How Trust Keith Hit $1M ARR and 80% Gross Margin with 50 Customers (Interview with CEO Rory Codrington)

Introduction and Company Overview

Nathan Latka

00:00Morning. I'm Rory. I'm the Founder and CEO of trustkeith. We help start up and scale up businesses become and stay compliant with data regulation. We do that by combining by giving them access to a dedicated expert backed up by software. We now support over 50 scale ups. We're bootstrapped. And today I'm to talk you through how we're solving for gross margin. We often hear about this 80% number. Here's how we're thinking about it. Here's how we're

00:30working towards that and hopefully give you a bit of a semblance of how you can go and achieve something similar in your businesses.

00:37So there's three parts I'm going talk through. One, the actual mapping process that we go through and some tips on some mirror tips on that. Two, how we're solving for gross margin, but also just putting some context about why 80%, how we're thinking about that and what the market looks like for that. And then finally, how we're thinking about it in the future, so as we're scaling to this next revenue milestone from our perspective. So to

ARR, Customers, and Average Contract Value

Nathan Latka

01:03give you a bit of context where we're at, we're just over three years old. We are as of this quarter, we're north of $1,000,000 of annual recurring revenue. It's been a real slog to get there, as you can kind of see here. To give you context, our average customer value is around sort of $23,000 per year, and that's a bit of a flavor. Next, just to kind of put some more context behind that is what our

Team Structure and Bootstrapped Model

Nathan Latka

01:29team looks like. This is the structure we have really effectively as of March. We're a team of 12. It's all bootstrapped. It's been very leanly done. The lighter color here is lighter color ones are freelancers and consultants that we kind of lean on as well. We've very intentionally built the business around a book called Traction, which is a book by Geno Wickman. It's really like an operational playbook that you can run -in terms of customer values,

Three Core Business Functions

Nathan Latka

01:54accountability framework, the metrics and the scorecard and really the rhythm of the business. And one core element of that approach is the functional approach. So we have three core functions, which you can see here: Ops, which is people ops and finance customer experience, which is basically everything that we do with our customers and then finally, sales and marketing. So that's really just a semblance of how we're thinking about the business.

Mapping the Customer Experience

Nathan Latka

02:19So when it comes to mapping out the customer experience, one of the first things to do is actually just mapping out who's involved, who's actually touching the customer during the experience. So these are live examples for ourselves. That's the account exec on the sales side, the privacy associate, the dedication officer, customer success manager and the head of service delivery. If you were taking this to the next level, you might include finance or any other role in

02:42the business that is touching the customer once you start talking with them.

02:51Once we've got those roles, we'll start mapping out all the minute, miniature sort of detail.

Inputs, Outputs, and Swim Lane Diagrams

Rory Codrington

02:59>> So this is really

Nathan Latka

03:00looking at what every output you're getting them, what are the inputs for it? So the output might be, right, a customer kickoff meeting, that's the moment of value in this example. What are all the steps that are going into it? And ultimately, more detailed you are, the better visibility you're going to get around where you can find efficiencies, but also it's a real good stepping stone for building out your standard operating procedures and that kind of

03:23operating bible that you're going need as you scale.

03:28So ultimately, you're to do that against every different stage of the customer lifecycle from sales to the kind of handover, the onboarding on the adoption, and you're ultimately then going to build out what I'm about to show you here. And this is just an illustrative example. By building out these swim lanes, and again, a tool like Mirror is perfect for this because it's very interactive and you can just keep scrolling and scrolling, you then pull in

03:58a live example. And we can what the benefits of doing this is we can now really be seeing where's time being spent, who's doing the heavy lifting, where are people doubling up, and essentially, it's an opportunity to really work out where the bottlenecks are. But it's also a really good means to, I guess, review your accountability structure in terms of these roles, who's accountable, responsible, consultant informed for each of these different kind of customer milestones.

Identifying Customer Value Moments

Nathan Latka

04:32So the next part, which is really part of that, kind of teased already, is just mapping out the customer value moments because these are really where it's from a customer perspective is what it's all for. So it's trying to make these value moments, at least from a customer perspective, as smooth and as quick as possible. Some other examples for the customer value moments might be, if you look at your product adoption metrics, you're going to understand,

04:56well, a successful customer has done this by X date, let's really solve the ins and outs beneath that to ensure that we're getting that efficiently and quickly as well.

05:08So that's a quick look at the mapping out process, identifying the stakeholders, mapping out the inputs and outputs and potentially then putting that together in that one visual. There's an artifact that goes with this presentation, which is basically the whole workshop here, so if want to go and run this with your own teams, particularly, think that the big moment is that kind of handover from sales to customer success. That's where we found a lot of bottlenecks

05:34that we've been solving that has made an impact on our gross margin as well.

Why 80% Gross Margin?

Nathan Latka

05:42So next up, why 80%? Why that number?

05:48There's ultimately I mean, gross margin is ultimately a quantifiable metric of efficiency. And in something like SaaS software, it's all about efficiency and like scalability. Other metrics that I would put in the same basket, this would be net revenue retention, your efficiency of holding on and retaining and growing that revenue as well as on the sales and marketing side of things when it comes to your customer acquisition cost to lifetime value, that efficiency as well. And

06:15I often think with the business we're building, in the scheme of things, I'm not expecting us to have some like unicorn growth and that to be the exciting metric of the business. I see something like the efficiencies, which we have so much more control over as ultimately a really good piece of value that we can build in the business by just building a really good efficient machine.

Industry Gross Margin Benchmarks

Nathan Latka

06:35So this is a list. This is Bessemer Ventures, the NASDAQ Emerging Cloud Index. It's the top 15 companies in April recognize all of these logos. But the commonality we're seeing here is the gross margin. So that it only actually goes up to 90%, but in any case, the median of 85.8% is pretty cool. And then you've Asana at the top at around 89%. But I'd be interested looking in here if anyone's got anything north of 80%.

07:07What have you got?

Rory Codrington

07:09>> You didn't track it.

Nathan Latka

07:11Yeah.

07:12We know what good looks like.

Rory Codrington

07:14>> Can you just clarify what you mean by gross margin? So

Nathan Latka

07:21I define gross margin as cost of goods sold. And I'll give you an example just after this about how we kind of

Rory Codrington

07:27>> tally it up.

Nathan Latka

07:31And then additionally here on this next graph from the same index, we're seeing ARR multiples versus gross margin, and all those blue dots are the top percentile ones and some classic brands in that space as well. In any case, ultimately, gross margin is just one of the basket of metrics that is going to get you to the high multiple, but it's definitely a core part.

08:32I think you're right. In the gross margin one, even if you're massively burning cash, you can probably still have quite a good gross margin because you're really only attributing the cost of goods sold or from a product perspective, even just at the maintenance cost of doing that, which is typically quite marginal. I think where most companies are then overspending is on the customer acquisition side of things. Until they can get that, anything about the customer acquisition

Rory Codrington

08:52>> payback period, think for a lot of companies, it's sort of north of twelve months.

Nathan Latka

09:03No.

Rory Codrington

09:04>> Not yet.

Nathan Latka

09:05But that would be useful.

Rory Codrington

09:08>> Yeah.

Nathan Latka

09:09Agreed. But a quick snapshot of those players there.

09:16Next is then looking at

Determining Deal Gross Margins: Top-Down and Bottom-Up

Nathan Latka

09:20determining deal gross margins. There's kind of two different ways that we look about doing it. There's obviously the classic way, which is top down, starting with your P and L, pulling out cost of goods sold. And then we think the way I think of the team cost for us with our data collection officers, we might say, well, 75% of their time is billable, is customer facing, 15% is just kind of internal stuff. But useful from this

09:42perspective, the more investigative way that we've done as well is going bottom up. So when we come back to those swim lane sort of experience map that we've got already, we can actually go in there and start attributing cost to each stage of these as well so we can get real granular around what are the expensive parts to it. Particularly, again, some of those customer value moments, what's the cost of delivering that kickoff meeting or whatever

10:08it might be along the adoption curve as well? So that's been really useful for us. And it's also a really good sort of collaborative team exercise, get people bought into finding that 1% sort of incremental improvements as well. And it's something that we try and do once a quarter, if only for one segment of the customer experience map.

Solving Inefficient Resource Management

Nathan Latka

10:33So once we've identified the bottlenecks, and I'm going to talk through a couple of examples, we can then set about solving for them. So the first example comes to mind is

10:46inefficient resource management. So in Q4 last year, this is what our delivery team looked like, and there's three different roles here. And some of the constraints of this was there's too many contacts talking with the customer, and that was confusing. We did a time spent analysis using Clockify, which is a free tool that was quite useful. And we could see that the our customer success manager role was just heavily underutilized. We weren't really going to get

11:12true capacity in that role for a while. So we could start exploring could some of that role be done by other people in the team and how would that look as we scaled.

11:22And there was no alignment within these different roles of who actually owned upsell and, to some extent, was attributable for net revenue retention. So that was kind of our starting point that we knew wasn't working for us. So we did a team restructure, and we've now got this kind of pod format here with the senior privacy manager, two DPOs and two privacy associates. And by streamlining that, we've got rid of the customer success manager role. The

11:46DPO is now playing a little bit more of an account manager role, which actually doubles up better because each DPO is looking after less customers than once customer success manager looking after all the customers. So it meant we started getting a bit more ownership of upsell within that as well, as well as just better customer knowledge within the team. So it streamlined the delivery of things. There's less roles for customers to interact with and ultimately And

Rory Codrington

12:10>> the privacy manager for you, is that like a customer service person? What is that?

Nathan Latka

12:15No. So this is more because we're we give customers access to an expert backed up by software. They'll have a named person who's there like expert, and then we have supporting roles at the privacy associate who's

Rory Codrington

12:24>> had Like account manager?

Nathan Latka

12:26Yeah, exactly, yeah.

12:29So that's that example. The other example was solving for some of our customer adoption challenges. So

Solving Customer Adoption Challenges

Nathan Latka

12:50We had an adoption challenge where

12:54quite a lot of the adoption of the onboarding steps was put on the customer to do, and there was like a long kind of to do list that we leave them with. And we found that because they weren't ring fencing the time to do it, we were spending a lot of time chasing them to try and move them to the next step. So one of the things we did was actually start booking in a monthly kind

13:09of check-in call with the customer, which is a combination of running through any legacy onboarding actions as well as any other ongoing activities. By having that protected time, the customer did their stuff. We always had that check-in point. And really as a result of that, they were making better progress. It was a more efficient use of our team's time because we weren't having to chase. It was just a block time that we knew was coming. And

13:31as a result, it not only improved our NPS, which is a big jump in March this year, but also the gross margin gain and just efficiency of like, right, that's now how we run that process, make it nice and well oiled and off we go. So that was really helpful.

Other Bottlenecks: Health Reporting, Onboarding, Handover

Nathan Latka

13:49Some other examples we did that were kind of bottlenecks for us were one was our kind of customer health reporting. So we run like a red, amber, green sort of weekly report. And until recently, it was a spreadsheet. It was a multiple number a couple of different levers that were just quite manual to oversee and time consuming. And we've now automated that in HubSpot, and that has sped up that process as well as keeping us more

14:12accountable with truer numbers. Another example of a bottleneck for us was the customer onboarding side of things. We used to give them a legacy kind of knowledge base where they can go and find all the steps themselves, and we found that it was just a bit confusing, quite overwhelming for them. So we actually migrated and put it in a shared Asana project that we'd give them access to so they could put in their own time lines.

14:36It was probably a tool they're using already internally as well, and that just enabled us to delegate a lot more of the overhead of managing that, which had an impact on our onboarding efficiency. Another example would be the sales to customer handover. Our account execs used to go and sit down with that debt reduction officer, talk them through the deal and then hand them over. Then we evolved that. We've actually restructured our HubSpot and the way

15:02we make notes so that actually they get access to the deal on the handover and it's all structured in a way that's super straightforward to understand. We don't need to have that meeting. So that's been another efficiency gain. And what you'll see with all these examples is just they're just iterative things that's like, okay, found a half an hour improvement there or that's a thing we now don't need to do at all. And these things start

15:20adding up quite quickly. And I think a big part for us has just been that culture internally of finding the 1% that's worked well for us.

Tracking Gross Margin and Setting Goals

Nathan Latka

15:33So the next thing is looking at well, that was how we looked at gross margin. Next, how we're thinking about it as we scale going forward from our kind of mill of ARR onwards to five and ten down the line. This is how we track gross margin. Know these are live numbers. So we're

15:54putting goals on an annual basis, and we're tracking on a monthly. So you can see our actuals were above where we wanted to be, and we're on track to that golden 80%.

16:07And this metric is owned by our Director of Customer Experience. He sits down with our finance manager twice a month. We're just keeping a real pulse on that metric. For us, it's a real north star for us, and that's what we've been solving for.

16:23The next thing that we've been thinking about as well is understanding what our levers are for increasing gross margin. There's ultimately kind of two things to that. One is bringing the cost of goods sold down and the second is increasing revenue. Ultimately, the cost of goods is a lot more controllable than the revenue, particularly in the short term. So some examples for us on customer cost of goods sold would be the frequency with which we're reviewing

Levers for Increasing Gross Margin and Team Alignment

Nathan Latka

16:50our customer experience map to find those one percents. It's that internal culture of always trying to get the team to find that 1%, but as well how we're solving for this next evolution of kind of product development because there's a lot of things we're doing internally that we know at some point we can automate or productize. So for us, we're always keeping that back of mind of what would need to be true for us to achieve

17:11that.

17:13Next up is just increasing revenue. I think there's a more controllable element of this in the first case, which is improving average customer value, particularly if think about your existing cohort of customers, the efficiency of upsell and expansion. I talk to a lot of founders and I often find that they're more interested or more focused on new revenue as opposed to growing existing revenue. And I think we all know the power of good net revenue retention

17:37that compounded over time is something that we've been solving for probably as a mutual priority just because we've already got access to those customers and that opportunity.

17:49So the final thing then is how we align the team with our gross margin. We keep this as an annual goal. It's something that's shared frequently in the business, and it's something that we report on a leadership on a weekly level, monthly at our all hands. It's always present in our objectives and key results and as part of our annual game planning process as well. So that is a quick recap of how we're scaling our gross

18:19margin. And ultimately, this is what I walked through over the last twenty minutes or so in terms of the mapping process, and you've got the artifact if you want to do that workshop yourself, how we've solved for it in a couple of examples and how we're prioritizing it going forward. But if you've got any questions, just let me know.

Rory Codrington

18:45>> You had your CX workshop screen up there for like ten seconds.

Nathan Latka

18:49Should be Nathan will probably distribute it. It'll be like one of the Perfect.

Rory Codrington

18:53>> I'll get it out of there. Thanks. Yeah. No worries.