Zenbusiness Revenue, Valuation & Funding (2024)

Introduction hello everyone my guest today is ross berdorff he's built a great company in zen business if you missed the episode back mid 2019 what you would have heard is they're helping the world create new businesses and when he says the world he communicated that had over 6 000 customers at that point i think they've grown a lot they've made a major acquisition we're gonna dive into it all today ross you ready to take us to the top hey you bet thanks so much excited to be here today you bet all right so if people did miss that first episode give us the quick cliff notes version why are people paying you money to use zen business well i mean you know you really want to think of us as shopify for the service industry so we are a full service product for the service industry and that's this long tail micro businesses so everything you need to get up and running from formation to website to accounting to crm to uh you know invoicing we've got the whole thing we get your your your service business to its first dollar and get you know tie the loop here for people because a lot of people and a lot of people that i talk to that are now angel investors or where high up at home away they say just amazing things about how you and the executive team work together to grow that company so did you did you in any way was the seat of zen business did it come from home away at all or no no i mean it didn't i mean these kinds of things you just fall into and you know really it came from there's just a need in the market and this is a growing trend you know there's a uh we just recently a statistic out there that over half of the millennials you know have a side gig going on and this is part of that you know that side gig going on and you know the pandemic has certainly accelerated the adoption of these more efficient tools to get a business up and running so you may have seen amman the ceo of godaddy just did a recent interview with cmbc and they're seeing explosive growth so are we we're seeing the same explosive growth as more and more people you know are doing their own thing online and it's the digitization of you know this solopreneur segment there you go side hustle software i like that ross all right so when you say explosive growth you know me i'm a numbers guy Currently serving 70000 customers let's try and quantify this you were serving i think about 6 000 customers back in february of 2019 how many are at today seven over seventy thousand customers you've over seven that's paying customers that's not like some fluffy duffy free users that never pay that 70 000 paid that's a fluffy duffy number holy crap so that's i mean that's weight that's more than 10x growth in the customer base over the last 20 months how much of that came over the past six months uh well i mean i don't think that's a good point i don't know how much is i mean we've been growing pretty rapidly last year the i mean i would say oh gosh like a third of it i mean we've seen some explosive growth i think just be as a result of the pandemic but but this trend was already existing i think you know a lot of companies grow during a down market uh because of the adoption of more efficient solutions and and we were in the right place at the right time and you know this is a trend that's just been accelerated you know you could say the same for zoom uh you know uh you could say the same thing for zoom uh you know with the pandemic and i think it's the same thing with the you know this smb platform called zen business and what are customers paying you on average per month to use the tech uh you know i'm not gonna i mean share those numbers well the yeah the reason i ask is um Monthly recurring revenue we're yeah good now we're in the we are you know in the tens of millions in revenue so revenue has grown explosively also yep yep yep have you i mean i guess from a trend perspective have you generally increased our poo overlay and gone upstream over the last okay yes got it so we continue to see ltv expansion and the platform continues to expand you know our website product is leading the way you wanted to talk about the joust acquisition i love that yeah so the joust acquisition which was someone we were going to partner with and really made more sense for us to you know purchase the company so we did that joust was squarely focused at this you know service industry which is where we're focused also with invoicing uh invoice factoring crm merchant accounts and so this was a perfect merge for us we've rebranded it as zen business money you want to think about um you want to think about joust as the fintech solution on our platform so everything fintech and uh we'll roll that out it's been a rebrand and we'll roll that out in q4 and q1 of next work next year feature by feature so it just makes a perfect perfect solution and you you know when you think about it is you know that that has to be fintech payments has to be a part of any platform that provides a solution in this area i mean a lot of people ross will see other tools in the space and go that's a perfect fit but i could never get that company because they've raised too much or they're way bigger than us or things of that nature i mean when you look up jost i mean i think they raised 11 million bucks now you're not a small company but you're not 100 million an ar either i mean how did you make that deal go down uh undisclosed undisclosed but we you know we did it off our balance sheet i guess i'm not necessarily asking for what you bought it for but but structurally how did you do it in other words they have 11 million raised right so those investors are going to be telling the joust ceo and founders go for a billion dollar exit i mean you do not pay a billion you know a billion dollars for this thing was this more like a sort of a stock deal friendly investor sort of thing better together or no yeah i mean i think it's you know everybody's happy on both sides of the deal i mean their investors are thrilled to death and we're thrilled to death to take on the team we took on 10 people in it with joust and you got to realize these guys have deep fintech experience i mean that they're in the middle of it uh and they understand all of the pieces and parts that go along with this so it was a great acquisition for us and there's no it's not like oh we need to ship the product in one direction or not we just need to rebrand the product and bring it to our customers and this is the beauty you know of our platform fintech products suffer from acquisition and then conversion right so they can acquire the customer but then they got to go through all of this kyc stuff with us at zen business we have all that kyc stuff because we do the formation we do the ein you know we we believe that we have the easiest online banking conversion you literally push a button and you know we have they have a online bank account because we have all that kyc information it gets proved on the other side this is a huge hassle for every anyone else in the in the fintech space unless you're you know with one of these big banks already if you're not familiar with fintech guys kyc is sort of a legal thing you have to be aware of in the fintech world called called know your customer ross is saying because then business they really know the customers really well which makes the financial side much easier that's right and this is so it you know it's just a no-brainer and you know so we bring the customers to the job solution now zen business money and they bring the solution to our customers so it's a perfect fit for me out there now to expand team we've expanded that team already how many people are on the total team i was in business today uh 140 people 140 and you're engineering by blood that was your role i think cto at home away how many engineers are on the team um you know that's it i think there's probably around 20 if you consider the outsourcing and and internal people we have we're very much into you know contractors and outsourcing so we have both on the customer service side and on the engineering side we have some big outsourced development team plus internal so we got a pretty good pretty good crew ross that's 20 engineers out of a team of 140 is less than i would have thought where are the other 120 people what do they do it's a big service it's a big service segment so we have big service segment uh and that's a a lot of that is outsourced and you know big part of what we do is like zappos you know tony shea was in his fund was in our early round a big part of what we do is when people come in through formation they can get a hold of us this is this is what everyone misses i believe in the the industry right now is more and more people want to be able to get a hold of someone you cannot i cannot tell you how thrilled our customers were with being able to email us call us chat with us and that takes a lot of service people you know we are a sas based margin business so we have i don't want you to get the impression that we don't have sas margins the the point is though that you know people want to get up get a hold of people and we still do formations which is is largely done you know by hand and you got to get back and forth and people need hand-holding it's a scary thing when you start up a business what so when you say sas margins i mean are you still sort of in the 80 85 90 range we are in that range yes that's great okay another thing i want to chat with you about is is pricing right so you're seeing a lot of trends and sort of sas business models today and one of them that's really taking off in my opinion are sort of a core sas play but then the ability to drive additional services based revenue but those services are high margin because they're tech powered you when you scroll down on your pricing page have all these great additions you can have a registered agent service at it for 99 bucks a year dba name registration for 95 bucks you offer all these sort of like templatized sort of upsells talk to me about the importance of that to your business model and delivering the value that you need to your customers well i mean i think on all of these i mean you hit on it these businesses are once you get the unit economics worked out which we have then it really all becomes you know how do you get ltv expansion so i mean this is the this is the name of the game in a platform and so we are a product led growth company so we we let the product and the customer take it forward so uh i mean i i don't know what else to say other than you know it's got to be all around ltv expansion we spend a tremendous amount of time and money in product market research and surveying our customer base which is a huge customer base now but we know exactly what our customers want we know exactly how they want it and what they want to pay for it and so you know with product led growth it's got to be you know try before you buy a hundred percent back money-back guarantee and you know what are those products and services that they want and you know our goal is to get all of our customers to their first dollar in revenue you you hear a lot of marketing out there from these companies they and we market the same way it's you know it's uh you know start run and grow your business the truth is it's start grow and run your business you really have to get these folks into making money before they're willing to buy other services and you want all those services embedded and you want it to be super convenient this customer base we're going after acts like consumers so they want it at a great price they want to try before they buy they want to be able to cancel whenever they want to cancel and and we just want to be there with that solution that gets it done that's convenient from a consumer point of view on average folks are using 10 plus different vertical applications that aren't integrated to get their businesses run and you know we work we integrate all those solutions not all of them yet but we're headed down that way to integrate all those solutions so that that you can have convenience so you can run your business and you don't have to worry about the you know all the back office or the marketing or the website etc and the formation and keeping your formation up and running and compliant so rash just to double down on this trend of plg right part led growth you have three sort of base sas plans a starter for 49 a year pro for 200 a year and premium for 300 per year you didn't have all this sort of upsell revenue um i won't dig deeper here because it gets complex fairly quickly but i am just curious to underscore this when you take all those those three key sas plans and you look at what you think your total revenue for 2020 is going to be what percent of total revenue do you think is from those three key sas plans versus all these other things well 98 of our customers are on a subscription one of those three though one of those three or one of the subscription the other subscription options at the bottom one of those well it's both i mean it it's a combination of both so people come in and buy those subscriptions and then they get thrown into a dashboard and the dashboard has all of the options that you would i see you have to have a base plan you have to have one of those three bases yeah you have well you can still come through i mean just like a survey monkey there's still a free option and and remember those plans we don't charge for the formation in those plants just so subscriptions that are part of the we still have a zero cost uh formation so we're still we are twenty percent the cost of legal zoom so we are we are the you know the the cost leader the the the value leader there so you get the opportunity to buy what you need once you get into your dashboard but you can pay you can do a free formation and you still get a dashboard and you still get presented with those options that are either in the plans or you can go ahead and buy a plan the majority of our customers buy plans so ross just to be clear if i just was looking for an ein number i was googling some stuff and came across your landing page for your 70 ein product a one time 70 fee i could pay you that without paying any of the other subscription sort of fees you have that's right oh interesting now obviously you then want to upsell me in a subscription fee but someone can use you on a one-off basis like that that's right interesting interesting interesting are there any other i'm not i you put a lot of thought into this are there any other learnings there in terms of how the product mix is working together that other entrepreneurs in the sas world should know about well i mean i think it's it you know it's no you don't have to uh think this stuff up on your own if you look at all the other sas solutions they're usually two or three different plans based on you know what customers want so customers want convenience they don't want to uh have to think very hard they want a curated solution for you so you know you know what what is the most value for them and this even goes all the way back to homeaway we've had those options we literally would tell you what was the best option for you we had a calculator it's the same thing here is you know bring value to your customers don't try to rip them off don't try to jam products down their throat don't try this you know upsell upsell upsell you know we really try to get you in have a peak experience when you do your formation and start up and if you look at your review our reviews that's what they do and then offer the products and services that they need if they have a great experience with you and then you offer it why wouldn't they pick you especially when it's convenient you just have to push a button so i think that's the the the trick you don't with uh product led growth it's not about you know how do i force my customer to purchase something it's about how do i educate them and uh offer them solutions that they can try and if they work for them which is should be your and their high value then of course they're going to stick with you and so ross again a year and a half ago of february you came on you told us sort of arpu is reaching that 17 point which obviously is like you know on average 200 bucks a year from these folks you've said you've since expanded that right i mean have you can you give us some sense of how much you'd be able to expand that are people paying more than 50 bucks a month now on average across all your product suite yeah we don't we don't disclose those numbers but we're expanding okay do you see a path to getting that up to where like annual like average acvs are on the thousand dollar range or no you'll think you'll always be below that well i mean you know this is this is a misconception i think in the market and you know when you think about this this is that long tail of the smb market the solar panel market so folks in this area if they make 55 to 100 000 a year this is a banner year for them so you know i find it and this is where there's this big in addition these people don't churn logo churn like other uh mid-market products because if the person fails and we really want to think about this in this fashion if this person's business fails they're still a person they still side gig it's not like they became ins extinct or they went off of the the the pla the face of the planet so we really want to keep them or you know future plans have got like why isn't there just a reboot button where they just hit reboot they rename their entity they read them maybe their dbas they you know redo uh you know amend their formation and then they restart again you know change their website up but they don't have to go through this process again but they they can still keep their their id a new idea they can kick off and i think this is really the the for us is to treat them more like as the world moves this way is everyone should have one of these a side gig and you know we want to failure as part of these businesses but we it doesn't have to be the fact that you have to reinvest in a new idea we want to lower that friction initially and and lower it so that you can maybe have two three four or five gigs i'd rather see our customers paying us a thousand dollars a month and have five different companies because that makes more sense than having you know a single company until it's you know got 10 12 20 custom 20 employees then they could move into that range but when they get up and running they're going to be sensitive to pricing ross how have you capitalized the business how much have Raised you raised a date uh 19 and a half okay got it so i think he did 15 million back mid last year that was your last race is that right yeah and that was led by grey crawford so i mean you must be in the phase right now if you've had this explosive growth where you're fielding term sheets looking at raising you know series bc right now is that accurate we don't need to raise money right now uh why why is that are you profitable we will be profitable next fall okay got it just next year and so you know i don't want you to you know there's nothing all right put it this way there's nothing like a pandemic to make a venture-backed company profitable how's that well but you clearly have some nice runway though if you're if you're comfortable saying you you know you're happy to wait until next fall to be profitable yeah so we're gonna i mean i think um you know we're always testing the market i don't think we're you know we're not actively out running the process i will tell you that but you know we're you know always you know you can always raise more money yep yep interesting if you did raise more capital um where would you invest it we're ready to scale we i'd invested in more in product i'd invest more in marketing i'd invest you know more in operations to scale the business so you know we can use more money that's for sure we can put it use there's no there's no like uh you know let's risk some more money and figure out what products our customers want i mean we could just simply build those if you raise no more money and you do become profitable next fall and you keep growing at the growth rate you're growing you said you're north of 10 million an ar at this point i mean do you think you can break 30 million at that same time when you hit profitability oh yes okay very good so that's that was a very confident oh yes meaning maybe maybe that's a goal you crushed this year yeah that's very very easy easy to hit that number next year we love that all right very cool um what about do you have quota carrying sales reps at this price point pardon do you have quota carrying sales reps at this low price and this is all digital digital business and that's what you know i think that's why you end up with those margins and when and then you know i don't we we we are firm believers in that brand equals trust and we are firm believers on having you know world-class customer service and that's just something that we invest in we don't build shitty products that customers have problems with uh we just support the hell out of it which is what this segment wants you know i mean that yeah ross before we wrap up here with the famous five last critical thing about any stats company especially at this price point is churn what's monthly churn look like we are at the we are at the i don't know how you say this we're at the we are at the top so we are the top in the industry as far as low churn what would you consider a monthly churn rate uh where it would be 1.5 and we're below that some months monthly on on our revenue basis or logo basis monthly monthly got it very cool ross let's wrap up here with the famous five number one favorite business book um you know you asked me that it again i read so much i don't know i think uh he's looking around his new mexico office here seeing what's on the table oh no man i mean there's a lot of stuff you know i get i'm right i'm writing a book right now oh well i mean i'm writing a book and it's really focused about uh it's really focused on how entrepreneurs is really this inner journey and you have to be honest with yourself and you have to be honest with the business you know because if you're you know or or i put it this way you can't lie to your customers and so in order to do that you can't lie to yourself or to your colleagues and you really have to go after you know what are the challenges with the business and and and head into those fearlessly in order to to to solve it so when you ask these questions i i am not this you know we're reading a lot about product lead growth there's so book many i mean we follow we follow guys like you blogs why would you read a book when you can follow guys like you so the blogs google and we look at interviews and then see if there's some some books in there that's most of what i do right now is get the best practices from folks like that you know i like uh the last big book i read was steve jobs after he died that was a fantastic you know auto biography you know biography written by him the one that was called steve jobs uh you know i like to take a lot from guys like you from colleagues and you know put that all together because there's no i'm not a dogmatic business guy you know i love the agile piece and and that one of the reasons i love uh you know uh going after problems and proving your thesis is you know get to the truth as quick as possible because your customers are going to get there you should you should try to get there before they do yep and fix the problem number two ross is there a ceo or founder you're following or studying or just someone you learn a lot from brian sharple's vet home away was a rock star ceo he's an investor i call him all the time it's you know and board members but i would say brian is is a guy that i follow number three what's your favorite online tool for building your business besides any of the great things you offer at zen business holy i would i will tell you sisence is one of the best stan products we're completely you know uh automated through that i will um you know we're i'll put in a plug for uh profit well on churn and retention there's so many great products there i put in a plug for you know stripe that we that that you know we use i mean it the the world has changed there's so many great sas solutions intercom i mean it's just there's just so many great solutions to get your business up and running right now we use google cloud um you know i think those are probably the ones off the top of my head i'll probably get off the phone and say oh this is critical to the business but uh those are the ones that we're using oh hell uh survey monkey holy crap we used out of you know survey monkey i put in a big plug for survey monkey it's what a great product there you guys have it good not a good tool a lot of good tools there ross uh what's your uh how many hours of sleep are you getting every night what keeps me uh how many how many hours of sleep do you get you know it depends i you know i try to work right now like uh you know five to you know five in the evening because that kind of works with my you know my lifestyle sometimes i get if i can't sleep i'll get up and before that and still work till five but you know so you're getting what six seven hours of sleep yeah all right and ross what's your situation married single kids married and all the kids are outside of the house been married for over 30 years wow how many kids three wow okay and how old are you 57 57 years young last question what's something you wish you knew when you were 20 oh man were you computer science degree back then or no yeah yeah i got it i had a science computer science degree i wish when i knew i was 20 oh take more risk take more risks guys zen business they are really the software for the side hustle especially during pandemic when everyone's watching this they make it really easy to get your business up and going they've exploded 6 000 customers about 18 months ago now over 70 000 customers using the platform all paying north of 17 per month but you can get on and get your business formed totally free they then upsell you great additional features like getting critical business formation docs set up and going they're doing north of 10 million dollars per year in revenue he says quote really easy to break 30 million next fall when they hope to hit profitability they raise 19.5 million bucks to do it 140 people on the team a lot of services folks but it's high margin services and 20 engineers with world class churn 12 less than 12 gross revenue churn annually ross 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 thursday 1 p.m central additionally remember these recorded founder interviews go live we release them here on youtube every day at 2 p.m central to make sure you don't miss any of that make sure you click the subscribe button below here on youtube the big red button and then click the little bell notification to make sure you get notifications when we do go live i wouldn't want you to miss breaking news in the sas world whether it's an acquisition a big fundraise a big sale a big profitability statement or something else i don't want you to miss it additionally if you want to take this conversation deeper and further we have by far the largest private slack community for b2b sas founders you want to get in there we've probably talked about your tool if you're running a company or your firm if you're investing you can go in there and quickly search and see what people are saying sign up for that at nathan lacka dot com forward slash slack in the meantime i'm hanging out with you here on youtube i'll be in the comments for the next 30 minutes feel free to let me know what you thought about this episode if you enjoyed it click the thumbs up we get a lot of haters that are mad at how aggressive i am on these shows but i do it so that we can all learn we have to counter those people we got to push them away click the thumbs up below to counter them and know that i appreciate your guys's support all right i'll be in the comments see ya

hello everybody my guest today is ross bardore ceo at zen business which democratizes entrepreneurship by making it easy to create maintain and manage an llc or other corporate entity with more than 30 years as an entrepreneur technology leader sea level exact angel investor and board member ross has been at the forefront of how consumers interact with technology most recently as the founding cto of homeaway one of boston's most iconic tech companies he was responsible for building both the team and the tech platform that powered the company from a startup through ipo to its current recent acquisition by expedia for a whopping 3.9 billion dollars ross you ready to take us to the top hey you bet i'm ready all right well first off i love you i love that you're in austin i'm down here as well um talk to me quickly about homeaway so you have kind of a home away you got ronnie at indeed there's not a lot of billion dollar exits happening in austin these days uh no there isn't i mean this was just really we were part of the the unicorn club you know i took it through the uh raising of uh 350 million took it through the ipo and then the ultimate sale it was really quite a ride there 10 plus years you know built it from the ground up i don't know it's just you know when you've got a good idea like a home away and vacation rentals we really created that market segment that that now a lot of folks are disrupting but just a great ride great experience why didn't you stay with kind of barry diller and iac and kind of the expedia clan well you know after 10 plus years all of the executives exited so when we sold we all exited brian stayed around for a year in transition and i really think that there is a time when uh you know there's folks that build stuff and then there's folks that take it to the next level and you know i think expedia is doing a fantastic job of taking it to the next level with what they they do you know i think they're doing a great job and we left them a fantastic company with a ton of pent up revenue that's really doing well for them and their and their shareholders but that's i'd have to kill myself if i was still there how old were you when you guys found that home away oh my god that's uh you know i'm getting ready to turn 55 so that was over 12 years ago do the math okay now the reason i bring that up is everyone thinks you have to be like someone like me right right out of your dorm room super young to launch like a huge company but there are so many entrepreneurs that start their mid-40s or even early 50s that create huge companies you're one of those early 40s it sounds like yeah now you know i started early on i was at excite.com which was during the first uh internet boom that you know was a multi-billion dollar i think at the peak of its valuation it was either seven or nine billion dollar valuation so through multiple acquisitions so i mean i've been been around i will tell you if you look at all of the founders at uh at homeaway we were i was the youngest of the executives i bet i bet you made sure they knew that too i knew i i reminded them all the time now the question was could you did you convert your young age and say listen i'm the youngest year i deserve the most equity because i'm the youngest and i have the most to gain over a long period of time right it was really that that didn't work out that way it was more of like i'm the youngest so i'm definitely the smartest here and uh yeah you know that's been working but i still tried it well that's great well listen i have a lot of respect for what you built you know there's a lot there's kind of a clan of ctos forming in austin that have done this i was just at the eberly with jason cohen uh you know meeting with obviously wp engine cto and um i i you know the stories here are incredible so let's jump into your current business okay so first question i have for you did you launch zen business from scratch no what well the answer is yes in a certain sense i bought into the company so i invested in the company but when i invested into the company you know literally uh three months as part of the investment i was gonna do a pivot and then pivot again so really it was uh i would say had some ip that we needed had a lot of experience was definitely in the area that we were in but the the the customer facing part was wrong and so that's what we discovered and pivoted it's actually has turned out pretty well we had great investors already on the cap table ross what year was this by the way that's been uh 2016 the end of 2016 i joined up as the ceo so just to be clear you had in the first time you invested was 2016 or you were an investor prior to that and you took over a ceo in 2016. i invested and took over a ceo at the same time i see okay how much did you invest in uh well i put in 25 grand and then we were in cap they were in capital factory so there was a match out of that because i was also a partner in capital factory oh i see interesting uh very interesting okay now did you actually um you bought in they issued you a big chunk of equity or did you actually figure out a way to clean the cap table buy out all the early investors and then have this be your baby now you know that was you know that was a there wasn't that much money in i mean there was hundreds of thousands of dollars in but i really didn't feel good about wiping out the existing investors they were good investors uh you know i wouldn't have bought into the company had i not thought it was a good base to build on um you know i could have i suppose i could have wiped them out uh and i am definitely a bloodthirsty capitalist don't get me wrong here well ross let me change the verbiage for a second let me change the verbiage because it's not i'm not talking about wipe out i'm talking about like you your biggest asset i imagine is cash based off the exit so if you can if you can it's not worth your time to put 25 grand in a company own three percent and then work for five years buildings and business it is worth your time to put in i don't know a million to buy the whole company give 20 back to the founding team you hold 80 and then you build it that way i'm trying to figure out why you chose not to do the latter yeah you know i'm offended when you said that my biggest asset is money sorry is time is time that's what i meant so my biggest asset was was really me coming in as the ceo and i took in a bunch of equity oh okay i i have the i have the majority of equity oh i see in the company i put the 25 grand in at the time they were on this skid and you know i put them in one of my rental houses that we used as an office here in town and really bootstrapped why we went out and raised money and discovered the market i mean uh there was already a really great market and a great neighborhood that the the uh company was involved in it really just needed to be pivoted to where we you know uh acquire our customers at the top of the funnel when they do formation yep now you just did in february no this would have been in february last year you did a 4.5 million dollar round i believe so how much capital into the company after you kind of put in your original 25k how much was in no how much more has been added uh probably four million of that so i raised four million bucks yeah yeah exactly i think there was actually 350 or something like that in the company prior to me investing and then i raised a bunch from you you know austin friends and family what i really did was all of the people that i'd written checks i went back to them and i said you know okay now it's time to pay i'm yeah yeah that's funny okay very and by the way you should bet on me here's what i just did with home away right it should be an easy check exactly yep okay we started getting bite in the market in the end of 2017 i'm a big proponent of testing we oh my god some of us we had like 16 sites going up at one time we were abusing customers figuring stuff out i remember uh jc the head of sales here came to me and he said hey man i think stripe is going to shut us off and i said why in the hell strike well because we're getting so many charges back and i said why are we getting charged back and he said you remember that product we sold for like a hundred five hundred dollars a year i said oh refund all their money refund all their money all these customers so we got bite in the market and then we went out and we were growing 10 week on week with the money we had that's what we went out and and raised money launched the product the the start of the product you see today really that is funny okay so what's the average customer paying you guys today for your services uh let's see uh you know i don't have that number right in front of arrangement is it about 110 a year oh more well when you say average subscription so you the really the way that we look at it is our average subscription per cover customer uh is uh hang on a second here is 17. 25 cents a month uh yes okay a month so you got to realize the the one product what we're after is getting people at the top of the funnel when they do formation we really are this smb platform for the long tail of solopreneurs entrepreneurs real estate folks so there's no reason you shouldn't use us because we do the formation for free but then once you do the formation we sell you products like banking insurance accounting tax prep ein numbers so we sell you all of the services you need as a small business and what have you scaled to today in terms of total customers uh we just went over 6 000 customers oh great so can i multiply that 6 000 times 1725 you're doing about 100 grand a month right now uh we're doing work yes okay i'm not trying to give you out all those numbers i'm getting ready to do a fundraise here pretty quick but you're in the ballpark okay and generally speaking just to be clear around our business model two-thirds of our revenue is subscription is subscription revenue we have a lot of transactional revenue revenue too so our revenue is well north of those numbers you just quoted but the pure sas is 1725 average per month yes okay got it yeah so you're doing again you're doing north obviously of what we just disclosed but this is the pure play sas component and if we talk about just the pure place ask component a year ago did you double it or triple it or quadruple you over here what's the growth uh we've been growing on average 35 month on month so yeah help make that math easy for me so a year ago what were you doing monthly uh uh think of it starting in march almost nothing okay really so okay so you okay fair enough that's good now you said right now you're looking at going and doing okay well hold on you raised the four the four million back in february 2018 you were still pre-revenue at that point so what what the hell were you selling ross well what i was selling was we were growing 10 week on weeks but growing what you said you were pre-revenue customers customers so we were we we were charging that it was transactional revenue it was just transactional revenue okay and we were really getting bite in the market we understood we could acquire customers in an efficient manner and they loved our flow and really consumer uh friendly flow at that time we had just figured out a couple of sas based products one of them is called registered agent it's built into the business uh and then another one which we created is called the worry free guarantee so you pay a subscription and we make sure that your entity stays in good standing we do good we do regular good standing reports then we do your annual filing and franchise tax is all part of the product so right out of the gate we were a sas based business got it that was just what we launched since then you know we've we've launched smb excuse me uh products that where we're getting even more revenue why is now the right time to raise you said you're thinking about raising more uh because we're going over some magic numbers here pretty quick like what i like you know millions in recurring revenue oh okay so yeah once you pass obviously 83 grand a month that's that's a nice inflection point to hit um talk to me about some of the other important economics so typically i mean we've had the folks from eig constant contact these kinds of folks on the show and churn in the s b segment is through the roof because people their businesses go out of business so what's your churn and how do you keep it low yeah i'll tell you what this is this is a great question and we we're very focused right now on acquisition and uh driving up the ltv of these of these products and we've we've launched packages where we package up solutions for our customers which makes it even easier for them we can throw in if you think of the sas based model a lot of stuff we have built like we have an operating agreement product which our margins on are nearly 100 percent so we can throw these kinds of products into our sas packages well so what do you assume lifetime value is today on account uh well let me i'll answer that question in that um we our acquisition model is cac based of course and we want to get a payback within you know 12 to 18 months uh from an ltv point of view um so we're doing very well on that and there's lots of expansion i will tell you that 17 number i quoted you was literally a 2x expansion when we when we uh launched our uh packages so it's an 18-month payback period which is your worst case you just cited on someone paying 17 bucks a month is about 305 dollars you're saying you're willing to spend that full 305 bucks up front to get the customer in the first place uh no we aren't paying that much well then how do you get to what do you mean 18 months payback period we're less than a week okay so well you just said 12 to 18. so i'm using your number so even if it was a 12 month payback sometimes it's under sometimes it's over it is seasonal when you're doing google uh adwords it's seasonal in our for our keywords where we're acting but i just want to generally speak i mean i understand it changes but what you're saying is you've got minimum 12 month payback period sometimes 18 months so if you're spending 12 months of ltv on cac that on and they're paying 17 bucks a month that means you'd spend about 200 bucks to acquire a customer and you make that money back in 12 months you're in the ballpark yes interesting thank you sir so it's it's mostly direct paid stuff you're doing or do you have any kind of inside sales team or touch so we're doing you know we're you know background is digital and seo so we're doing a little bit of seo but again it's early we have affiliates so we have people that are selling our product what kickback do you pay 30 perpetual or just first year or what uh uh 30 percent but but just for the first year from perpetuity actually uh for everything they sell because we want right now we want a bigger ticket so everything that they sell a lot of when we get resellers they're typically accountants or lawyers and lawyers can't sell legally but accountants can and so we give them a 30 kickback and we want to give it to them forever so that they'll have a bigger ticket and so that they'll have recurring revenue we want to motivate them in in that fashion we also have people calling our api directly so we have an api where they but ross sorry let's say that let's say that reseller channel scales really fast think of a hubspot where their value-added reseller network is really what drove their whole thing you essentially have killed your margin because you have to pay 30 out so your cost of goods sold already you takes it down to 70 margin before server costs and other cost of goods sold yeah i think that you know i think it's a high price to pay right now but we want to get growth and we want to get that network so you'll change that over time we can change everything yeah you know one of the things that i mean that's a good point to be put out here is you know we're a startup and so if we start getting sensitive about what the hell we're doing be able to test things and not be able to get the job done we can change anything at any time and we have our pricing has changed wildly and will continue to change yep no that makes sense um team size today how many people uh 15 and uh two in peru seventeen okay very good so 17 total and the 15 are all in austin uh let's see one is in north carolina okay so austin peru and north carolina [Music] and ross we're quickly running out of time here so quick answers here if you can what is your turn today gross revenue turn annually yeah i think um we are in the five percent range you have to it varies by product some of our products are have a higher churn you also have to in our business there's a third built right into it of companies that just fail exactly yeah that's built into that five percent though right no uh no no okay above a company fails you don't consider them churn because you have no control over that well i mean we we handicap ourselves so the answer is yes and no i mean i don't want to i don't want us to hide it either because i will come back to i think that our segment in the way we're approaching our customers is that you know if you go after the mid market and you have customers that have 20 or 30 employees they have to be successful yeah so if they can't make payroll they're going to fail that's right but you know 70 of our customers are solopreneurs or just single owner llc's they don't necessarily have to be profitable these can be side gigs these can be no ross i totally get it so do you make up via expansion revenue do you more than make up for that five percent loss so your net revenue retention is above 100 uh let's see say that again the cohort that signed up a year ago you're saying five percent of them will churn do you do you upsell that same cohort enough to make up for that revenue loss yes that's the idea but but are you are you you're executing that you're above 100 net revenue retention right now 100 above that's a good question i'm i don't know you don't measure it okay that's okay i don't know that's okay the yes we are continuing to rapidly grow and we're looking at retention right now that's great just on our product we're really after the top line acquisition of customers retention is something that we're we're going after now we don't even have annual packages for example yeah yeah no makes good sense makes good sense that that's a huge one and we do it you know we want to see where the problems are with our uh with retention good all right ross let's wrap up here with the famous five one-word answers if you can number one what's your favorite business book [Music] um man i wasn't prepared for that that's okay you can skip it you know what your your book absolutely your book you have you haven't read it yet you're just looking at the thing going you know what i'm gonna make nathan feel good and that's it i'm telling you i'm gonna read it and it's gonna be my favorite book i can tell you listen you're high you need to you need a job you can be my head marketer i really think it's the innovator's dilemma okay i think that's probably you know if you consider that's certainly a business book it is but it's it's more than that number two is there a ceo you're following or studying um no number three what's your favorite online tool to build a business oh my god that is the perfect question for me what do you manage spreads in like jira uh arden what do you manage your sprints in like like your when you talk to your with your development team and plan what do you use uh we use all the atlassian tools and last name uh from confluence zero but you know let me just answer that question just in general you know i'm old enough at excite.com we built friggin everything i mean you know we built plug-ins for web servers that would handle you know just just absolutely everything and i will tell you even with homeaway was old enough that we hosted everything and we built a ton of software and integrated a ton of software what what you can do now with the tools uh that are all subscription based and technology is just you know we have a mantra here saves your time uh we have a mantra here which is you know what folks we are not building any software here we're only building the critical pieces that add value we use everything possible uh from a sas based that's good we'll say atlassian for now number four how many hours of sleep you get every night how many what hours of sleep oh my god last night was a bad night probably about four last night okay but i sleep hey i sleep like a baby i sleep for two hours and i get up and cry and i sleep for another two hours and get up and cry last question here uh ross what's your situation married single kiddos uh married three kids happily married for 30 plus years amazing and how old are you i'm 55. take us home here what do you wish your 20 year old self knew what pardon what's the question what's something you wish your 20 year old self knew uh to go to burning man have you been oh my god yes i love it i love it guys go to burning man earlier he sold his first company well not his first company but second third company home away to expedia for 3.9 billion dollars now he wants to help small businesses here in austin texas took over a company called zen business in 2016 as an investor and then obviously got a bunch of equity for that as well now as 6 000 smbs using him paying on average 17 bucks a month so he's got about called 100 110 grand in pure sas revenue but he's got also other upsells that are helping him drive ltv on these accounts he's done this just by only raising 4.5 million bucks which is great 17 folks on the team between austin peru and north carolina 5 gross revenue churn annually spending up to 12 months of ltv to acquire the customer mostly paid stuff he's trying to figure out top of funnel before he goes out and raises again ross thank you for taking us to the top hey great time and i am flattered to be part of this