SaaS Interviews with CEOs, Startups, Founders
1129 He Bought $70m Of ARR w/ Other Peoples Money, Kept 60%+ Equity for Common
27 Aug 2018
Chapter 1: What is the main topic discussed in this episode?
Raise some capital, start a business earlier on. I'd say he's doing it the right way. His company, SwiftPays, was launched in 2001. He came in in 2012. He was on the board after four years of stagnant growth, around $4 million in ARR, and really did something special.
Chapter 2: How did John Oechsle transform Swiftpage's growth?
Raised a bunch of capital to go make acquisitions of two companies, which generated $70 million in ARR. He then, a year later, sold basically a portion of that back at the total price he paid a year earlier. So he got that capital back very efficiently. Now the company is scaling. They're growing about 20% year over year in terms of revenue growth from 2016 to 2017.
Today, flirting with the 90 million-ish range, hopefully breaking 100 million here before long. He's now has an appetite for raising capital, potentially going out and acquiring additional companies in specific sectors, as well as industries like HVAC. His team of 170 people focused on onboarding and fighting for these small business owners paying 100 bucks a month.
There's 85,000 of them right now. This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn.
Chapter 3: What strategy did John use to raise capital for acquisitions?
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 John Oshel. He joined the small business CRM software provider SwiftPage back in July of 2012 and currently serves as the CEO.
He came to SwiftPage with a 30-year track record of building highly profitable and sustainable revenue growth for emerging companies and established global leaders. John is an advocate for entrepreneurship and small business growth. John, are you ready to take us to the top?
Chapter 4: How did Swiftpage achieve significant revenue growth from 2016 to 2017?
I'm ready, man. All right. Why do you like small business so much? Constant contact did not have such a good outcome. Oh, no. You know what? Small business is really a cool place to be. They need so much help right now, the small business. When I look at a small business, I say, you know what? They need four things in order to grow.
We call them presence, traffic, conversion, retention, and optimization tools. And as SwiftPage, we were playing in conversion and retention as this little tiny email marketing company, quite frankly. And we said, you know what? Let's go out and be the 800-pound gorilla and just own conversion and retention tools. and help these small businesses grow. Go ahead.
No, I was going to say, I mean, you know why people don't like small businesses? Because it's really, really hard to get a critical mass of customers in small businesses. And it's really hard to do it in a profitable sense. So we can talk lots about that. Well, and generally speaking, 9 out of 10 businesses fail. So your churn is naturally a heck, you know, it's a hard thing to drive down.
How have you kept your churn low and what is it today? Yeah. Yeah, so right now our churn is about 1.5%, a little under 1.5% on a monthly basis. That's logo churn, right? That's logo churn, yeah, absolutely. And revenue churn is about that, maybe even a little lower from that standpoint. But anyway...
You know, how you really keep your churn low is, number one, you've got to have a great product, right? And it's got to be very, very useful. And number two is you have got to focus on what we call the customer experience management. If you don't focus on that as a small business software provider, your customers will just run away from you as fast as they possibly can.
So how do you do that at scale? I imagine most of this, maybe you start off with doing a human to figure it out, but eventually you have to code it. So it becomes no touch. Yeah. So let me give you a, give me a half a second to take it back and then I'll take you forward. So, you know, we, we were this little tiny email, email marketing provider back in 2012.
And I make this funny story that I was in a board board meeting and, And I went to the restroom and I came back out. And next thing you know, they had named me as a CEO of the company. Cause I was just a board member. How old was it at that point? When did the actual company launch? Companies was founded in 2001.
So it had been around quite a long time and had done like most small businesses, most, uh, you know, startup software companies. got to 4 million in revenue and then couldn't get past it, right? And it was just like stagnated at 4 million for like four years. And as a board, we said, hey, we got to do something completely different. And that's kind of when I stepped in.
My background is I do a lot of acquisitions. I grow companies pretty quickly that way. So we very rapidly bought two companies. We bought the ACT product and we bought SalesLogix from Sage over in the UK. Um, when we, when we bought the company, uh, it was, it was, come on, hold on, John, don't skip over that. How did you fund those things? Oh boy.
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Chapter 5: What factors contributed to maintaining low customer churn?
You know, et cetera. That's how you keep churned down. I want to talk more about your insiders club here in a second, but in terms of general size today, 85,000 customers, 150 bucks a month, you guys are doing almost 13 million bucks a month in revenue or right around there. Is that right? Yeah, just a little bit off, but not too far. Okay, that's good to know.
You guys are past $100 million in ARR at this point. No, we're under that. Will you break it this year, you think? No, we won't. Come on, John. I'm trying. More of your magic. More of your magic. All right. Let's try it. All right, I feel you.
Before I talk more about your Insiders Club and specifically what activation metrics you like to focus on that you know drive churn down, I'm sure there's probably a few things you know you have to get people to do. For people listening right now that have similar experience to you, They have people that have said, we'll give you money if you find a good company to buy.
And they just don't know how to structure it. Now you do this at a huge scale because you brought in a crap ton of capital behind you. How did that, how was that actually structured? I imagine you own what, 10, 15, something like that percent. The investors own the rest and you're a hired gun essentially. I mean, how's it work? Just the opposite, right?
Chapter 6: What role does customer experience play in Swiftpage's success?
Really? Again, that's why we're going to write a book. So 62% of the company is owned by the common shareholders, of which I'm part of that. I'm also part of the preferred, too, but our founders, et cetera. So we were able to do all those acquisitions and only give up less than 38% of the company. How much, just for the 70, because you essentially bought a $70 million revenue stream, correct?
Yeah, two companies. Two companies together, $70 million. I mean, did you get them for less than one XARR? Oh, yeah, we got them for a steal, right? Can you tell me? No, I can't tell you. Come on, John, you're killing me. Sage was a publicly traded company, and I promised that I wouldn't allow that. They didn't disclose that in the public call?
uh, they didn't because they bundled three, three, uh, acquisitions together and they, and they said exactly what it was. Cause you've got such a steel. They couldn't tell everyone how big of a steel they gave you, huh? They couldn't. And listen, I came from publicly traded company backgrounds too.
So I knew exactly the game they were playing, but I will tell you that, um, yeah, I mean, we've got, we've got two companies, uh, basically, you know, they, they were distressed assets. It was really easy to, uh, to, to, to pick them up. Um, now I will tell you that we divested off sales logics to infor,
in 2014, so about a year after we acquired them, and I was able to divest sales logics off for one and a half times what I paid for both the companies when I bought them together. So it was a lot of fun. John, I want to dive more here. I mean, what you've done is you've gotten so creative with capital. This is, in essence, doing something with nothing.
I mean, you basically kept more than 50% of the company for common shareholders, funded 70 million bucks in new ARR with other people's money, and then flipped around and made that money back a year and a half later by selling whatever, half or a third of that ARR you acquired a year earlier. I mean, that's basically what happened. Accurate That's accurate. That's accurate. You said it very well.
Interesting. Okay. Self-funded after kind of the M&A money, or have you raised capital since then? Jump Capital has put another couple of rounds in just because they wanted to continue to help fund our growth. And a lot of what we had to do was really fund the transformation of Acton and fund the conversion. So one of the things you need to realize, everybody does, is as you go through
a license and maintenance company and you convert it over to a S you know, assassin and subscription, you need an enormous amount of cash on your balance sheet. Uh, and your revenue looks like it's going down. Why? Because you can only, uh, recognize one 12th of the subscription, uh, if it's an annual subscription, et cetera.
So all of a sudden your investors are looking at you and they're saying, John, you said this was going to create a whole lot of value. And I was like, yes, guys, it will, but we have to go through the ugliness. of getting through that transformation. And when I say ugly, oh man, it gets ugly. I mean, you're talking like throw up from your baby ugly. Uh, describe the throw up. How bad was it?
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Chapter 7: What is the significance of the ACT brand in John's strategy?
We look at it. How much does it cost us to get a net new? How much does it cost us to get a what we call a conversion? Somebody that's in our install base that we're converting up there. So a net new is costing us per unit. Probably in that $140 to $160 range. And a unit is a seat or a business logo? It's a seat, yeah. So the payback is about five to six months on a net new.
Now, an install base or a conversion, we're just under $100 from a CAC perspective. And then you can break it down even further. You can break it down direct versus channel because we have a very large channel. We didn't chat about that. We call them ACC's or ACT Certified Consultants. Um, there's about 250 of those, uh, around the world.
Uh, and they're, uh, they represent about 50% of our revenue right now. So it's a very, very strong channel for us. What's the, uh, what's the percentage payout to those guys when they bring in customers, 30%, 50% or something else? Uh, there's, there's tiers and they go from diamond all the way down to silver.
Uh, and at the top, you could get as much as a 40%, uh, commission, uh, all the way down to, you know, 10% of your silver. That's interesting. So that's actually a huge opportunity in terms of capital efficiency for you, because if you've got that much, that's essentially a cost of goods sold paying those guys. And it makes a 50% of your revenue.
If you figure out a way where you can buy them out for the next 12 months revenue, go raise that capital. You meet an increased top line pretty significantly. There you go. That's interesting. Would you ever do that? No, I think, you know, right now our channel is a really, really, really good part of our business.
And we've spent a lot of time over the last three or four years to really turn the relationship with the channel. When we acquired the ACT brand, we acquired the channel with us and it had a very, very bad relationship with Sage. So we spent a lot of time turning that around and they've really, really come through for us. So it's a really good part of our business.
Will you IPO in 2018 or 2019 to help fund these acquisitions if you don't go the traditional fundraising route? I don't think so. I've taken two companies public, been there, done that, rang the bell on New York Stock Exchange. There's really two reasons why you want to go public. One is you need liquidity, and we don't need liquidity right now. And number two is currency, right?
Do you need currency for acquisitions? I actually think that we'll go and we'll find a capital partner and then start going down that path and really get into the hyper growth mode. And then we'll make a decision, you know, probably a little bit later on is, you know, how do we how do we get some liquidity after that? Would you value yourself as you are today? More or less than 700 million?
Oh, less. Yeah. No, we're we're less than 700 million. And why do you say that so confidently? You know, I think that when people look at us from a valuation standpoint, they say, you know, hey, you've done fantastic. You've taken this great conversion and converted a very large base over to subscription. You've shown that you can grow net new. they wanna see net new grow faster.
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