WhatConvertsrevenue & valuation

Introduction hello everyone my guest today is michael cooney he started his first business in 1999 in south africa and is still in operation today he personally moved to the uk in 2001 to have a more politically stable business base and then moved to the usa in 2006 the u.s based as his ua us-based clients began to increase over the years he more from an industrial directory to a digital marketing agency in 2014 a co-founder and he began discussing how to solve lead tracking and reporting problem with marketing clients they officially launched what converts in march 2015. michael you ready to take us to the top i'm ready all right so is what converts an agency or is it a sas play it's success play yeah okay it was born out of the agency so i was running a digital marketing agency at the time and i mentioned the industrial directory because our business model was generating leads and tracking those leads has always been a pain so this has been a problem i've dealt with for the last 20 years and eventually my co-founder he used to work for me and then he went away to the corporate world and didn't like it and he came back and he said hey michael um i don't want to work for you but i want to work with you so i said you know what if we can solve this lead tracking problem and i was already using call tracking from another provider but it wasn't solving the completely tracking management and reporting problems that agencies have and individual clients so we got together he took a look at it and we were able to figure it out and how much equity how much equity gave him oh we we shared it i don't say i don't see it as me giving him we started a new company where we both got 50 50. 50 50 equity split okay that's gutsy and what year was that when you launched um well we started in 2014 but we launched march uh 2015. okay so how long you spent about a year on your mvp how much cash did you guys spend getting it built before your first dollar revenue we i mean jeremy kept consulting um so we didn't burn any cash i kept on running my agency i had a team so i've been i love having a team because it allows you to do more things so i was able to continue getting an income from the agency while we built what converts i see how much agency money did you pour into what converts if if any none oh none two separate businesses oh it's just purely as soon as we started getting clients and charging that's when the the transactions came that so the only cost really was bit of hosting space and um our time to build it that's amazing okay so launched uh back in 2014 50 50 equity split with with your co-founder um how what are customers paying you today on average to use the technology so we have customers from 30 a month all the way up to several thousand dollars a month but if you take the average across everyone it's it's around 180 to 200 dollars a month and which cohort are you more excited about the enterprise folks or the 30 a month folks both good answer we got a politician on today good answer michael i mean we love the income from the high level guys because they just drive a lot of level um a lot of volume and once they set up you know it doesn't take much to keep them going but we also like the lower level guys we don't like having our our eggs in one basket where you got you know too much money coming from a few players how large is your largest contract um in in terms of monthly or acv yeah yeah yeah we're talking like 100 grand or something like that yeah uh north of 100 grand okay got it very okay so so you you you do then potentially have like your top whatever five customers make up into something like 80 to your revenue you can see power laws there i wouldn't say 80 percent um they're probably 20 20 to 15 percent and now 10 to 10 to 15 around about there okay fair enough but then we do like um a lot of the agencies who are several hundred dollars to a thousand dollars that's a nice sweet spot for us um but you know we also know that the smaller company companies become bigger companies and they introduce us to new people so um we treat all our customers the same everybody gets the same support we treat them as people and we don't have a support team we have a solution providing well with solution providers so everybody that comes in we want to make sure we solve not their call tracking and lead tracking problems we want to solve the objective of what they're trying to achieve it all makes sense and so with that kind of focus how many customers are you now serving today Currently serving 1000 customers so direct customers you're looking at a little over a thousand eleven thousand uh one thousand oh one thousand k so it's a one thousand um we're north of one thousand customers but we serve around fifteen thousand companies so what happens is like we have agencies some agencies are several several hundred clients so our software is great for agencies we have a three level uh account structure so you as an agency can manage you know a thousand two thousand um clients if you like with our products that makes a lot of sense yeah even though we have a thousand direct paying customers you know we serve 15 000 uh companies and do you do those agencies have you recruited them to sell your product and then you get a cut of the sale we um we really give them the tools we we plan on improving that you know with a partner program but at the moment we sort of give them the tools and you know so they buy one subscription and then they can sell it through to the end customer you don't sell them like a number of seats that they can resell to customers no i see the stage okay that's part of our future plans but it's not available yet yep yep yep okay so 200 a month average rpoo 1000 direct Monthly recurring revenue customers you guys are around 200 a month in revenue is that right we're getting there just a little shy then okay how should i like how much did you last month one system to 180. so you're so close you got a couple more days before 2020 closed out you thinking you break 200 or no no no no normally in november and december or flat months october is a good month um so i don't think we will break through 200. but i mean i don't know if i mentioned to you it's just like we've been doing this for five years and it still feels like we're just getting started um the potential of our product and how you know the the product is so much better than our marketing and so you know this next year we're really excited about where we're going mm-hmm now have you guys raised capital you're Bootstrapped bootstrapped we bootstrapped we love that uh which means so are you profitable today taking out profits and dividends are you reinvesting everything you're operating a break even yeah we do take dividends we do take profit out and also with our team we like to take a percentage of the profits and distribute it as well oh you have to share this michael this is by far it's one of the top questions i get bootstrap founders of profitable businesses want to launch their own profit sharing programs to reward their employees they're always not sure how to set it up i mean to the extent you can share can you talk to us about how you set that up of 180 000 that comes in every month how much goes out to teammates well we're currently doing an annual one we're looking at quartzly but yeah from the overall profit that gets and we definitely take a slice of this and then we distribute it to the team and then we we do have a calculation based on how long the team members have been with us at sku so if you've been with us longer you get more and then also based on your your salary there's an adjustment so let's just role play for a second let's say you finish this year i mean how much profit you think you'll finish this year with um 300 000 okay so let's say i've been with you for for two years walk me through like what should i what am i calculating in my head how much of the 300 grand am i going to get probably um yeah i don't want to yeah that's a bit sensitive because it gets down to team members and who gets what and all that so i don't know so you okay so you can't you can't do a hypothetical with me yeah so i mean hypothetical um yeah i don't i'm not comfortable um that's okay what's what's the structure though is it is it a fixed rate or is it like if you've been you know we have a 100 pool to distribute the pool is 300. employee one who's been here the longest you're getting x percent or is it a flat a flat rate not not a percentage of the 300 it's a percentage of the i see so we take we take a slice of the 300 we set it aside and that purely goes with employees and then well we said team members no employees and then that is split based on how long they've been with us and their their compensation their ic okay right across the full team yeah i see it makes a lot of sense okay i mean we look at you know um which is stock shop stock options or share options and all that but we just found that as the income comes in and as we profitable we wanted to go direct to them i'm tired of the stories of people that get stock options and then they get nothing they're not worth anything yeah how many people are on the team today there's eight eight of you guys how many engineers two two okay and are you planning to stay bootstrapped for any plans to raise we um at the moment bootstrapped um we do want to increase the team we we're adding on the sales side to it to increase the team men the team size so we're looking to add about four people in the next year do you need to raise to support that growth and if so how much do you think you'd raise we don't need to raise to support that growth but we're sort of looking at the stage now where if we can see a path where increasing or getting capital that will generate um additional revenue or help us meet those aggressive goals and then we can effectively allocate that capital that's productive i think for the first time we're looking up and saying you know what that make they make that may make sense yeah so we we're healthy we think we can grow like adding the 14 members and um increasing our campaigns and all that with what we currently do from profit um but we're thinking we we may want to be more aggressive now and michael do you have any quota carrying sales reps or no no no that's yeah we currently we're in the process of employing um seeking them out at the moment so how do you set up i mean hiring that first salesperson is a big is a big step what quota do you put them at we your um pro reports helped a lot you know i was thinking a ton about this last week so that's why i'm asking yeah they came at the right time and i like the overall total earnings you know like five times um you know quarter to get the um yeah so if we sort of round you know getting the base at you know 50k and then enabling them to double that i like that model um we did connect with somebody who's a vp of sales or another sas company that's been through this growth uh period that we're going through and he's gonna he's currently consulting with us and he'll be setting up those initial team members oh that's great now you know obviously sales reps are great but if customers don't stick they just churn right so what's your churn rate look like today yeah i got this wrong the last time i was on your thing i said five percent and then you said well that's 60 annually so i looked at this and our current churn rate is like 1.8 percent monthly on a monthly basis but when i look at it annually it's like four percent four four four and a half percent and okay so how does that how does that work well how i was trying to figure that out and i didn't get to put enough time into it but basically when you're looking at the monthly churn rate it's basically how many you had at the beginning and how many have at the end so of the people sign up so normally when people sign up the biggest drop-off is in the first month yep you know so they start off as a trial they become customers and then we may get a little bit of drop off and then um once it gets past month three they're pretty much sticking for a longer period so that's why you know i can see it you know there's a 1.8 total drop off uh in the first month but then over the year it may extend to you know four four and a half percent yeah yeah so really what what you're saying is um well this all comes down to what you're putting in the denominator when you're calculating turn right are you looking at only the last 30-day signup and then how many of those first three days churned which should be a different churn rate than if you're looking at your total customer base and how many turned over the last 30 days because the numerator in that case would include ones you just signed up this month that then churn in the first 30 days and to make the number way lower yeah i think that's that's the case we look at the total then what we add to the total and what was lost in total yeah if you just take a snapshot of exactly one year ago your total paid accounts and and then subtract gross revenue churn so if you're doing 100 a month one year ago and only counting those customers so ignore new customers added just 100k from last year let's say you go down to 90k so 10k a month churned but then you expand the ones that stick with you and they add another 20k a month then you have net revenue retention of 110 percent effectively yeah do you look at those numbers no and i want to but we have we we don't look at them yet but um we have we have really good expansion revenue [Music] that's the quote of the year i don't know but it's good i know i don't know what it is but i know it's good all right i mean we have a chart that we see and as customers uh come on we see you know Customer acquisition cost like they start in a 200 a month account and then they you know next thing you know that a thousand dollars a month and then you know some of them go into four or five thousand dollars a month yeah and what are you willing to pay to get a 200 a month customer and that's another thing i wish i had better metrics on but you're probably looking at between 150 to 300 um that's great i mean it's a month to a month and a half long payback right it's pretty quick yeah exactly so the 30 a month accounts you know that they're going to take longer but we have enough of those that you know end up paying a lot more yep yep over time if someone came and offered you seven million bucks all cash up front to sell the company about a three and a half x multiple would you sell that was quick yeah [Music] [Laughter] there's so much potential in our company that's what um our product and what it is underneath that's not being realized yet it's pretty powerful yeah all right michael on that note let's wrap up with the famous five number one favorite business book um i don't have one at the moment at the moment i just seek out people i'm wanting to learn from and let's talk about that who's the ceo you're following or studying um again no in particular like just individuals like on twitter when i find people and particularly investors i know last year i said ben chestnut but yeah no one in particular number three what's it what's the online tool that you use the most besides your own we still do subscribe help scout a lot yup number four how many hours of sleep are you getting every night seven to eight and situation married single kids married with three kids wow busy guy how old are you i'm 48 48 last question what's something you wish you knew when you were 20 michael um understand value just you know one if you really understand value you it helps your decision yeah the whole thing understand your value the value of your product the value that you provide to your customers if you can understand value you'll do well what converts guys just broke with two million dollar run right doing about 108 000 per month just last month the lead tracking and reporting platform go check them out average customer paying 200 bucks a month call it a thousand customers uh today they are profitable which is great this year you know caught 300 000 bucks going to the bottom line and he incentivizes his team members so don't get stuck with useless options actually has a revenue sharing or profit sharing program again all bootstrapped fueled the initial mvp uh while still running his agency as they look to drive those initial 100 customers michael thanks for taking us to the top you're welcome thank you nathan one more thing before you go we have a brand new show every thursday at 1 pm central it's called shark tank for sas 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 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hello everyone my guest today is michael he has over 20 years of experience and a big journey generating leads for clients he's tracking and reporting leads which has been a consistent pain point throughout his digital marketing journey himself and jeremy developed what converts their current company as a complete lead trucking and reporting solution for marketers michael you ready to take to the top i'm ready all right so the company is what converts.com help us understand what you guys do and how you make money yeah pretty much like like you said we track leads and then we enable you know people to report on those leads so a lot of our clients are marketing agencies and when they do work for clients they generate leads we help them capture all those leads so if you're and one of the big things marketing agencies were missing was call tracking and if you go to our website it looks like we're a call tracking company it does um yeah it does and that's done intentionally because that's the trending area um it's a trending service so people they want call tracking they go to your website yeah that's what i want and once they start using us for call tracking they very quickly start using us for form tracking chat tracking and even ecommerce so call tracking is your mouse trap that's it yeah exactly um we want to move away from it in the future i think you know it's becoming a much more crowded place the call tracking space and we do intend to you know focus more on the lead tracking and lead platform um in the future so when you look at your customers when they sign up for your platform and they get signed up on all your other products on average what's the company paying you per month or agency paying you per month to use the technology so i've averaged it all out and you're looking between you know 180 to 220 a month so some some are at like 30 dollars a month and some are several thousand a month yep this is uh this is a tricky space though because it's like it's a little more expensive where people don't want to just do a touch credit card swipe on a website but it's too cheap for you to put human touch on it with an inside sales team so what does your sales motion look like how do you get new customers we're just an inbound funnel we get a lot of word of mouth um once agencies use this and the clients use us even if their client moves from the agency they want to take what converts with them so that's been the main one that brings us some people just talking about direct referrals but you know ppc marketing a lot of review sites so if you go see the review sites we get a ton of five star reviews you're talking about cap tara g2 crowd captain we uh we haven't put a lot of attention to g2 crowd at this time because that's a funny sight once you're tied into them um if you don't continually generate reviews you slip down their grid and i think it looks bad so once you commit to g2 crowd it's a your work starts it's a never-ending cycle yeah and we just um at this stage you know we on captera we on um google you know they're the google my business reviews things like that we're also on the google partners page so um we're stuck there g2 crowd we have a page then we have a few reviews but we purposely you know would prefer not to get into that yeah what's the team size today how many folks we have six people and have you have you guys basically bootstrapped or have you raised capital yeah we bootstrapped yeah but dude you know i love that if you're a listener you know i love that i don't believe you you don't have to you're a capitalist you want to you want to grow big become a you've heard you've heard about the book and no i like bootstrap because i think you build wealth quicker that way in many cases you build wealth quicker as a founder yeah the main reason we don't want to look at investment is we like control the product and we what i like with our business we're growing and i hate the growth plateau i never i'm scared of the growth plateau you know so i always want to be growing yeah but i don't want to grow too quickly just yet because we um we're still learning a ton and we've got a solid product i think we're better than our competitors in a lot of areas and we're tightening down those areas and adding features and functionality that really speaks to our core value yeah so um yeah we're getting ready to you know you know increase that growth rate so help me understand growth today how many customers have you scaled to it's well it's a difficult thing because we um our software is used on 10 000 websites just your agency partners just agency partners you're looking at i think i looked the other day looking at close to 400 agency partners okay and then they serve over 10 000 kind of end websites yeah and in addition to that we have individual companies so we've got several hundred smaller companies or medium-sized companies using us direct without the agency so if you add up all just all your direct users the agencies plus the smbs how many total customers you're looking around 700. okay that's i mean that's a healthy amount can i take the 700 times the 180 180 kind of rp you gave me earlier to calculate mrr yeah it's about 126 a month yeah we're a little bit lower than that but yeah right on that's that's awesome and then um what about growth rate so a year ago what were you doing a year ago um you mean for the whole year for 2018. no just take me back in a year uh what were you doing in terms of mrr mrr a year ago we were probably looking at 60 to 70 000. and what'd you finish with in december of 2018 that would have been six months ago do you remember about a hundred thousand okay good so you went from 12 months ago like 60 000 to 100 000 in in december to 126 now i mean this is this is nice growth yeah what's going on what's the mouse trap i mean but besides the review sites and stuff are there any other ways you're getting new customers the um i would say you know seo is growing over time you know it's organically growing we haven't put too much effort into it but uh that area is growing nicely and we plan to put a lot more effort into that area yeah um well i want to kind of dive deep here for a second on the captera stuff but let me let me just round out your story for a second put this on a timeline for us when did you launch we launched in 2015. okay and what what year did you do any revenue in 2015 or no yeah i mean our first month we did like 30 bucks and it was an existing client from one of my agencies um and then yeah i think by the end of the year we were just a couple of hundred i mean no no sorry um a few thousand and then we quickly grew from there i wish i i had the child i've got i've got all the revenue in the spreadsheet but no that's okay that's okay and are you today are you burning capital are you casual positive we've never burned capital we've always been profitable yeah so what would you take to the bottom line like 10 or do you operate right at zero percent you you always reinvest everything now we're at about um i looked at about 15 to 18 percent okay so that would be about 24 000 a month to the bottom line on 126 000. yeah i said a little bit lower okay yeah that's still healthy that's i mean you're building a great business i love that um and then before we talk more about captain stuff churn's critical especially at this price point what's your turn today and how do you make sure you keep you know improving that we so it turns around about five percent um monthly yeah monthly okay so so 60 turn per year yeah okay and is that logo basis or revenue basis that is logo basis is revenue lower yeah what is logo basis well the only the only reason people measure those two differently is if you're if you have serious differences in your rpoo so churning a ten dollar a month customer is way better than churning a ten thousand dollar a month customer so revenue churn would be you know you know 10 000 in revenue lost if you lost the big guy but only one logo okay yeah that's logo tune um yeah and what happens is like we do a free trial and our conversion to a new account is like 70 80 percent um and then once we've got those accounts the first what's the two three months are pretty crucial and we see a decent drop off there but once they get beyond four or five months they're pretty much sticking yeah um which turn drop to and like months three four five six i don't have that data but you know it's getting better it gets better and uh like we got our turn and retention chart and once you get to like five six months it's sort of you know you don't see any more drop off yeah yeah do you know what expansion looks like annually how much do you expand an account no we don't okay so the nice thing about call tracking is as they use it more and they use more calls and more numbers that increases so there definitely is an expansion just from them using more well do you know what net revenue retention is so your gross churn is you know 60 you then make up probably some of that with expansion on those cohorts do you know what that number is i don't okay we do we do need to track more but um you know and there's lots of reports i want but we're more focused on you know users and just giving them what they need and um we're worried about revenue we very um we look at the revenue and we just but we look at top line figures we haven't really got into the weeds with our data yeah yeah well yeah there's obviously some optimization you can do with 60 annual churn you guys will figure that out over time but uh you the nice thing is you're in no rush because you control it you're bootstrapped you can do whatever the hell you want which is great exactly um fully weighted cack so to get a new 180 a month customer do you know what you're spending to get them all in yeah so that's difficult because of the seo component and the the referral kind of component but we see anything from 150 to 300 dollars yeah that's super i mean that's super so it's less than a two month payback period i mean that's really healthy yeah well if they become like an agency client and they use it it's good but if they're like a thirty dollar because we have a thirty dollar plan so if we're spending three hundred dollars for thirty dollar plan it takes longer so yeah yeah but on average you're getting up you're getting them up to again about 180 bucks a month something like that yeah okay when you look at the average um rp of 200 yeah exactly that's healthy okay let me go deep here on the captain stuff real quick so i'd love to understand so first off are you only placed there organically or do you also pay captera money for sponsored placement we pay to be you know it's a pay-per-click model yeah so help me i did this with a couple ceos on interviews yesterday it was very very telling because there was serious diminishing returns in other words the person that pays for the number what i'm going to look up you guys up real quick okay you're under call tracking software that tag so right now call rail is is is paying for the number one spot then in voca then phone wagon call cap and then you guys are down there as well and the the number of clicks that each of those companies gets for every extra thing you are down the drop-off is like significant so do you know how many clicks you get per month from captera yeah you're looking in between 100 and 200 per month okay so you're getting 120 per month and what do you pay them cost per click i believe so we've played with it and and that's the funny thing is those guys the call rails and the invoker as soon as you bid to go above them they immediately go above you yeah so call rail um i don't know if i can reveal how much they've set their cost per click but it's uh access in excess of what um they they they said to like a hundred dollars a click yeah yeah well and they've raised like they just raised like 70 million dollars or something ridiculous that's it did you speak with andy i forget who it was but i just know i heard that number like oh my gosh yeah they they value the company like 160 million they've raised 70 million um and yeah that's interesting i i looked at that carefully and after the razor had a good chat with andy who's the ceo and i looked at the um you know i read the lost and founder book by rand fishkin yeah i've been very interested in the different models to go to market because obviously if you don't raise your risk because somebody can move quicker than you um but you you know you lose you know i'm i'm talking to the con you know the person who knows the space well well let's keep let's keep though let's i want to keep narrowing down though on you so about what are you playing per click about do you know five to six dollars okay interesting so if captain at the top for that keyword is called a hundred-ish and then two three four you're five down you're paying you know about five to ten per click getting about 100 or 200 clicks per month how does that cohort convert when they hit your website is it healthy it's decent in terms of quality from cafeteria we wouldn't say they're the best quality um we find you know people coming directly through adwords or better quality converters captain is decent you know like it's definitely worthwhile being there but um we're not too upset when we're not one or two position up there yeah okay good so so you would never i mean do you go in and try and like right now you're in the fifth or sixth spot i mean could you go up and pay a little less than call rail but knock invoke out of the number two spot and would that drastically increase your your leads from the site or no it will increase it yeah it's uh it definitely increases it but they they've got a little uh notification so as soon as you output somebody else's let them know yeah so i've done it and i i played around with it to see like let's try this and within a couple hours they're bidding above you so all that's happening is everybody's paying more for the same results yeah that's interesting so do you know how many clicks call rail gets i bet you it's in the order of two three thousand a month i don't know if it's that much i would probably think 67 to 800. oh interesting okay okay so not a ton then um okay very interesting so i mean would you recommend then these review sites as a go-to-market strategy for new companies and you know similar size as you um the problem is there's so many review sites you know there's um there's a lot of them and to me once you start generating reviews asking your customers to go leave a review on five different sites it's just a pain and you you know you're starting to annoy them yeah so um and also we don't want to pay people for reviews so every single one of our reviews our you know customers like that product and they go give us a review best way to do it yeah whereas the other guys they get a budget and they say hey leave a review for 25 bucks and it sort of waters it down they leave bad reviews we like real heartfelt real reviews and we just feel the the integrity of that will play out over time yep very good all right let's wrap up with the famous five number one what's your favorite business book i was going to say like from good to great i like that but that lost in founder i i wouldn't say it's the best business book but i just love the way how transparent he was yeah and had a lot of lessons number two is there a ceo you're following are studying i don't like the big ones i don't think i learn a lot from them but i like the guys from like mailchimp and chestnuts or um you know guys in our space um i like to look at what they're doing number three what is your favorite online tool for building your company we like help scout number four how many hours of sleep to get every night probably seven and what's your situation married single kiddos uh married with three kids oh wow and how are you i'm 47 47 last question what do you wish your 20 year old self knew michael i thought about this one um i would tell them understand value and also trust the process but verify it what converts.com helping companies caught with call tracking whether it's an smb or an agency serving 700 customers right now paying 180 per month so they've broken 126 000 a month or thereabouts in revenue that's up from 60 000 per month just a year ago a lot of growth coming from review sites and seo paying about 300 bucks to get a new customer their churn is a little high right now at five percent per month but he's working on driving that down the nice thing is they're profitable 20 000 a month going to the bottom line they've raised zero dollars six people on the team again scaling and nicely michael thank you for taking us to the top thank you nathan appreciate it