SaaS Interviews with CEOs, Startups, Founders
1035 How He Restructured $4.5m Company, Then Exited Jan 1
25 May 2018
Chapter 1: What inspired Brett to start his company LinkTrust?
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. Morning, everybody. Our guest today is Brett Groh.
He has over 15 years of experience in affiliate marketing, software development, and business. He's the CEO of LinkTrust, a recognized leader in the affiliate and referral tracking space. His experience in building businesses, working with teams, and developing enterprise software has honed him into a valuable mentor. All right, let's jump in with Brett.
Do you ever look at all the sales you're driving for people and go, gosh darn, we should have taken a cut model, not a SaaS model? Absolutely. Yes, I have. And many times I was like looking at closet customers saying, man, they make way more money than I do.
Chapter 2: How did Brett's company grow to $4.5 million in revenue?
I should just go be an agency, you know, but but it is fun. I love to support companies in their dreams. So that that part is really fun. And OK, so give me more of the backstory here. Now that we know what kind of what you do in the average price point, when did you launch this thing? So we launched it back in about 2002.
And the real the reason that we launched it was there was only really one platform in the space at the time that was direct track. They're no longer around. we really wanted to provide some competition because we felt like we had not only a great product, but we really cared about people. And so we launched LinkTrust after we used it ourselves for our own advertising purposes.
And it was just me and a partner back then. 50-50 split? 50-50 split and just working out of our houses. And that's how we got started until we had so many business opportunities coming up that you said, you know what, one of us should probably quit our full-time job and just do this. So that's, I took the first leap and about two months later, he took a leap.
How did a smart man to get you to take the leap first? How'd that work? Well, you know, we sat down in my house and we literally put credit cards down on the table and said, okay, I have 2000 available on this credit card and 5,000 on this one. So if it doesn't work out, that gives me, you know, maybe a month or two and I'll jump back into a full-time job. That's a good story.
Now, fast forward today, Brett, how many customers are on the platform? We have about 110 customers on the platform right now. Got it. And are most of these, you know, with that amount of customers, you obviously know most of them personally, right? I know a lot of them. Many of them have been clients for years and years. Now, can I do the math?
Can I take an average $300 ARPU times the 110 to assume you're doing around 33 grand a month right now? Or is that off? No, that's not exactly true. Most of our clients would fall into that range of cost, but we have some enterprise clients that would definitely skew that. So it's a lot more than that. But generally, when you're talking about your regular small business or regular, you know,
10 to 25 employee ad agency, they're spending roughly about 300 to 500 bucks a month. Okay. And then, I mean, can you give me a general sense of growth? This is going to be an embarrassing question, but do you remember what first year revenue was back in 2002? How low was it? First year growth was probably like $50,000 a year.
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Chapter 3: What challenges did Brett face during the early years of LinkTrust?
Right. I mean, that's that, that covered me essentially, but you know, we have a unique story, you know, it's not always, you know, just, uh, uh, celebrations and growth. We actually went through some really hard times as a company and we learned a lot of hard knocks lessons as entrepreneurs and what to do and definitely what not to do. Like what? Okay. Like what?
Well, so, uh, you know, we got up to about four and a half minutes relatively quickly competing with our competitor. You cut out there. You said you got up to four and a half million relatively quickly. Yeah. Within the first few years. Um, but you know, the problem was we didn't really have a business mind.
We were entrepreneurs and we liked what we were doing, but we weren't really, um, being careful with what we were building. And so in the, in the early years, we built a company that we thought we would like to be a part of as employees. And we, uh, we created a lot of entitlement within the organization, a lot of entitled employees and, um, and that just creates all sorts of problems. So
you know, we've been through the ringer as, as far as like restructuring the company. What year was that? Where that really hit a pivotal moment? Oh boy. That was probably, uh, 2011 or 12. Okay. Um, and, uh, you know, we, you know, a lot of people think, Oh, you're an entrepreneur. Wow.
You're just like living on the beach and you're, and you know, you just tell people what to do and then you go relax. And really that's not at all what it is at all. So, um, It's a lot of blood, sweat, and tears. And even if you're successful, you can be making a lot successful in the monetary side. You can be making a lot of company and personnel mistakes.
So, I mean, what did you just solve that? How did you restructure? I mean, letting people go is never easy if you had to do that. No. And a lot of people, entrepreneurs and CEOs told us, you know, if you're ever going to restructure because of the culture and you need to change your culture, oftentimes it's just easier to throw out the whole thing and start a new company. And you know what?
In retrospect, it probably would have been easier just to cancel everything and start over. But we really believed in the vision of what we could provide because our, you know, our purpose as a company is to provide good in the world. And we want to accomplish that by bringing marketing to the masses.
So we took a company of about 17 and got it down to about a company of five, um, and then had to build back up from there with our core strategic employees. And that was, that took a process of about two years to complete the entire restructuring, uh, of the company.
And at one point, you know, even though we were profitable, we were burning so much cash, like $30,000 a month in cash just from, uh, employees and overhead that we were $2.4 million in commodities at one point. And we said, we got to call it, like, we got to start running this thing like a business and not like, you know, an old boys club. Right. You said 2.4 million in liabilities. Yeah.
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Chapter 4: How did Brett restructure his company to improve its operations?
Yeah. So you're totally bootstrapped even today. That's right. Actually, today we just got acquired January 1st of this year. So I am advising the company. I'm still on doing some projects with the company, but that's the happy ending, right? Every entrepreneur wants to be acquired. And even better than that, every entrepreneur wants to be acquired so that their dream can become a legacy.
so that it can continue forward with good people that can follow up and take their place. So we're really excited about it. Guys, I get asked all the time, Nathan, you host all these interviews, hundreds of them per month. How do you do them efficiently? And guys, the answer is simple. People always agree to my calendar, back-to-back meetings. I batch my interviews to stay very efficient.
And the way that I do it is I use a tool called Acuity Scheduling at nathanlatka.com forward slash schedule. And the reason I use them is very simple. They keep my no show rate very low because they send out reminders about when the interview or the meeting is coming up. And also they make it very easy to schedule time, right?
I don't have to go back and forth via email 10,000 times with people I'm trying to meet with. Okay, at nathanlatka.com forward slash schedule. Helps me so much. And by the way, look, I like have so many meetings. I'm the best at meetings. Okay, I do them back to back. Very, very efficient. You guys know me. many people say I'm the most efficient they've ever seen. Okay. So I use the tool.
It's so efficient. And by the way, I got Gavin. I said, Gavin, he's the CEO. I said, I want a great deal for my people. He said, Nathan, well, most people get a 14 day trial. Isn't that great? I said, no, he's given us a 45 day free trial at Nathan Latka.com forward slash schedule. That's not going to stay up forever. So go get it now. Nathan Latka.com forward slash schedule.
I wanna dive more into kind of where your mind was emotionally in that decision-making moment in a second. But first, so kind of completing out the restructuring, I wanna make sure I got this right. You grew it to about 4.5 million in annual recurring revenue. That's about 375 grand a month, but you are burning too much. You had debt payments out the wazoo, over 2 million in liabilities.
Your team was 17 people. You cut it down to five. That took about two years. So we're at about 2014, 2015-ish now. You're now today at 14 people, debt-free since early 2016. have you broken, like we're talking pre-acquisition, did you break the 6 million ARR mark or were you, did you stay pretty flat during the restructuring?
During the restructuring, we made a conscious decision to focus, um, not so much on revenue because we knew that we could take cuts in order to keep the company afloat. So the company actually was in a slow with the restructuring. Yep. It was a, it was a slight decline, slight decline through the restructuring.
Because we were really putting most of our focus on debt relief, culture and accountability of employees, and really trying to keep the company growing at the same time. So really, there's a lot of costs that come into a SaaS that you just can't forfeit. You can't give up those costs. And we took a little bit of a hiatus with our marketing spends so that we could pay off our debts.
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Chapter 5: What strategies did Brett use to manage company culture during restructuring?
Yeah. So last question before I wrap up here with the famous five. How did you think about the acquisition offer? How's a company like this valued? That's interesting. Well, we're a relatively small company, so we're really valued based upon the amount of money that basically can be saved by me not being there. And I forget what that term is, but basically you take what my costs are.
and all the other costs that come into it from there. It's not really just based on EBITDA. We would have to be a little bit larger for that to occur. And so they take that amount that the new owner would come into and then they multiply that. So actually our acquisition was not by a venture capital that's locally here to Provo. Sorry, it was not a private equity firm? Who was it? It was not.
It was a private owner. Got it. An individual owner. Yeah. But I mean, you weren't super I mean, it's fair. You were you weren't super small. You were doing more than a million per year, correct? Yeah. Oh, yeah, absolutely. Yeah. So between a million and four million, I mean, you weren't you weren't I mean, you weren't super small. So, OK, interesting.
So so basically he said, well, if I cut out your salary and a few other things, the cash flow increases and I'm going to pay you this amount because I can recover my cash flow in this many years. And that's how you did it. Yeah. So then we did a multiple of that. Yeah. Yep. That makes good sense. Last few questions here about the kind of mid days, especially during restructuring customer growth.
Um, what did churn look like? That's critical in a SAS company. What did your turn look like? That's really important. Um, our churn is roughly around 4%. Logo churn monthly. Yes. Yes. 4%. Um, and we really want to get that down to about 3%. 3% is really where you need to be for a SAS. Um, So yeah. And then what were you willing to pay to acquire these customers?
Assuming that you kind of had an idea of what lifetime value was. Yeah. So what we were willing to pay was on upwards of about $75. At least that's where we decided we could go up to 150. We could actually double that and still do pretty well. It just depends on the longevity. But as our SAS, we're a month to month platform.
We do have customers that do do a longer annual agreements, but when you're doing a month to month, you take a real big risk when you're paying a lot to get that customer in the door. So on average, about 75 bucks per customer is what we'd pay to get in. And what do you then, how many months do you typically take you to recover that cash?
To recover that really would take only a couple months to get that back. Yeah. I mean, cause I mean, I'm just doing a little bit of the math here. I mean, if you were doing again between one and four, let's just say 3.5, maybe that's a little aggressive, but 3.5, right. Divided by 110 customers. I think that comes out to about 2.5 grand a month.
If you're only spending 70 bucks to acquire that customer, you get it back instantly. Well, that would be true. Although in the industry, the costs, you know, affiliate tracking and marketing platforms have really become a little bit more of a commodity. And so prices have dropped over the last seven years or so with affiliate tracking.
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Chapter 6: How did Brett's company achieve profitability after restructuring?
Okay, and what's your situation? Married, single, you have kids? Married, four kids. Four kids, and how old are you? I'm 44. Last question. Take us back to your 20-year-old self. What do you wish that guy knew? Oh my gosh. What I wish he knew was that helping people to stay accountable for what they do is a service to them, and that it shouldn't be shied away.
You're doing them a big favor by helping other people grow by holding them accountable. There you guys have it from Brett. Accountability is actually a service to people. Don't do it. Don't skimp on it. He learned it the hard way. Launched his company back in 2002. Grew it to about $4.5 million in annual revenue. Then had to go through restructuring. They were burning too much cash.
$30,000 a month. Had over $2 million in liabilities. Restructured. Came down to five people. Has now since grown it back up to 14 people. between $1 and $4 million in ARR, never recovered to the $4.5 million post the restructure. However, much healthier business. Debts paid off, much happier, getting eight hours of sleep.
And then recently, here at the beginning of the year, January 1st, sold the company to a local mentor and now obviously advising as he looks for his next thing. Healthy Economics, 4% share in lifetime value. They're about 25 months, $70 in terms of paid spend to acquire those customers. Brett, thank you so much for taking us to the top. Thank you very much.