SaaS Interviews with CEOs, Startups, Founders
1021 How He Solved Translation Marketplace Space and Grew 7x YoY to $24m in Revenue
11 May 2018
Chapter 1: How did Ivan Smolnikov start his journey in the translation industry?
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 of 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, everyone. My guest today is Ivan Smolnikov.
He's the CEO of SmartCat, and he has over 10 years of experience in linguistic technologies and services. He's now focused on building an operating and payment platform for the global translation industry through the company by enabling collaborative workflow and automating hiring and settlements for all marketplace participants. All right, Ivan, are you ready to take us to the top?
Thanks for inviting me. Of course. So language translation and translation is notoriously a tough space. Tell me more about how you're attacking it.
Actually, you know, it's a good question because I've been in this business for 14 years almost. And before that, I was building the more traditional company. And now I'm building the platform where everyone actually can hire freelancers from around the globe directly. And that is a major, major unique thing about this platform because you
Traditionally, you can go through agencies only, and right now you have a platform where you can have technology automating workflow for translation, plus linguists from around the globe, and payment automation. And this works equally both for end customers and agencies these days.
How do you beat companies like Rev.com or Speechpad or even people using Fiverr to find someone directly?
actually it also works the difference is that first you don't have automation workflow technology on the platform and without that it can't work for big customers because if you're a big company with good budgets you just can't deal today without automation technology you can't just throw your you know content to a linguist and just make the translation done you need automation technology allowing you to reuse what you have
have been translating before, and also to leverage from machine translation, glossary management, and a lot of other tools automating the workflow. This is first thing, and another thing is that you need to have professional translators, which are, you know, pretty unique thing, and you need to curate them.
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Chapter 2: What unique features does Smartcat.ai offer in the translation marketplace?
And that business was pretty sizable already. And for VCs, it was unclear how to go to this, you know, quite mixed setup.
How sizable was that first, like how much revenue was that first company doing? Are we talking like $5,000?
Several dozen millions per year in revenue, but still, you know, not huge, but still not a startup.
Well, so, I mean, you say several dozen million. I mean, it was doing over 24 million a year in revenue. Yeah. And how big was that team on the first company?
It was 200 people.
Okay. So walk me through the actual mechanics. How do you carve out this new business? Is the cap table look the same as the past company or is it a new cap table?
No, we negotiated with our shareholders that we need to change cap table to allow us to focus on it. So we sold, with my partner, we sold the portion of the, actually our shares in the previous business and focused on this business completely. And the venture firms actually invested in this new setup.
Ah, I see. Okay. So the people on your current cap table at SmartCat, are you your co-founder and you let the VCs come in when they put in the $4 million? Yes. Okay, got it. And what's team size today in the new business?
Actually, it's close to 65 people because the technology is pretty big and we needed to catch up with those guys who have been on the market for 20 years. So we actually need to invest a lot in development. And most of the people are engineers.
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Chapter 3: How does Smartcat.ai compete with established companies like Rev.com?
And because technology is actually free, it allows us to grow quite quickly organically. And then we start monetizing through selling them our suppliers from the platform. I got it. Getting back to your question, the question was how many paying customers we have right now. I would say close to 300 paying customers at the moment. And actually around maybe...
3,000, 4,000 active users, corporate users on the platform.
And close to 100,000 freelancers from 150 countries at the moment. I want to get more into how you built the marketplace in a second. But first, I want to get a minimum revenue number here. If you have 300 customers and you said minimum SaaS payment is 500 bucks a month, I mean, that's 150 grand a month right there. And you said that only represents 10 or 15% of your revenue.
So, I mean, are you guys doing well north of 1.5 million a month currently? We are above two million, yeah. About two million a month? Okay. Yeah. Okay, let's shift gears now. Tell me about the marketplace. First things first, everyone listening right now thinking about getting into the marketplace business, they always ask about the chicken and the egg problem. How did you solve that?
That is a beautiful question. You know, we actually are solving this problem in quite a good way because we have a good technology in the core. And that was our primary idea to build something valuable for people, both for supply and demand. and to give it away for free. Once we have it, people are coming to use our technology, both suppliers and customers.
Suppliers are using our technology, even in case we don't have jobs and customers for them, because they can use technology to work with their own customers to automate the workflow. And companies can use our technology, you know, without any limitation on number of users and all that legacy artificial limitations from, you know, desktop vendors, how I call them.
And in this case, we have quite a natural way to attract both supply and demand. And then we start to monetize because we provide them this good matching.
crms might be the tool that i fight with the most i just haven't found one that i really liked i don't know if you guys are the same way but they're just so tricky and a while ago i had a guy named john lee on my show he's the ceo of prosperworks and he told me they just passed 40 000 customers and 24 million in annual revenue so they're doing about 286 thousand dollars in revenue per employee.
And I said, wow, why is this working? And I said, you know what? I'm going to try it. 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.
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Chapter 4: What revenue model does Smartcat.ai use for monetization?
That's pretty impressive. And what's your, I mean, is this a pretty sticky service once people get on? What's your churn rate look like annually?
Yeah, good question. Actually, right now, because we have not so many paying customers, the retention is around 95%. If you mean lower retention. Yep. But so for revenue retention is well beyond the 100% right now because accounts are expanding.
Yep. What do the accounts expand on on average year over year? Are we talking 20% expansion 30%? I would say close to 30-35. 35% expansion year over year. That's pretty predictable. Yeah. Okay. It's pretty predictable. Got it. And do you have a playbook for that or is it just usage based?
In other words, do you have part of, you know, an inside sales team upselling that or they just get addicted and they keep using you more?
We have actually a customer success team, how we call it. We don't have a sales team because we have a lot of customers coming because of that technology. And then we see if a customer is starting to grow, a customer success team is focusing on them to help them grow better.
But once we see that the customer is close to saturation, we're just maintaining them through our support team and that is it usually. Yeah, they don't need actually a lot of support after the, let's say, six, 10 months after using our platform.
Now, you mentioned you offer a free version of the technology, which you then obviously upsell folks to 500 bucks a month. And then on top of that, you start upselling kind of more high-touch marketplace services. But what do you look at, you know, when you do look at your current customers of 300, what are you paying on average to acquire them fully weighted?
I would say they cost us from a thousand and a half up to 5,000 to acquire them fully.
Yeah. Okay. And then what do you assume, like how quickly do you like to get that money back? What payback period are you optimizing for? Actually, it's around six to 10 months at the moment. So it's pretty good. That's very healthy. And what do you assume lifetime value is on these accounts? I noticed you list Weebly as a customer on your account.
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Chapter 5: What is the backstory of Smartcat's founding and funding?
You know, I used to spend like four to five, but it was too exhausting. Yeah. And how old are you, Ivan? How old? Close to 36 right now.
I'm going to have 36 like in a month. Okay, so 35, almost 36. And what's your situation? Married, single, do you have kids? Yeah, I have a daughter, five years old, married, yeah. Okay, wow. So last question, take us back 15 years. What do you wish your 20-year-old self knew?
uh i would love to be more focused on growth and be you know uh more brave without hesitation tackling you know uh ambitious goals too many hesitations at the age of 20 you know like just
hustle and tickle things. There you guys have it from Ivan. He wishes he was more focused and brave back in the day. He certainly is now spinning out his new company, Smartcat, for language translation out of a much larger company that was doing over 24 million bucks a year, over 200 employees. He spun it out, then raised $4 million in venture capital. He's since scaled it.
It's growing 7x year over year. In December 2016, doing about 290 grand in monthly recurring revenue, now up to $2 million a month in revenue, so over a $24 million annual run rate.
CAC to LTV ratio is super, super healthy with his team of over 65 folks in four different offices helping their 300 customers, again, translate across many different platforms in a very efficient marketplace and technology-driven way. Ivan, thank you for taking us to the top.
Thanks a lot, Nathan. It was a pleasure talking to you and to all the guys who are listening to us.
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