SaaS Interviews with CEOs, Startups, Founders
1054 We Cut Our Customer Base In Half But Grew Revenue to $30m
13 Jun 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 Raj Agarwal.
He co-founded Localytics in 2009 and as CEO until 2017, creating the leading mobile engagement platform that is used by many of the world's top brands. Before Localytics, Raj spent 12 years building a variety of different technology companies. He was a management consultant focused on mobile with Bain and company at Adventus.
And then Raj worked alongside Steve Jobs at Apple to develop the business framework for the iPhone while he was at Adventus and led the formation of the multi-billion dollar Disney mobile venture in Japan. Raj, are you ready to take us to the top? Do it. All right, very good. So tell us first, what does Localytics do and what's the business model? How do you make money?
So Localytics is a mobile engagement platform. There's two sort of major parts to it. There's the analytics part where we're helping mobile apps collect data on their users. What are the behaviors? What's working? What's not?
And then we take that data and we use it to deliver personalized and targeted messaging across a variety of mobile channels, including push notifications in that messages, as well as email and content personalization. So the way that we make money, it's a SaaS subscription business that's based on the volume of the app. You mean the app downloads?
Yeah.
Well, specifically, we base it on the number of monthly active users that you have. So basically, as an app grows, forget about downloads because we think that's a vanity metric. It's not a very helpful metric. But how often are you bringing users back to your app? How big is your audience?
And based on how big your audience is, there's a subscription fee for different modules of the product, for example, the analytics, the push notification service, etc.,
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Chapter 2: What is Localytics and how did it start?
all had to shoot off into the wrong direction, trying to grow fast, and most of them tried to become ad networks. For us, we were forced to work closely with our customers, figure out what they really wanted. And at that time, it was deep insight about what was working within their mobile apps, how to grow that audience.
And it was in 2012 that we expanded from being primarily analytics to adding this engagement layer So we could use that data to create these more engaging experiences with end users through all these new mobile communication channels.
Got it. And just to be clear, if I launched Nathan's app, it has 100,000 kind of monthly active users. User X logs on. You are basically going to tell me that user X clicked this button in the app, they watched a video in the app for two minutes, and then they exit on this part of the app experience versus collecting demo data on that user to then sell across some ad network.
That's exactly right. Now, in some cases, there will be demo data that helps us give you a better experience. So if we know something more about you, we might cater push notification to you. As an example, customers include ESPN and Weather Channel.
And we'll use data like your favorite sports team or your location to give you targeted messaging that you're going to actually want to receive and that's going to help you.
But just to be clear, you're not doing anything else with that demo data in terms of putting it into some big network?
Correct.
Got it. Okay, good. Fascinating. So 2009 was launch date. Obviously, Lehman collapsed shortly thereafter. You've grown the company. Now, have you bootstrapped or have you raised capital?
We've raised capital. So we raised a couple of angel rounds, uh, 2010, 2011. Uh, our first venture round was in 2012. Uh, total we've raised, uh, nearly $60 million in equity.
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Chapter 3: How does Localytics generate revenue?
And, um, for a lot of our early going, we wanted to maintain some optionality and stay lean. But this space did start to really take off. And particularly in 2015, a lot of money was going into this space. And, you know, to some extent, we jumped onto that bandwagon and probably raised a little more than we should have.
Name a few, though, like what were some other companies that raised a bunch in 2015?
Around that time, Mixpanel raised $65 million in a single round. Kahuna raised $45 million. Other companies like Urban Airship and Amplitude raised a lot of money around that time. So these are all companies in a similar space to us. So it was a little bit like the race was on.
And because of the amount of money that went into the space and the amount of money that went into sales and marketing, we oversaturated the space. And pretty much all of us had to do some level of sort of correction. I think we were early on that. And we've been able to take the business to cash flow breakeven, which we did last year in 2017.
And you're still breakeven today?
Yeah.
Yes. Okay. That, that may, I mean, look, when someone's that breakeven, unless you were had a crazy burn, right? When you raised 60 million, you still have a lot of that cash sitting in the bank.
That's right. So, you know, look, we spent more than we wanted for a period of time, but we corrected, you know, what we were doing quickly enough and focused back in on customers.
You know, we were also, to the extent, the piece I talked about where we sort of moved towards the enterprise, there was a time where we were hitting maybe too wide a part of the market, you know, from sort of the mid-market into enterprise. And we had to get really focused in on what our core was, where
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Chapter 4: What challenges did Localytics face during its early years?
Fair enough. And then, I mean, you quoted earlier in ACV of between 50 and a hundred that generally puts you somewhere around two and a half ish in MRR. Is that generally accurate? It's in the right zone. Right zone. Okay. Have you broken 30 million in ARR yet? Okay, good. You think you'll break 50 this year? TBD. Come on, Raj. Give me some confidence, man. You still got 11 months.
You think you'll do it? I just got to say TBD. All right. It'll be damn good. If you're at 30 now and you go to 50, it'll be damn good growth, obviously. Take me back to the team. What's the total team size and what percent of those folks are focused on support?
So, you know, it's about 150 people and, you know, support can be broken up in a couple of different ways. But if you talk about, you know, customer support itself, we're probably talking about eight to 10 people. But then our support organization includes, you know, what we call mobile engagement consultants. Consider them like, you know, post sales solutions consultants.
But our model is a little bit different. Right. It's a these are practitioners. These are folks that have been in the shoes of the practitioner.
Sometimes they come from our product management organization and they're taking a proactive approach with the people who are actually using the product to go in there, look at what kind of campaigns are running and what kind of advice that we can give them. How are they analyzing the data and how can they do their job better?
Basically doing a good level of hand-holding to make sure that in this confusing mobile space where everybody feels like they're over their head and over their head that they can make sense of these tools. Yep.
While we think our tool is relatively simple because, you know, there's a self-service version, et cetera, available, sometimes it does take that extra level of hand-holding to maximize the full capabilities.
Sure, and you can afford it at this price point for what they're paying you. So, hey, we're running out of time here. Last few quick questions. Lifetime value, what do you assume it is on the cohort that is a good fit for you, your enterprise cohort?
You know, so... If you take an average customer at 50,000, it should be at least a five to six year lifespan. And I think we expect to see that. But what we're seeing is definitely our upsells are awesome. So a typical customer, a large enterprise customer, we may start with them at 50,000. The next year we're at 200,000. Next year we're at 500,000.
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