How Wistia Took $17.3M in Debt Instead of Selling and More Than Doubled Revenue (Interview with Co-Founder and CEO Chris Savage)

Nathan Latka

00:00Just got done editing this interview. You guys are gonna love it. Before I do that though, I want you to know that I'm going to be in the comments for the next thirty minutes or so answering your questions. If there's additional questions you want me to ask the CEO next time I interview them, leave them below. Or if you're just loving the data points I get CEOs to share, click the thumbs up button below. That's your

00:18way of telling me you're loving this stuff, and I'll get you more of it. Additionally, again, I'll be in the comments answering any questions you have. Alright. For thirty minutes. Enjoy the interview.

Introduction to Wistia and Chris Savage

Nathan Latka

00:27Alright, guys. What's up? Nathan Latka here. Today, our guest is Chris Savage. He's the cofounder and CEO of Wistia, a web based software solution that helps marketers turn viewers into brand advocates to grow their businesses. Now more than 500,000 businesses across 50 countries depend on Wistia's products to build their brands like HubSpot, Mailchimp, Sephora, Starbucks, and Tiffany and Co. Chris, you're ready to take us to the top?

Chris Savage

00:50Let's do it.

Nathan Latka

00:51Alright, man. I already told you I'm envious of your video setup here. You're you're totally putting me to shame.

Chris Savage

00:57I'm just at my desk, man. It looks. So no, just another day in the office.

Nathan Latka

01:02All right. So we just said on the bio, but anything you want to add in terms of Wistia for folks that, you know, if they haven't heard of you guys, what you guys do?

What Wistia Does and Its Target Market

Chris Savage

01:10Yeah. I mean, I would just say, we've been around for a long time. We're a classic overnight success, you know, failed in obscurity for many, many years, and then figured out, like, how to build a freemium business. And we just help small, medium sized businesses use video better, and that means analytics to how your videos are performing, hosting, sharing tools, marketing tools, the ability to build channels. Like, we have a ton of stuff to help people

01:35do that.

Nathan Latka

01:36Yeah. Now the context of this, what I wanna talk about is something very unique to what you've done, which is an acquisition offer you got recently and and decided to do something totally off the rails, which was instead of taking the acquisition offer, raise debt and buy the folks out. So we'll get to that in about two or three minutes. But first, give us context in terms of where you're playing. So would you categorize yourself as

01:53kind of SMB mid market enterprise? What's the average customer looking like?

Chris Savage

01:57Yeah. We're in the SMB space. I mean, you know, there's a... That's where we set our target. Think like any business that's freemium, you end up, you end up with customers across the spectrum, right? Like we're mostly SMB, there's some mid market, there's a little bit of enterprise in there. But we... What it means for like how we've built a business is that like we have to be really efficient in how we get customers. We have

02:20to make a product experience that's incredibly easy, incredibly simple. And I think also the other thing about the SMB space, as you know, is just, it takes time, right? Like, it's hard to find all those folks and it's hard to build that brand equity. And so... But that's the path we've and it's it's been good for us.

Nathan Latka

02:36So, I mean, fair to say sweet spot for you guys is your your $99 a month kind of pro plan. Was that accurate or no?

Chris Savage

02:42Yeah. That's accurate.

Company Timeline and Early Fundraising

Nathan Latka

02:43Okay. Alright. So let's put us on a timeline, then we'll get to the the recent event. So when did you launch the company? What year?

Chris Savage

02:49Launched in 2006.

Nathan Latka

02:50Okay. 2006. So how much had you... Well, first off, when did you get the acquisition offer? What year? And how much had you raised prior?

Chris Savage

02:58We got the acquisition offer in 2017, and we only ever raised two angel rounds. So for a total of 1,400,000, we raised 650,000 in 2008, and another about 800,000, a little less than that in 2010.

Nathan Latka

03:15Dude, I did not know it was that little. I thought you had raised, like, $56,000,000.

Chris Savage

03:20No. No. It was it was a very tough... I mean, especially in today, when we see how much people raise for a seed round.

Nathan Latka

03:27Yeah.

Chris Savage

03:28Yeah. We raise very little. Yeah. Incredibly capital efficient. And that was from the beginning. Like, when we started the business, my co my cofounder and I were both very fortunate in that we graduated college without debt. My dad was a professor and had a a good deal. And so we saved the the meager amount we earned the first year out of school, and that is what we used to to fund ourselves the first two years.

Nathan Latka

03:50Yep. Now 2017, obviously, was about two years ago. Give us a... Before we talk about kinda logistics here, give us a sense of size of company at that point. How many customers were you serving? And if you can, kinda revenue range?

Company Size and Revenue at the 2017 Acquisition Offer

Chris Savage

03:59Yeah. I think the revenue range was around like about like right at the time of the offer, I think we're about like an $18,000,000 run rate or so. And I don't remember the exact customer number offhand at the time.

Nathan Latka

04:15Couple thousand.

Chris Savage

04:17Tens of thousands.

Nathan Latka

04:18Tens of. Yeah. Good. That's that's good range. Tens of thousands. Okay. Yeah. So the acquisition offer comes in. Were you expecting it? Was it a surprise? Did you solicit it?

Chris Savage

04:25You know, what's funny is that we actually had three companies approach us at the same time that all said we want to acquire you. And I was quite surprised because, you know, people have pinged us over the years and poked around, but never have we had three companies at once. And it was the fact that those three companies came at once were like, maybe something's changing in the market, and so we should take these offers more

04:45seriously.

04:48And then it just kind of evolved. Right? Like, know, you don't really expect to be spending your time doing that, then suddenly you're spending all your time talking to people about, selling your company. It took all your time.

Nathan Latka

04:58I mean, it was super time intensive?

Chris Savage

05:00It became very time intensive because, you know, there was, like... We were... We really were not sure we wanted to do with the business, actually. So it was like, we had the acquisition offers coming in. We also had thought maybe we would raise a growth round. So we're talking to growth firms. We would much... In

Nathan Latka

05:15what were you what were you... You... If you did go VC that that time, what would you raise?

Chris Savage

05:18I mean, when I was being sold... What they were trying to convince me to do is to raise, you know, $40,000,000, something like

05:24and so we were spending a lot of time, like, looking at our data and looking at the unit economics and, like, how things were changing and evolving, and thinking through what we would do in each of the different scenarios.

Nathan Latka

05:37Yep. Okay. Good. So you're you're looking at kind of the VC side. Now did it actually mature into a term sheet or you shut that kinda down quickly?

Chris Savage

05:44It was returning... Was turning into a term sheet almost exactly the same time that we were getting, like, the real offers from acquirers.

Nathan Latka

05:54Were they... Did any of the acquisition offers turn into a real LOI or a real term sheet, real diligence?

Chris Savage

05:59We were just... We had gotten the numbers, and, like, we were get... I think we had gotten to one one of them, like, the LOI to sign.

Nathan Latka

06:06Okay. So where did... I mean, when did debt enter your head?

Why the Founders Decided Not to Sell

Chris Savage

06:10So it's funny because we're basically sitting there with this offer trying to decide, like, should we go to the next step? And, we realized in that moment a couple things like, well, what would we do if we sold? Well, if we sold the company, we would work at this new company for two years and then we would leave. And then my co founder and I, at this point, we've been working together for eleven years. We think

06:32we've worked together really well. So we thought we'd do something together again, and we thought we'd probably try to build another company. And we talked about the type of company we try to build, and we're like, well, we really like the SMB space. We wanna build a company with a strong brand. We think there's a lot of stuff we can do in video. You can see where this is going. Where we started to realize is that

06:51we were like, we sold the business we're gonna try to rebuild with. And then they were like, why do we need to rebuild it? And that was the funny part was like, I didn't expect that. Like, you know, why rebuild? And it was in that part of the conversation that we actually admitted to each other that we were not happy.

Nathan Latka

07:09Why?

Chris Savage

07:11We had been throwing the throttle down on growth for a couple of years, and we had, you know, we'd been profitable in funding the business, through having customers, and we had cash reserves, and then we had just been like throwing the throttle down, like hiring like crazy, spending tons of money on advertising Because we'd gotten so much advice and we'd looked at the market, we talked to all these growth funds and all these smart people who

07:31said, if you're profitable, then you're actually probably not growing as fast as you could. And so we were trying to grow faster, and it had made the company incredibly short term focused. Because, like, if you lose $250,000 in February and you're planning on losing another 250 in in March, but revenue is gonna go up. Revenue doesn't go up and you end up losing 300, it ends up creating some stress.

Nathan Latka

07:53How low was the bank how low was the bank account did it get in that time frame?

Chris Savage

07:57I mean, we... Let's... That's a great question. I think we we started with, before we started to throw the pedal down, we had,

08:10I can't remember the exact amount, multiple millions, and we were we were trending lower. Like, I could start to see a time horizon where we went from like living forever to it was gonna be more like seven months or something.

Nathan Latka

08:21Yep. Yep.

Chris Savage

08:23So that was very stressful. And but what was happening is because everyone was so short term focused, we couldn't even execute on the long term ideas. Like we do a long term thing and then everyone would be like, why isn't that working? Why are we putting effort into that? And it just made everything really short term. And it just was no... It seemed like it was just gonna be programmatic as opposed to like longer term bets

08:45on things and more creative work in our marketing and, you know, focusing on the experience of the product. Those things like kind of fell away towards just kind of short term growth things.

Nathan Latka

08:45Mhmm.

08:56So did you end up having to lay off a bunch of people to get profitability back?

08:59Or

Chris Savage

08:59So we we did not. So we're very fortunate. So we decided not to sell. We realized that create... That did create a misalignment with our angel investors. So we had to do right by them, because, of course, they want us to sell because that was gonna be a great return. So

Nathan Latka

09:12How much do they own, by the way? The 1,400,000?

Chris Savage

09:16I can't say exactly.

Nathan Latka

09:18Okay.

Chris Savage

09:18But I'll say... You know, I'll... What I will say is that when we raised, it was a different time and, harder to get a higher value. So they they own more than I would want them

Nathan Latka

09:18Yeah.

09:27I mean, can you give a range and say between like 10 to 50%, 10 to 50%?

Chris Savage

09:32I can... Yeah. Sure. They're in

09:33that

Nathan Latka

09:33That's a big range. Right? So That's a huge range. I mean, the reason I said is because, I'm thinking going, okay. An $18,000,000 ARR company that's raised 1,400,000, him and his co founder are unhappy. Why do they feel like they need to do anything unless those early folks owned a material portion of the company?

Chris Savage

09:48That's exactly right. And it's because like we raised our first round, our MRR was literally $1,000 or, like, $1,500. So it was like, we were very, very early, and there was a lot of risk in the business.

Nathan Latka

10:00Yep.

Chris Savage

10:00I

10:01mean, I give credit to our angels. Like, I... If I saw a business that was just doing 1,500 in MRR, and it was like the stage at this, I don't know that I would be able to make the investment.

Nathan Latka

10:01Yep.

Chris Savage

10:01So I give them tons of credit, but, yes, it meant that they owned a material enough amount that they... You know, their their shares also were preferred shares. And so it meant that they had rights to

10:20a board seat. They could block a sale. They... We tried to set ourselves up because we assumed we were gonna raise venture money. So we tried to make the terms pretty venture y so that if we did, the venture capitalists would come in and be like, oh, these seem like fair terms. We'd hope that they would, like, be closer to aligning with that.

Nathan Latka

10:34Did any of the the the second $800,000 round in in 2010, was it a priced round, or was it another note or something?

Chris Savage

10:40It was a priced round.

Nathan Latka

10:40Okay. So there was at least a valuation kind of beachhead for you to look back on.

Chris Savage

10:40Mhmm.

10:45Yeah. Okay. Totally.

Structuring the Debt Deal with Accel-KKR

Nathan Latka

10:46So I'm one of your early investors. I'm going, dang, Chris, I wanted you to sell for a $180,000,000. You guys aren't gonna sell. I'm bummed. Now what?

Chris Savage

10:53Yeah. So

10:55basically, we started hitting on this idea of what if we were to raise debt? And we kind of like took future profits and brought them now, and we were to create a tender offer for our investors. And, we structured this... I talked to an entrepreneur who had done something similar, and the idea, like, got in there and I thought this is a very interesting idea because it was the same terms to everybody. And so we decided

11:23not to sell in, June 2017. Hit on this idea of doing debt in probably July, and by October we had terms. And so we worked with Accel-KKR, to fund the debt, and they were willing to write debt against a company that was not profitable. Like we said, we're gonna be profitable, but they had a growth fund side of their... They have a growth fund side of their business. So they looked at the unit economics of Wistia.

11:48They they were taking a bet that they understood our unit economics, we understood them, and they could see a path to profitability. And we had a range of debt that we would raise from them. And so

Nathan Latka

11:59What was that range?

Chris Savage

11:59It

12:01was like 15,000,000 to 20,000,000. They were comfortable underwriting that. So then we went back to our investors, but we also went to the team because the team had options. Especially And early people, they've been taking a huge risk and making incredibly small amount of cash in return for equity. So if we're not gonna sell the business, we have to take care of them too. And so we basically went to everybody and gave them the exact same

12:24terms, just like, here's a valuation. You can decide how much you want to sell, and write in how much you wanna sell. But for the investors, what we told them is like, Brendan and I are gonna run this business for the long term. We have common shares. If you don't sell,

12:41your shares are actually gonna convert to common as well.

Nathan Latka

12:44How could you force them to accept that accept that term? You guys just had control.

Chris Savage

12:47So basically what we told them is like, we've been doing this a long time. The business is materially different than it was before. We're gonna ask your class of shares to vote to turn into common, and that will trigger the ability for you to sell your shares.

Nathan Latka

13:01How'd you convince them to vote yes to that? Was there anyone that stuck out and said, no. I wanna stick with my preferred and stay with it?

Chris Savage

13:07There were some people who wanted to stick with preferred, but there was enough people who were excited about the return and so thankful for the return that they were able... You... We just needed a majority of people to do it. So that was not that hard to do. I will also say we've built up so much trust because they've known us for so long. And they, we had basically done what we said we were going to

13:30do. Like even when we raised our second angel round, we said, we're gonna get profitable on this. So they said, no, you're not, but like, still we think it's a good business. Then we did, and they're like, you did. No one ever does that. And it was just like kind of continued on that path. And so I think there was, like, definitely a trust element involved.

Nathan Latka

13:45What return did you... I mean, did you pitch them on a return when you raised? Did you say, hey. We're gonna optimize this to get you a 10 x return?

Chris Savage

13:51You know, we didn't... I I was not a fan of saying an exact number at the beginning. I was always a fan of, when someone asked me what the market size was, I'd like, I don't wanna tell you what the market size was. But I will tell you, if you look at Webex, you look at GoToMeeting, you look at them people over there, if they're spending just $50 a month, that would be a big market. People

14:06will be like, that would be a multibillion dollar market. Said it not me.

Nathan Latka

14:09That's the math. So,

Chris Savage

14:12I mean, because that is what we thought it was gonna be. And and, you know, there was things that were... There were lot of stuff we're right about. I think one of the things we were very wrong about, in the early days was just like the speed that our market would grow. Yeah. Like, we thought our market would be like two years giant. I mean And what we didn't understand was that like, at least for business

14:29video, people wanted to be- they were nervous about the brand impact, and then they're nervous about getting a camera, and then they're nervous about the ROI. All of these things have been like a governor on our market. So our market's been a very, very good market, but it has taken way longer than people expected. And you can look at the list of competitors we've had in the past, and many of them were overfunded actually, and that's

14:48why they failed because they tried to get the market and the market wasn't there. Then they had a giant team and they couldn't support it, and so they'd get sold off or whatever.

Nathan Latka

14:57What's your team size today?

Chris Savage

14:59About a 115 people.

Nathan Latka

15:00Okay. Was it about the same back in 2017?

Chris Savage

15:03No. 2017, we're about 78 people.

Investor Returns and How Much the Angels Sold

Nathan Latka

15:05Okay. So back to the question about convincing enough of those series, those early investors to wanna convert to common. You had to have... I mean, there's a negotiation there. You had to have given them a return that made at least the majority sign off on those terms. So

Chris Savage

15:05Yep.

Nathan Latka

15:05What was that? I mean, what... Can you share what that multiple was?

Chris Savage

15:23Yeah. I can... So there's the two rounds. There's different returns, but it was around 20 x.

Nathan Latka

15:29Okay. On on kind of both of them?

Chris Savage

15:32Yeah. One was a little one was a little less than that.

Nathan Latka

15:34Got it. So if I put some money in the $800,000 round in 2010, you're you're... I mean, what you're saying was that's essentially turns into $16,000,000.

Chris Savage

15:34Yeah. Yeah.

Nathan Latka

15:34Okay. Got it. And then so 16,000,000 plus again, call it another 20 x on the $650,000. That's where you get up to, like, basically, what I mean, you didn't raise $25,000,000 to $30,000,000 in debt though, you raised what 17?

Chris Savage

15:54We raised 17.3. So here's the other interesting thing is that we're getting, pressure for liquidity. People wanted liquidity. And don't forget, we also want them to take care of the team who were to sell their shares. But people didn't actually want to sell the whole thing. Like, oh, you know, so we had probably had like 12 individual investors. We had a couple people who didn't want to sell anything because they're high net worth individuals and they

16:18have lots of investments like this. And they're like, well, let's just let it ride.

Nathan Latka

16:18Yep.

Chris Savage

16:18And they they knew that they would be incentivized the same way Brendan and I are, like, running the business to figure out how to take money out of the business at some point.

Nathan Latka

16:27So of the 1.4, how much did you can... You buy out basically, the 1,400,000?

Chris Savage

16:34That's a good question. It was

16:4040 ish percent.

Nathan Latka

16:4240%. Okay. Well, that's less than what I would have thought. Okay. So 60% of people said, I'll go to common. I wanna ride this bad boy out.

Chris Savage

16:48Yeah. And it... I mean, that was actually one of the people who gave me the most pressure for liquidity. I was just so certain they're gonna sell, like, you know, 60 or 70%. It came back as like, I'm gonna sell, like, 20%. I'm like, are you serious?

Nathan Latka

17:00That's so funny.

Chris Savage

17:01It's like he's like, well, you guys are doing great. I wanna I wanna be in this

17:05business for long term.

Nathan Latka

17:05That's so funny. So 40% on the 1,400,000 from the $650,000 you raised in 2008 and the 800 you raised in 2010 comes at about $600,000 of the 1.4 you bought out at a 20 x. Right? So 600,000 times 20 x is 12,000,000 there. You then had more debt on... You... Hey. I think you said you raised 17 in debt. So you have five left to play with. Did that go out of the

17:25balance sheet and early employees who exercised?

Chris Savage

17:28I was really... There was nothing one of the balance sheets. Was all just stuff.

Nathan Latka

17:32Okay. It exactly matched. Okay. Cool. So that's really helpful. So so out of curiosity, I mean, did you ever do the math? How many team members sold at least a dollar worth of shares on the tender offer?

Introducing Profit Sharing for Employees

Chris Savage

17:42Most did. So we actually... When we did the offer, what we said was we wanna have one incentive structure for everybody. So you can either, you know, hold on to your options, or if you sell your options, you can participate in profit sharing. So we introduced profit sharing starting in 2018, where we take a percentage of the pool of EBITDA and put it directly toward... For the employees, and it's divided up based on people's salaries. And

18:06we did that for a bunch of reasons because we audit salaries multiple multiple times a year to make sure people are paid fairly and equitably. That way it acts as like a bonus. And there's a very clear connection between how the business is doing and, how people are compensated.

Nathan Latka

18:20So in in this year wrapping out of twenty twenty nineteen, let's just assume... Let's say you took 5,000,000 to the bottom line. Do you split the full 5,000,000, or do you take a percent of EBITDA and split that?

Chris Savage

18:28We take we take a percent

18:30of EBITDA because we're serving the debt. We gotta pay taxes, a bunch of other things.

Nathan Latka

18:33But Okay.

Chris Savage

18:35That's how that's how we've done it. And it was actually very interesting, and it I... It was a huge lesson for me because, you know, we had given people options forever, and they would talk about, like, what's the valuation of the business?

Nathan Latka

18:44Wait. Before you tell... But wait. Before you tell the story, what what percent of EBITDA do you end up splitting?

Chris Savage

18:4910%.

Nathan Latka

18:50Okay. Now tell the story.

Chris Savage

18:51Yeah. Yeah. We basically, you know, we, people would ask like, much is the business worth? We'll be like, well, you know, you can look at SaaS multiples and they look like whatever, five X to 20 X. And you look at like these other industries and it was just like fuzzy math. And I think it made it really hard for people to understand what to do. Like, how valuable is this thing? Like, you don't know when liquidity

19:11is gonna be. And so it used to be the case, like, on a monthly basis, we'd go through our financials. We will open book at Wistia. So we'd talk about the financials and, like, any questions? And usually there'd be no questions. So the first time we went through the financials after we introduced, profit sharing, it's like, any questions? And, like, you know, half the hands of the group went up.

Nathan Latka

19:30It's your all hands...

19:31Like, you're all hands meeting.

Chris Savage

19:32Yeah. And they're like, why why do we have this extra office that, like, doesn't have enough? You know, basically, we're wasting space now. Like, we should be subletting this. I'm like, why are we doing this thing over here? And why are we doing this thing over there? And it was ludicrous, actually. It was crazy to see the difference. And then after that, one of our, our infrastructure teams came to me and they're like, hey guys, we

19:51have an idea. We think we can improve gross margin.

Nathan Latka

19:53Well, by the way, your video, how bad was your gross? I mean, not not bad, but what was your gross margin?

Chris Savage

19:57Our gross margin matters. Like it's expensive. The cost of goods of delivering video and hosting video, the storage, everything is very expensive. So they came to us and were like, we think we'd improve gross margin. We're like, alright. Great. Like, how long do you need? Like, we need a few weeks. So they went and they spent some time, and they came back and were like, we've made some changes. We've reworked how some things are are working,

20:18and we've got us three points of gross margin.

Nathan Latka

20:20That's amazing. So what does that equate to in terms of bottom line profit they added just by doing that?

Chris Savage

20:26Well, I mean, that is just 3% of revenue. Right?

Nathan Latka

20:28So 3% of 18,000,000.

Chris Savage

20:28Yeah. Yeah.

Nathan Latka

20:28I mean, look, the point is, like, this is so fascinating to me. People don't understand equity. They understand, like, profit because now you said these are dollars that are not in your wallet if you don't figure out how to save them.

Chris Savage

20:43Exactly. Yeah. And I think it's it's also... It's been interesting too because, like, you know, we're still growing. We're adding a lot more people. We're trying more things. But the by having this... It's almost like it forced us to be profitable, the debt, and that allowed us and forced us to be long term focused, which, again, these are like the opposite things I expected way before all of this would happen. Like, I always assumed that, you

21:06know, people said profit was bad and profit was short term.

Nathan Latka

21:06Mhmm.

Chris Savage

21:06It's just been interesting because it's been the opposite.

Revenue Growth Since 2017 and Current Scale

Nathan Latka

21:11Well, so now fast forward, you're two, three years into this experiment. How many customers are you guys serving now today?

Chris Savage

21:17A lot more. So I could say that.

Nathan Latka

21:21Are you over 50,000?

Chris Savage

21:23Yes.

Nathan Latka

21:23Okay.

Chris Savage

21:23And I would and I would also say, like, the the revenue is really strong. We are more than double where we were then, which is awesome.

Nathan Latka

21:35So you'll break up four...

21:36Wait. Double 18 is four...

21:37You'll break 40,000,000 this

Chris Savage

21:39We... Yeah. We're right right past there.

Nathan Latka

21:39That's great. Yeah. So

21:43Chris, this is amazing because so... There are so many VC firms that sell entrepreneurs on this idea that you're never gonna double growth unless you, like, raise capital. But, like, you've proven in a very opposite way that, like, it actually is doable even though you yourself will say your market is not a massive multibillion dollar market?

Chris Savage

21:57Yeah. I think that it it is totally doable. And I feel like I I look at a lot of... Actually, I take inspiration from companies like Mailchimp that have done without any funding, but I also take inspiration from companies like... I feel like a lot of the direct to consumer companies are showing us what's possible. Like, if you can find the people who really care about what you're doing and you could figure out how to finance

22:16the, the business, like, through customers, through cash flow, it is, it is possible to do. And it's also just like people underestimate focus, man. Like, you know, we were, we were doing so many different things like searching for growth. And then the second we focused on our product, we focused on the experience because we had to Guess what? All those things got better and then move the needle.

Nathan Latka

22:37Yeah. Well... So how... What did you move the needle? You said since 2017, you doubled, but if you're doing 40 today, what... Where'd you start the year at?

Chris Savage

22:46Well, I don't know.

Nathan Latka

22:46Okay. Yeah.

22:49Okay. But you're I guess the reason I'm asking is, has the team... Because the team can save money and it essentially ends up in their pocket. Have they made irrational decisions around CAC? Right? They could have spent a dollar profitably, but they didn't because they want to save it for their pocket. It was a guaranteed thing.

Chris Savage

23:08Oh, that question. No. We haven't had that experience because I think the other piece is that the profit sharing is,

23:17it's a, you know, it's a, it's a part of your compensation, but it's not a huge part.

Nathan Latka

23:17Yeah.

Chris Savage

23:17So we're also just like making sure that we're paying people really well and doing that throughout, you know, as we update, where people are at throughout the year. And so I think it ends up being like important, but it is not like the key piece of your compensation. I think we get very different results if profit sharing was

23:38like 50% of people's compensation.

Nathan Latka

23:38Yeah.

Chris Savage

23:38It's much smaller percentage.

Nathan Latka

23:42When you look at like your marketing team, again, this profit share model and CAC, I mean, you are you still optimizing for like a a kind of a year long payback period or is it shortened or or lengthened?

CAC Payback Period and Sales Team Structure

Chris Savage

23:53Yeah. It's... We're optimizing for about a year. I think if anything, it's lengthened a little bit because now that we have this, this buffer of profitability, we can continue to do those long term things. So, yeah, that's, that's an interesting one because I agree with you. It would have been easy to see it, like change behavior so that people didn't wanna invest, but we haven't seen that.

Nathan Latka

24:14That's, mean, that's a good thing. And then breakdown is a 115 on the team. How many engineers?

Chris Savage

24:20The product and engineering organization, which I'm just gonna lump those together, about, I think, like, 45 people.

Nathan Latka

24:29Okay. So healthy. And then at your price point, I mean, do you have inside sales reps with quota or no? The the inside sales doesn't make sense?

Chris Savage

24:36No. We do have sales.

Nathan Latka

24:37Okay. How many quota carrying reps?

Chris Savage

24:43Like AEs and BDRs, you mean?

Nathan Latka

24:43Yeah.

24:45Yeah. However you... Whatever you wanna label them.

Chris Savage

24:4716.

Nathan Latka

24:48Okay. Did you change anything about their comp plans? Because now, you know, usually a base plus commission. Right? But now they actually take their profit that they can share. And do you change their structure at all or no?

Chris Savage

24:59We... No. We didn't change their structure.

Nathan Latka

25:01Okay. Cool. Alright. Last question. If if an entrepreneur is listening right now and they're thinking about raising debt, I mean, what what terms are good terms? I mean, what what should they be asking questions about?

Debt Terms, Interest Rates, and Covenants

Chris Savage

25:11Yeah. I think you wanna know... So there's obviously the interest rate. In our case, you know, when we did the deal, the initial interest rate was high because we didn't have evidence of profitability. And so we were not gonna go get the deal from a from a quote normal bank.

Nathan Latka

25:25Yeah. What... I mean, can you give me... I know you probably can't give a

25:27specific

Chris Savage

25:27I I can't say specific. It was, like, over 10%.

Nathan Latka

25:30Okay.

Chris Savage

25:31And we had a five year term. And, fortunately we had like a, the, it was interest only for a while, then eventually went into principal. And in our case, the things that we're looking at was like the interest, the, it was okay to spend that, the, the money on interest because we were thinking like, what would the value of the company be in the future? And like, you're kind of taking a bet, will we be worth

25:51more than 11% a year?

25:54And then the there's always gonna be covenants. And so you wanna look at how the covenants are gonna restrict how you run the business. And so, things to look out for are like minimum revenue requirements, the amount of cash you have on hand to pay for the debt payments, trailing EBITDA and leverage ratio. So leverage ratio is the amount of debt you have to amount of EBITDA you have. And like, if

26:20you don't

Nathan Latka

26:20But usually top line ARR?

Chris Savage

26:23EBITDA.

Nathan Latka

26:24EBITDA. Okay.

Chris Savage

26:25So when you, the, if you are at like four times EBITDA, so if you have a million of EBITDA, you can have 4,000,000 of debt from there on down like three, three to one, two to one, one to one. That's when you're getting into a range that you can like talk to normal banks.

Nathan Latka

26:39Yeah. So you were over like five, you were over five or six.

26:41Right?

Chris Savage

26:41Oh, we were like infinite EBITDA when we started talking.

Nathan Latka

26:44Because you weren't, because you weren't profitable.

Chris Savage

26:45Yeah. Yeah. So they had a plan and we like worked with them on this. Like we built projections and I was like, all right, in eighteen months, we're gonna have a leverage ratio. It's gonna start at 20 X and then it's gonna work its way down. And that was one of our covenants was like, can we get our leverage ratio to be in line? Right?

27:02I think that's, it's important to pay attention to those things because those are the boundaries of the incentives for you. Yeah. And like, I think SaaS actually can be incredibly powerful, when matched with debt, because if you understand your unit economics with enough enough depth, like if you understand churn, if you understand expansion, if you understand acquisition, you can actually model out what, like, what should today's revenue be worth in a year? It makes it much

Refinancing with Provident Bank After Achieving Profitability

Chris Savage

27:29more possible to use debt as a tool. And in the, like, you know, when we refinanced, we worked. So we refinanced

Nathan Latka

27:29Oh, wait.

27:38So you're not, you're not still paying more than 10% interest. You refinance?

Chris Savage

27:43Yes. We refinanced after a year.

Nathan Latka

27:45Okay. That equal to the interest only period?

Chris Savage

27:50Yep.

Nathan Latka

27:51Okay. Got it.

Chris Savage

27:52Yeah. So we had like, in 2017, we had negative EBITDA of 500,000.

Nathan Latka

27:52Yep.

Chris Savage

27:52And in 2018, we had EBITDA of 6,000,000.

Nathan Latka

28:04Positive. Yes. That changes your loan profile significantly.

Chris Savage

28:08That changed the profile dramatically. And so that meant we were able to go out and talk to normal banks, and they... We had evidence of profitability, and they were excited about that. Right? Like, so they... Accel was taking the bet on could we get to being profitable? And then these other these other, banks are basically taking the bet like, will we be able to maintain profitability? And so it's a very different risk profile, and it's, you

28:33know, a lower risk profile to have evidence of profitability, which means that you end up with a much lower interest rate.

Nathan Latka

28:38How low could you drive it with 6,000,000 profit?

Chris Savage

28:42Yeah. I can't say exactly, but, much lower than 10%.

Nathan Latka

28:48Less than half a 10?

Chris Savage

28:51You're so funny. I love it.

Nathan Latka

28:54Chris and I just spent a bunch of days together in Maine. I'm going, Chris, I promise I'm not a douchebag. Like, come on the show. It'll be fine.

Chris Savage

28:59Not less than half than 10.

Nathan Latka

29:01Okay. Fair enough. But you were able to save significant cash flow, right, now that you had EBITDA?

Chris Savage

29:05Yes. Yes. Yeah.

Nathan Latka

29:06Can you share the bank you work with? I mean, you like them? Do you... Would you recommend people reach out?

Chris Savage

29:10Them. They're called the Provident Bank. Okay. Yeah. That'd be great.

Famous Five: Books, Habits, and Advice

Nathan Latka

29:14Okay. There we go. Very good. Alright. Let's wrap up here, Chris, with the famous five. Number one, favorite business book. Actually, for you, let me do favorite, like, book on creativity and, like, art.

Chris Savage

29:23Oh, I'll go with Creativity Inc by Ed Kackel.

Nathan Latka

29:26Come on. That's like a business y. Okay. That's fine. Give me one that's like a weird create... I mean, because I know you study this stuff. Give me, like, a weird creativity psychology.

29:38Not mainstream.

Chris Savage

29:40You know, it's another business book, but I think about it as creativity is Masters of Doom.

Nathan Latka

29:46Okay, that's a good one.

29:47I haven't heard of that, Masters of Doom.

29:49Number two, is there a... What's your favorite... Or is there a CEO you're following or studying right now?

Chris Savage

29:55For a long time, it's been Ben Chestnut, the CEO of Mailchimp.

Nathan Latka

29:58Yep.

29:59Number four. Alright. Number three, favorite online tool for building your business besides Wistia.

30:04Well, I mean Chris is a self promoter guy.

30:07He's even bigger than me. Yeah.

Chris Savage

30:08I'm gonna say Wistia.

Nathan Latka

30:16You use Mailchimp?

Chris Savage

30:20A little bit. I I know. What is... I I really wanna give you a good answer for that one.

Nathan Latka

30:25This is another one where it's good to, like, not be mainstream. Some, like, weird thing you use to do some awkward thing.

30:31Within limits, Chris. Let's not get crazy.

Chris Savage

30:34Yeah. We don't wanna do too crazy.

Nathan Latka

30:38What do you use to edit videos personally?

Chris Savage

30:40What do we... I mean, we... Personally?

Nathan Latka

30:42Yeah.

Chris Savage

30:44Final cut. Okay. Actually, no. Premiere more recently. Adobe Premiere.

Nathan Latka

30:48Same.

30:49Okay. You guys ever get an editing game or no?

Chris Savage

30:51I don't think so. I think, I mean, we're in it a little bit with Soapbox, but I think that the true editing tools require, like, a totally different approach and set of tools and different culture to build.

Nathan Latka

31:05Yep.

31:06Number four, how many hours of sleep you get in?

Chris Savage

31:08Trying to get eight and a half.

Nathan Latka

31:10That's good.

31:11And situation, married, single kids?

Chris Savage

31:13Married and two kids.

Nathan Latka

31:14Oh, gosh. You have your hands full. Alright. And how old are you?

Chris Savage

31:1836.

Nathan Latka

31:1836. Last question. What do wish your 20 year old self knew?

Chris Savage

31:22Probably debt.

31:24Well, I I... Yeah. I wish if I... I I wish my 20 year old self, my 20 year old self wanted to reinvent absolutely everything. Like, every single thing. Oh, it's not customer support. It's customer happiness. Like, it's not... Like, every single every single thing. If it's been done some way before, thought that way it was stupid. And, Chris, you were wrong. There's a bunch of the things that are just the same in building a business.

31:54You should have been more open to that, and it would have not caused you as much pain.

Nathan Latka

31:59These CEOs rarely give these kinds of interviews. I hit them hard. I get the data, and I wanna do it more. So if you wanna get more of this stuff, make sure you subscribe up here. And then additionally, go check out one of my other CEO interviews right now.