SaaS Interviews with CEOs, Startups, Founders
1036 How He Took SMB Churn From 12% Monthly to 4% In Social Media Marketing Space
26 May 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 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.
Chapter 2: What inspired Emeric to transition from law to entrepreneurship?
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.
Chapter 3: How did Emeric's SaaS journey lead to the creation of Agorapulse?
Hello, everyone. My guest today is Emmerich Ernew. He started his career in 1996 as a business lawyer in Washington, D.C., and then launched his first startup in France in 2000. After three semi-failed SaaS projects in the social media space, he finally got traction with his company, Agora Pulse, a social media management software launched in 2012.
He grew it to $5 million in annual recurring revenue, and it's growing at 80% year over year. Emmerich, are you ready to take us to the top? I am, definitely. Well, I think you're much cooler as a SaaS CEO than a lawyer. So congratulations.
I think too. Yeah, agreed on that one.
So the company, just to be clear, the revenue number, you finished 2017 at a run rate of about 5 million. Was that accurate? Absolutely. Okay. And let's get more of the backstory now. What does the company do and how do you make money? Is it pure SaaS?
It is pure SaaS. It's a social media management software. So most of your listeners will be familiar with Hootsuite. So it's like it's a competitor to Hootsuite and many others. And it's a monthly subscription. Our Pew is around $145, $50. I have most of my numbers in euros. I have to make conversion on the go.
You're doing good.
And, uh, yeah, we have, uh, we've passed, uh, 3000 clients, um, before the end of the year. And, uh, yeah, that's, uh, that's where we are.
That's great.
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Chapter 4: What strategies did Emeric implement to reduce churn from 12% to 4%?
So 3000 paying customers paying each about 145 bucks a month for about 416 grand in monthly revenue or a $5 million run, right? Is that that accurate?
Yeah, that's about right. Yeah.
And, and Emmerich, have you bootstrapped the thing or have you raised capital? Yeah, we did bootstrap. Okay. Completely bootstrapped. That's incredible. Did you use any debt or no?
We actually use something that a lot of people are using. We had a previous business that was generating some cash, not good, but enough to kind of, you know, fuel the next venture. So we use that cash. We basically stopped working on the old product, the old project.
and worked on the new one by using the free cash flow we had from the old project, which a lot of agency do when they start a product. And, you know, I heard a lot of people on the podcast doing that as well. So you can't start with zero. You got to start with something, especially when you're building a complex SaaS product. Our thing was that.
Were you able, though, so the cap table can get pretty messy if you're transitioning. Were you able to also in that transition clean the cap table somehow or get early people out? Are they still kind of lingering on the cap table with two, three, four or five percent?
That's a great question. We've been incredibly lucky that the initial shareholders that we had from the previous business eventually got cash problems of their own. And then when they had, we had cash in the bank. So we proposed them an exit and we basically bought them out like, you know, some of them like, eight, nine years in.
So like they've been with us for a long time, super patient and super nice. Um, and we basically bought them for, you know, a good chunk of money based on what they invested initially. They made a huge return, like 10 X kind of return.
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Chapter 5: What is the current business model of Agorapulse?
But for us at the time when we bought their three, four or 5%, it was a great deal based on the AR we were making at the time. So we were lucky. And what year was that when you executed that? Um, most of them were 2017.
Oh, you, oh, you executed most of this in just this year, 2017. Yeah.
Oh, got it. We bought them out. We bought the initial business angels that we got in, say, 2002 and four. We bought them in 2017 and we bought them for a good price for them. Good multiple that, you know, they didn't become millionaires. But compare, you know, what they invested in the early days compared to what they got back was a pretty good return.
And what did they put in on the early days? Are we talking 100 grand or 10 million?
Yes, no, yeah, less, less, less. Some of them were like, you know, 40, 30, 40,000. Probably the highest was 50,000. And, you know, the 50,000, we bought them out as close to 200,000. So like it was a good multiple for them.
Yeah, it makes good sense. Yeah, you're looking at this. I imagine going, I know TechCrunch, as I said, go raise capital and try an IPO. But I'm sitting on 400 grand a month in cash flow top line. If I own the whole thing and have full control, I can just pay myself 200 grand in free cash flow every month. And my wife's going to love me forever.
You know, you're touching on a great point. It all goes back to what's your motivation in life and what you want to build for yourself. You know, when we're young, we usually have big, hairy goals and we want to be the next Mark Zuckerberg.
And as you grow up and you're facing the difficulties of launching a business, succeeding in business, and you get something, you start thinking, well, I'm pretty happy with a pretty decent salary and freedom. And, you know, the ability to lead my life and my business the way I want and still grow and take profit out of that.
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Chapter 6: How does Emeric define and measure customer acquisition costs?
And Basecamp is a great example of a bootstrap company that got incredibly successful. And there are a lot of others that are not as successful but still get a lot of cash out of the thing. And more importantly, a lot of fun and pleasure, which I think is the key to everything.
So do you have a co-founder or are you now the sole person on the cap table?
We're two co-founders, the CTO, Ben, and myself.
Got it. And he's been with you the whole time?
He's been with me the whole time, 17 years. So he's been more patient than my ex-wife.
That's amazing. That's funny. So launch date was 2000. Ben's with you from the beginning. Ex-wife left you. You're remarried now? Uh, yeah, sort of not, not married, but we've been together for 10 years and we have a kid.
So it's like the same thing.
Yeah. Basically. Yeah. But minus, minus the tax it benefits. Right. All right. I don't know if there are any. Yeah. Okay. That's true. Where are you based? Are you, you're overseas? Right now I'm based in Paris, France.
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Chapter 7: What growth strategies is Agorapulse currently exploring?
Yeah. Is that where most of your team is?
No, actually, it's only one third of the team. Two third of the team is in Ireland, the U.S., Mexico, Brazil, Slovakia, Malaysia, Philippines. And gosh, I must be forgetting. This is a remote team. It's mostly remote. Two third of them are remote. The U.S. is the biggest country. I think we have seven or eight people there.
And how many people total are on the team? Forty. Forty. OK, that's I mean, that's pretty significant. Forty people. And help me understand some of the economics here, because last time we talked, man, I think it was like three or four years ago at a conference. And if you don't mind me sharing this, I mean, it's old enough now you were expressing concerns about things like churn.
So I assume that was pre pivot. You pivoted somehow. What is churn today and how would you drive it down?
It's a very good question. Pivot is something we do all the time. These are small, 10% pivot, and then 10%, and then 10%. You keep adjusting, especially in a fast-moving industry such as social media. I think when we talked together three years ago, we probably were at 12% net MR churn, just to give you an idea. That was monthly. That was monthly. That was monthly, not annual.
Well, remember, we're in the SMB self-service SaaS business, which has monthly churn.
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Chapter 8: How has the company's customer base evolved over the years?
You can't totally kill it. It's impossible. I don't know anybody in the SMB space who has no churn or negative churn. Negative churn is for higher paid customers. Like, you know, enterprise, they have negative churn. Of course, those who get, you know, one year full contract, three year contract, obviously they have a negative churn. For those who have monthly and SMB, usually...
The best turn rate I've ever heard was constant contact at 2.5. That's the best I've ever heard. And remember, they sold for 1.4 billion and they have 600,000 customers. So you can make it even with 2,000%.
Yeah, but that's still that company. I mean, they were at, you know, I'd sit on Gale's conference calls. I mean, they would add 60,000 customers on a corner, but they would churn 50,000. So like they churned through the market. And if you look at the PE ratio, what they exited for, it was actually a shitty multiple for a SaaS company.
Yeah, I don't have all their SaaS metrics and churn is a bad thing overall. And you get to a glass ceiling at some point if you churn every month, of course. So what everybody does is they go at market and they sell to end to- What do you add today though? Yeah. So we were 12. We reduced it to eight the following year. We reduced it to six the following year. We're now between three and four.
And my personal goal is to get to two or below two by the end of this year. So by the end of 2018. And as you can see, it's a slow process.
But just to be clear, that's net revenue churn monthly is 4%. Yeah, net MRR churn. Yeah, absolutely. And is logo churn about the same?
Um, I, I don't really, you know, I don't, I mean, we have the number, but I don't really care because we have a lot of legacy, small, very small clients who are going away and we don't really care about them because, you know, we, we really care about the ones that are more in the 99, one 99 range, which, which is kind of a core target.
The ones that used to be at the 29 plan that we killed a year ago that are still churning a little every month. It doesn't really matter because it's not the reflection of the business as we've been having it for a year.
So I'm really looking at the business we have now and I'm looking at the cohort we have now and the cohort we have now are better and better over time as we improve product, client acquisition and stuff like that.
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