of paying folks you have in the hundreds of thousands that are actual users on the platform so there is some freemium component to this yes 100% yeah and you know the interesting thing that we see nathan is that we'll get some people to be paying in the first month and then we'll have others who are using the free platform for 24 months and on the 25th month converting to pay yeah it's we see a real longtail in terms of adoption and we're okay with that you said you said sorry 2040 might take 24 months for the conversion to happen yeah I mean we see a real long tail on that yeah which is fine though because your CAC is not super high right so you can afford to give them the time correct our CAC is very very small yeah like the do you optimize that for like you know one month our purpose of 70 bucks or less or even lower we see it much lower than that to be honest and and the reason for that is because of the offering the way that we've we've been rigorous in our click rate optimization on our homepage and that kind of stuff 85% of our signups are coming through organic unpaid channels mmm-hmm well would you have an SEO or content team like are there other things touching that yeah although we're relatively new into content we've always done well on SEO and you know more and more we're seeing the CAC 2 Ltd be in a place where we can really double down on paid spend and the right channels mm-hmm all of that sort of put together drives towards that 80,000 a month mark kirkuk you're at your sub at your sub 2% grows overturned per month you can get lifetime values that start to lie to you pretty quick you could argue for you know unlimited on some of these accounts where there's expansion revenue and things how do you keep yourself honest on what lifetime value is because ultimately or you just said you're using as an indicator dividing by 3 to go back to what you're comfortable on cap well the first thing is is that you know with with a lot of our a lot of our revenue being in the payment space we need to be honest about our with ourselves about what gross is right so we look at gross margin LTV so that's the first thing very very important right but correct the very few people come on the show and explain this so I want you to give you a second to explain that ought to be math equation for that yeah for sure so essentially in our business because we're paying out to Visa and MasterCard and AMEX on our payments revenue it's important to not look at the gross revenue but instead to the net right and and to like take lifetime times it by your net revenue to get a true view of LTV now some people listen there's a lot of companies that are evaluating growth at all costs and they'll look at the gross revenue and they'll paint a really nice picture of the LTV to CAC we just don't think that's sustainable and so we look at that gross margin Ltd and then on the flip side we also look at fully-loaded CAC so not just the cost of what we pay google for sem but what about the salaries what about the content that we're producing all that kind of stuff and that is what we view to be the important metric for Betamax still sub 70 I'm sorry fully weighted CAC is still sub $70 it is that's great remember that we we've got a lot of users who are still on the free platform so you know if we again look at what the LTV the CAC is on the paid side of those paid users it still takes us a few months to pay back I see is what I'm here is is what I'm hearing you say you're willing to spend up to 70 bucks to just for a new lead on the thing and then it might take that lead 24 months after you already spent 70 bucks to get them to convert that's the the longest of the longtail and I can tell you one on we would still call them a customer we want to treat everybody who's on a platform as a customer we think that's really important mindset for the for the company to have but to get them to be a customer on the free side we're well well well well so excessive that on the LTV decaf but as a ballpark that's how we look at the equation and I think it's really important for companies that want to be sustainable over time to be honest about their cap to LTV okay that's easy to inflate the numbers yeah you know a lot of your listeners are going to be envious of you because they're gonna say of course he can account a sign up today that's free in brain he can calculate that his paid because he has such a large data a large cohort of historical data he knows that a maximum 24 months if they hit use activation metrics they're gonna convert and other people are gonna say I don't have that data I don't have that confident so I can't afford to spend 70 bucks to acquire a customer what would you tell people who don't have the sample size you have but want to test their way to your level well so what I would start with is this you know to your point we didn't always have this data and so we may it's a good moves and we made some stupid moves along the way in terms of not having this data and I would say the number one lesson that I would give them and I've lived through this both on the good side and the bad side is once you allow your marketing team to start using paid marketing as a channel you will watch them spend all of their time optimizing that paid Channel and almost no time optimizing on organic and we are a good example of the fact that you know of the 80,000 as I've said you know about 70,000 are coming in organically and that's the best place to be mm-hmm right and so again as soon as you put that paid in there they're gonna be constantly optimizing against that paid and my suggestion is there's lots of ways to drive organic first before you then start driving paid on top of it yep interesting let's wrap up here Kirk I want to get back real quick Oh growth rate it gets harder to multiply bigger number so what do you guys growing out today year-over-year we're growing at a healthy healthy clip we're not quite a hundred but we're close can we say it's between eighty and a hundred is that fair that's it's a good range okay very good by the way again not easy to do right I'm taking some of your numbers you gave me earlier you said between 10,000 and a hundred thousand paying let's say 50,000 in the middle there at 70 bucks a month which you had 3.5 million a month or 42 million annually so even growing at 80 percent year over year that's still out of 30 40 million bucks in new air our year-over-year which is obviously healthy let me ask you a question you've raised a ton of money if a lot of this is coming through organic where are you putting all this money a lot into Rd we we believe and it you know you look around the marketplace there's some amazing players in this space that are tackling it from different angles we got to be excellent across the board and we think there's a huge opportunity to leverage the platform that we have and to layer on it ditional products that can drive you know better utilization for our customers their business to be better and quite frankly more revenue for the business and so we're putting a lot of our time and effort into R&D and Kirk do you pass 50 million in air our this year or next year a good question likely next year okay and you feel good about that arts or stretchable you motivate your team with so I always stretch the team you know I live through this for long enough Nathan where I feel I was describing this as somebody else the other day I feel satisfied but not happy on an everyday basis it's kind of like we're doing good things we need to be doing better and and I think that's important mindset for everybody in the company neon down about ourselves and about the business we all need to constantly be getting better and and that's a driving force here and you said almost 200 folks is it folks remote or is there everyone in one spot but for the part we're here in Toronto and everybody's in the same building I've always valued that I think we're getting better at how many people remote but I've always valued having people here that we can build some culture and have some water-cooler conversations I think that's been important yeah that's good we just had you must know you must know Sean kiddo right I do not actually how do you guys not know you're both in the FinTech space with with you know he's doing two millionaire are you're doing North I mean Mr R you're doing north of that you don't talk to each other I'll see it up it's interesting because he's going he's very much going top down at Enterprise you're you're very different space but saying it's both fintechs so I imagine you're hitting the same kind of things one last question are you raised much capital would you ever pursue a rollup strategy to buy some of these things instead of building them in-house yes absolutely we think the platform is valuable and will be at a place soon where we can look at doing that just in terms of robust api's and and more of a micro services type engineering : sure we believe in that because there's more and more things we can bolt on to this platform to make the lives of small business owners better alright let's wrap up with the famous five number one favorite business book lately I've been reading and it's it's been fantastic is powerful by Patti McCord from Netflix really really enjoyed the book different mindset love it number two is their CEO you're following or studying right now yeah so I've kind of fallen in love with Sachin Nadella love his book and just very interested in refresh yeah in his is sort of huge focus on culture and getting people and empathy and listening and all that kind of stuff there's not enough talk of that I think in in the world and I so I've been really interested in his mindset number three besides your own what's your favorite online tool for building your business yeah so we've been playing a lot with drift and I mean hot pot company and we've been using it on our payroll crop product love it really really interesting in terms of the use cases and where they're taking that company think it's it's on two big things no wait hold on that's touch you've got to have an if you have 80,000 people hitting your site actually a factor about hitting your site and they're all generating drift messages you got to have someone on the other end answering those things do you know what's interesting is we actually talked to the company to drift and we said we want to use it for self serve we want to use it to preload it with the Nance answer to a whole bunch of questions and it's been it's been working amazingly well for that so we've actually been pushing them to allow usage of that tool in a new way that they hadn't even sort of brought forward to this day and we're finding it's working really really well and new new folks landing on the website he's small business owners they don't call it they don't call you on that and say this is a roll is the robot I don't wanna do this no in fact but I think the key thing is we make it clear it's bought so nicely and your tending it something else I think there's an issue we make it a hundred percent clear this is a bot this is to answer your key questions if you need help click here will will answer them but it you know the amount of them that are going from the bot into wanting to interact with the human is very small got it number four how many hours of sleep to eat every night depending on the day five to eight I would say and I would add in one other thing which is you know if I could tell myself something two years ago three years ago I've been getting up and doing a bootcamp three days a week now at like 6:00 in the morning and it's the best thing I've ever done what it will in which a situation married single kids married I'm 44 I got three kids 13 11 and 8 and I used having kids and the busyness of that let alone the the business to justify not working out and I changed that a couple years ago and it's been a game changer for me I love that alright last question what do you is your 20 year old self Noah I learned to code quick didn't even hesitate learn the code right out of the gate guys there you have a very interesting company wave apps again another great example of one of these folks using kind of a freemium model we've had a lot of these people on conga came on same kind of model it's really interesting get postman also doing it we've had plea Bo came on seventy thousand customers freemium model another good one to study here I get munch in 2011 in the financial technology space really serving small business owners that's it they currently have you know between 10,000 and 100,000 paying customers paying 70 bucks a month growing 80 to 100 percent year over year hoping we hit 50 million bucks in ARR by the end of the year in 2019 less than 2% logo term per month really hard to do in this space super health that's because they understand the activation metrics paying less than 70 bucks to acquire a new lead that they're confident will convert and you know definitely before 24 months of using the platform team at Turner people based mostly in Toronto and other remote locations all right guys there ya have it Kirk thank you so much for taking us to the top thanks for having me