SaaS Interviews with CEOs, Startups, Founders
1003 With $150m Raised, He's Sold 3m "Weird" Domain Names
23 Apr 2018
Chapter 1: What is the main topic discussed in this episode?
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple hundred thousand dollars to 2.7 million. I had no money when I started the company.
It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode. Hello, everybody. My guest today is Bruce Jaffe.
He's the president and CEO of a company called Donuts. Before joining Donuts in 2017, he founded Three Point Group, focusing on investing in and advising early stage and growth technology companies. From 1995 to 2008, he held various positions at Microsoft, including corporate vice president and CFO of Microsoft's online division. Bruce, are you ready to take us to the top? You bet. Let's go.
All right. So you go from Microsoft to Donuts. What does Donuts do besides make us really hungry, and how do you make money? Well, I didn't go directly from Microsoft to Donuts. I had a little bit of time in between where I went from the big company and stair-stepped down to some more entrepreneurial ventures.
But specifically around Donuts, we are the world's largest portfolio of new top-level domains that So think of that as domains such as .coffee, .life, .today, .news, et cetera, et cetera, et cetera. We have about 240 of them. And the world is just starting to use them. And we're excited to provide them for people to own and build their digital identities. How do you buy those?
Like, how did you get the rights to own those over somebody, you know, Joe Schmoe? I think we're on for about 15 minutes, and we don't have time for all of that. About maybe 5, 10 years ago, the governing body of the internet, which is ICANN, decided that they were going to provide new choice and opportunity for domains, and they set forth a process called
so that these new domains could be brought to market. And we had a bunch of industry veterans who knew of this, knew of the opportunity, and then participated in the process. Interesting. Okay. It was literally that. It's more about managing the bureaucracy than it is about having a boatload of cash to play with or anything like that.
Well, we did need to raise a lot of money in order to apply for these licenses. How much? Well, we have raised in total about $150 million. Okay. That was in part to secure the licenses. And then you had to go into ā and it's many of these we need to actually bid on to win in an auction. And so it took a lot of capital to get this going. Interesting. Now, what's the model?
So so like when I, you know, I use HostGator to buy domain names is the way you make money whenever I select, you know, NathanLacka.com forward slash today or dot com, you know, or sorry, dot today. You get a cut of that. How do you actually make that money? Right. We are a wholesaler and we will sell to a retailer such as HostGator or Squarespace or Godi. So that's exactly right. Interesting.
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Chapter 2: How did Bruce Jaffe transition from Microsoft to Donuts?
But on the other hand, you're right. We can produce on the fly a new piece of inventory if a customer says, I would like Nathan.today or Nathan.social or Nathan.games. We will make that, and then we sell it. So our marginal cost is extremely low. How do you get perfectly competitive pricing, especially on high-demand names?
Do you have humans go, oh, ketchup.today is going to be hot, sell it for a million? Or do you have AI that kind of predicts that stuff? Well, exactly both. We have looked at and done our best job of pricing pricing. and saying, what's a premium name and at what level? But you're right.
We are putting a lot of statistics and machine learning and AI to figure out all sorts of things, whether it's pricing or renewal rates or how to best market and sell. So that's a big part of our investment is around getting smart around data. People listening are going, Nathan, why are you having this guy on? I get no SEO juice if I buy a dot today. I have to get a dot com.
What would you respond?
Chapter 3: What unique services does Donuts provide in the domain industry?
I'd say that's not true. Google will say that new TLD and legacy TLDs ā What's TLD? I'm sorry, top-level domain. I hate it when I do that. So whether ā so Google will say that there is no different bias one way or the other. I think that over time we will find out, but clearly if somebody is searching for something around coffee ā
and .coffee is the domain extension, then that's most likely going to be better, not worse. Interesting. So like I'm going to make up a very specific example here, just to try and play ball with you for a second. If I'm in Austin, Texas visiting and I'm staying downtown to the JW Marriott and I hate their coffee in the lobby, I just want to find a local coffee shop.
I'm going to Google coffee shop near JW or open my Google map and type coffee in there. I mean, will Google if a local person listening to this right now in Austin goes and buys the, you know, Austin dot coffee domain. I mean, is there a really good shot they're going to come up with that one or no? I believe so. Let me give you an analogy here. So it's a local analogy.
So if you're in, say, Munich, and you're looking to do a search, and a search result comes up with a .de, the German domain extension, it's more likely that that's going to be a local shop than something that doesn't. And so that we know is true, and so we can speculate that, hey, this is going to work the same way. Interesting. Okay, when did you launch the company?
So again, I joined as CEO at the beginning of this year. The company itself was launched in sort of 2010-ish. And then they went through a process of raising capital and then applying for these licenses. And we didn't launch into the market until around 2013, 2014, when it really started taking off. Okay, and define taking off.
Is your model literally move as many freaking domains as you can, they're high margin, or do you have any kind of SaaS model, predictable revenue, something on the back end? It's both, it's both. We sell, it's a recurring revenue business. So when someone buys a domain, just like you do with HostGator, you renew annually. And so our goal is to get them out there
to get them used, and then once someone renews once, they're probably going to renew for a very long time. The cool thing is that you might buy more extensions as well. And so as you build out your digital identity, you may say, hey, I want a .social, or I want a .games, or I want something, a .guru. The list goes on and on. And so we can actually sell more to the same person over time.
And what do you assume kind of the average, and I won't use like, not what do you assume HostGator pays you per month, but what you make from the end-to-end person per month? Is it, you know, $1.10? Yeah, yeah, yeah, yeah. And so we, so as you can imagine, we price these differently across the different domains that we have.
But, you know, you can use a $20 figure as a good average for what we make per year per domain. Oh, really? Wow, that's way higher than I would have thought. Okay, interesting. And now you're taking average though, because you have premium domain names, right? Yeah, exactly. Okay, interesting.
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Chapter 4: How did Donuts secure its domain licenses and funding?
So I went to prosperworks.com forward slash love your CRM signed up and it immediately became clear why it worked. Those of you that love growth hacking, you should go to that link just to see how they do the onboarding. That's prosperworks.com forward slash love your CRM. In short, it's like magic.
You know, I'm not the guy that, you know, finishes the sales call and then takes the time to actually put data into the CRM. They have this magical way of just doing it. And it's a beautiful thing. So every morning when I wake up, I just go, okay, what leads are prosper works telling me to reach out to because they're most likely to close and it works so well.
And you guys know, I love money and I love only focusing on the leads that are going to close. So I encourage you to try prosper works or sponsoring the show. Check them out at prosperworks.com forward slash love your CRM folks. That's again, prosperworks.com forward slash love your CRM. Now, do you go direct-to-consumer at all, or no, it's all through partners?
We do have a registrar, which is like a GoDaddy. It's called Name.com. It's out of Denver. It's a great business. So we do have a division that goes direct. Okay, interesting. But the bulk of our business is going through the channel. Sorry to interrupt. Going through the channel and working with our partners to really scale this out on a global
Chapter 5: What is the revenue model for domain names at Donuts?
The reason I ask you is your partners, they'll still feed you like churn data and stuff, right? Or do you have to use that sample cohort that you own direct to consumer to then project and extrapolate across the partner base? Well, since we are running the domain itself for the customer and user, we actually have to turn it off and turn it on.
So we know what churn is at a very, very detailed level. What is it annually? So the first year, you're hoping that it's a 60%, 70% probability that the domain will get renewed. And then after that, it ticks up into the 80s and 90s over the course of time. That's healthy. It's high. Okay, so minimum.
Yeah, different parts of the world have different renewal rates and they buy for different reasons and whatnot. But you blend it together. It's somewhere in that range. Yeah. So, so, so minimum you're doing 70% renewal, but again, after that year one, year two kind of customer journey, you're pumping that way up. Yeah, that's right.
And if you do specials to try to move a lot of product into the market, those renewal rates will probably go down at first. And, and there's a lot of tinkering that you can do with that. Yeah.
Now let me ask you, are you right now, I imagine you're just focused on market share as many consumers as possible versus developing additional products to upsell and drive more wallet share across your current customer base. If I forced you to pick, what would you pick? I can't pick between the two. You do both. We have the luxury of doing both.
I actually think the reason is because they go hand in hand, right? Providing more users out there who see a .NET social being used makes folks is social proofs and gives people familiarity with the product, right? And so that'll give more confidence and more demand for the core product.
And I think one of the ways to do that is to innovate and build solutions that go beyond an email address or a website address. And we have lots of ideas on how to do that. And just to keep up with the movement of the online world. That's interesting. Now, where are you at right now in terms of reach? How many kind of end customers have gone or some way touched donuts?
Well, I want to ask that a question. That was so fun to say how many touch donuts. This is great. So, well, they touch our individual products. Like, as you know, you people know donuts itself. We have on the for these domains, we've sold we have about 3 million of them out. Wow, that's amazing. And so it is. That's really, really big. Now.
Now, can I take that 3 million and multiply times the 20 you gave me earlier to kind of back into annual revenue? Is that generally accurate or no? You could probably do that. Okay. Yeah, I'm doing I'm doing this on the fly. But I mean, that puts you somewhere around, I think, 60 million in ARR, right? Yeah. Yeah.
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Chapter 6: How does Donuts ensure competitive pricing for high-demand domain names?
And we do not. Interesting. And are there different margin structures depending on what you're trying to upsell or no? You kind of stick to the original agreement. Well, time will tell. Right now, we sell primarily the domains. And so we wholesale and then they will retail.
We're looking to find solutions and partnerships where we maybe have a tighter collaboration and we solution sell in the market. And then those splits might be different. But right now, it's a wholesale retail relationship that's very predictable. Yep. Okay, last set of questions here, Bruce, before we wrap up. What's your team size today? Oh, let's see. We're a little over 100 people. 100 folks.
And where are you based? We've got an office in Dublin, an office in Denver, and then the bulk of the folks are in here and out in Seattle. Seattle, Washington. Good spot to be. All right, let's wrap up here, Bruce, with the famous five. Quick answers. Number one, what's your favorite business book? Moneyball. That's a good one. Number two, is there a CEO you're following or studying right now?
That's a tough one. I will say that he's not a CEO, but he's a great leader and a great general manager. I think Steve Kerr is doing a fantastic job. Which company is he at? He's the coach of the Golden State Warriors. I was going to say that name for whatever reason I've heard, and it's because of the Ball Brothers thing recently that I read Steve Kerr's name. Probably.
He does a great job of just getting the most out of people and assembling a great team, and I'm really impressed with that. There's something to be said for that. Number three, what's your favorite online tool? I've been using Slack lately and it just really does a great job for everything we do inside the company. So I love that. How many hours of sleep are you getting every night?
It varies, but I sleep pretty well. I probably get eight or nine hours of sleep. That's great. And situation, Bruce, married, single, have kids? I am married with children. How many kids? Oh, boy, four. Do you own all of their domain names? There is a domain name, at least one domain name for every child. If they don't have one, I'm going to go get them tonight. And how old are you, Bruce?
Oh, my goodness. I am now 50. I don't count every day. It's 64. 53. 53. Last question. Take us back 33 years. What do you wish your 20-year-old self knew? Oh, my goodness. Two things. Be confident and wear sunscreen. There you guys have it from Bruce. Had a lot of success at Microsoft and other places before joining Donuts just about a year ago.
They are those guys behind those weird .domain names, but they're getting more and more popular. You've seen them, .coffee, .today, .news. They were founded back in 2010. Currently have a team of 100 folks between Dublin, Denver, and Seattle. Healthy economics, year one retention over 70% grows to 80, 90% in years two, three, four onwards after that.
Each customer is worth about 20 bucks a year for them, which is great. Obviously that's an average across basic domains up to their premium ones, 3 million customers. So doing about, you know, call it 60 million a year above 60 million a year in revenue growing, call it 20 ish, maybe 25, 30% year over year, but in a delayed 500 recently. So lots of good growth over the past four years.
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