SaaS Interviews with CEOs, Startups, Founders
1226 How GrowSumo is Covering Base Expenses While Growing Performance Based Revenue
02 Dec 2018
Chapter 1: What background does Luke have before starting GrowSumo?
You just got to go in, get it out there, rock and roll. Starting back at his dad's place, working with NGOs, realizing, wow, the real market here is we're selling NGOs through consultants to NGOs. And so they built up this concept, GrowSumo, which basically helps people like QuickBooks and other big folks manage all of their resellers.
They have a base fee that they charge their 200 customers plus performance fee. The performance fee is obviously growing faster. The base fee helps them cover costs.
They've raised north of a million bucks, but not any, you know, big significant amount of capital growing 25% month over month in terms of growth rate, less than 2% logo churn per month with our team of 20 folks based there in Toronto launched in 2015. 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.
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Chapter 2: How does GrowSumo generate revenue?
Hello, everyone. My guest today is Luke Swanick. He's the co-founder and VP of sales at a company called GrowSumo, a Y Combinator and venture-backed company. Before GrowSumo, he helped his dad build a blues theater attached to the back of his house and was active in nonprofit communities. All right, Luke, are you ready to take us to the top? Let's go. Come on.
Blues sounds way more fun to me than software. What happened?
Yeah, I mean, it was pretty neat. When I was working with my dad, actually, I started a lot of side projects. My dad was starting his own thing. And one of them ended up to be nonprofit volunteer management, which evolved into external partner management, which evolved into channel partner program management. So it did sort of happen at around the same time, but I find it to be equally as fun.
So what year was that when you're helping your dad on the add-on?
I think that that would have been... in 2014. Okay.
And how old were you then? And how old are you today?
I would have just graduated. I'm just touching 30 now. I just had my birthday not too long ago. But yeah, right out of school, I started working with my dad on that project and started to explore all the fun things that are side gigs.
Okay. So yeah, keep going here. So like when was the first line of code written for GrowSumo?
Yeah. So when we started working on kind of the nonprofit and volunteer management space, That would have been probably in early 2014, I believe. And we just started, you know, speaking with NPOs, speaking with high schools that had a lot of students that were looking to volunteer. And what we found was that the nonprofit space is incredibly finicky.
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Chapter 3: What challenges did GrowSumo face in its early days?
Just you and your dad or do you have co-founders at this point?
No, so it was my co-founders. So Bryn, Neil and John. So Bryn and I had known each other for a decade. He was a member of Canada's national swim team. And then we met John and Neil actually at our old university. And they were just starting to really get into programming. John had his own dev shop and Neil was just starting to code. And they ended up being horses.
And that was pretty evident pretty quickly. And we started building this thing out together. So the four of us have lived together in random combinations, you know, several times over the last three years. Um, but we got to know each other through the university campus and started building it together.
Who convinced two to like, take no salary, sweat yourself to, you know, death. I mean, who, who convinced the others to do this thing at the beginning when there was no money?
Well, it was a slow boil to be honest, right? Like it was a project. How do we build something that we can actually get people to use and to want to use? And it started with a ton of great feedback from NPOs.
From you, based off of the work you were doing with your dad?
Yeah, based upon some of the work. I wasn't working on it with my dad. I was just at my dad's place when I started this side gig by myself. And so all four of us were kind of out there hitting the pavement, talking to people, trying to get a sense of what was going on.
And what we found actually was that we were selling more through these nonprofit consultants that we had relationships with than what we were doing internally. And so we actually had the idea on what happens if we build scalable infrastructure behind these partner processes. And so what we did was we took basically 48 hours to run a test.
Neil and John set up a basic mock landing page that would just have a company's name and the partner program channel manager's email address. And if somebody wanted to sell for one of these companies, it would just send them an email through our platform. And we had about, I don't know, roughly 25 to 70 companies. I can't remember for the life of me, sign up in 48 hours.
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Chapter 4: How does GrowSumo's performance fee model work?
Okay, got it. So they saw that there was nothing on our page. So we threw up fake logos like Zenefits was huge at the time, Dropbox, you know, those kinds of companies. I love it. It's what you have to do, right? And people are like, oh shit, Dropbox is using you. Yeah, for sure. So all of a sudden people would sign up and we got some traction on that.
And then literally within two months of that, we applied to YC for what was our third time, but first time with this business. And we got in.
And so obviously YC has a funding model. How much have you raised to date?
So we still haven't announced actually. We've been like really, really, really capital efficient. But we've raised from, you know, firms like Y Combinator, Real Ventures. We are venture backed for sure.
Okay. But like sub a million? No, it's over a million. Over a million. Okay. Got it. I'm trying to get a sense of when you say, I've never had someone say that before. When you say you haven't announced, is that because you're in the middle of raising or it's just something strategically you don't want to disclose?
Yeah.
Um, so we are thinking about going out and doing a race soon, but it's honestly, it's just kind of the founder mentality that we have. We're really humble in how we approach a lot of things.
Um, when we went through YC, we were honestly the youngest company in the batch and we were probably in terms of your age, like your physical age or the company's age, the company's age, there were younger, younger founders for sure. Um, but there are some companies that go through YC that are post series a. And so when we had gone through, you don't typically raise financing when you're
Company's four months old. But we had the unique opportunity of graduating through YC and getting in front of these investors. So we knew that the cash that we brought on would still have to take us through kind of our discovery and build phase. So we were really capital efficient on that. And we raised more than enough to do exactly that.
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Chapter 5: What is the significance of customer churn for GrowSumo?
You can just move on.
Yeah. So what's your talking about how you charge? Is it a pure place to ask model?
No, it's not actually. And so that's been a unique challenge for us. So we charge an annualized fee or a monthly fee for smaller companies. And then we charge a performance fee based upon the revenue driven by partners. So we have some really big companies, right? Like Intuit, Asana, Evernote, FreshBooks, et cetera.
Actually, are those just logos you're throwing out because they're hot right now?
Nope, those are all real. All right, good. Those are all real. Buffers, a company as well, Unbounce, Reverb, some really good looking companies. And so those companies, you know, there are costs associated with onboarding and managing those programs effectively. So we charge a base fee so that we can cover the costs of supporting businesses of that size.
And then the way that we really generate revenue is on performance.
So just to be clear on that, let me quantify that. Sure or false. More than 60 percent of your revenue is coming from the performance, not that base fee.
false. Currently, the majority is coming through the base fee, but the revenue fee is what is growing much, much faster. As our network grows in size, we transition from charging the SaaS fee so that we can really distribute a network of open global channel partners selling a variety of integrated software solutions worldwide.
Give me an average. What's the average base fee someone's paying you?
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Chapter 6: How does GrowSumo build its partner network?
Do they pay you? Yes. Okay, good. So you've mentioned a few big logos, but I assume you have a big long tail as well. I mean, how many customers are you working with today?
Today, so I don't have a hard number, but I would say just a little north or south of 200.
I, like you guys, have never been able to find a project management tool that I love. You know, my blog writers like one thing, my developers like one thing, my designers like a different thing, and it's so difficult to get them all on the same page. So when I had Roy Mann, the CEO of Monday.com on the show, I was pleasantly surprised at what he told me regarding his traction and his growth.
And I said, maybe I should try this thing. So we now use monday.com. I started with the magazine. We've launched the Latka magazine, solely dedicated to SaaS founders. It's the only magazine focused on SaaS. And my content writers and my designers worked beautifully together on that project using monday.com for project management. I then said, well, let me give it a real test.
Let me see if I can use this for sprints and product cycles with my developers using it as well. And so we did that for Git Latka on our last release. It worked like a charm. Never before have I been able to find one tool that my developers, my designers, and my writers, and myself can use and be happy with.
You know, for me, I do most of my work waiting on the boarding deck about to get on a plane. I have to be able to access this stuff on my mobile device. And it works beautifully. We've been using it for several months now. And I said, Roy, I'd love to introduce this to my audience, but you gotta give me a great discount. Make me a great offer. And he said, Nathan, okay, fine.
If your folks sign up and try it today, we'll give them 10% off all plans if they use this link, nathanlaca.com forward slash Monday. So you can go there, try it for free, and if you decide to start paying, you'll get 10% off. Again, that's nathanlaca.com forward slash Monday.
Generally speaking, strategically moving forward, both in what your salespeople are focused on and what your product's focused on, are you kind of going after enterprise or do you actually see a big opportunity in the long tail as well?
Yeah, so let's take Intuit as an example customer, right? So QuickBooks Online, huge enterprise account. Now there are 500 apps more that integrate with QuickBooks Online. So for every single QB app, they want their partners to not only sell their product, but they want their partners to sell their integration with QuickBooks Online as well.
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Chapter 7: What strategies is GrowSumo using for growth?
So we've never done any marketing, promotion, et cetera. Our heavy investment is in getting these companies set up effectively. So we put a lot of human resources towards the onboarding.
Sorry, I should have said fully weighted CAC, not like Google ads.
Yeah. Yeah. Got it.
So is that right, fully weighted tech, including your humans that are onboarding all that, maybe call it three, four, five grand per customer, something like that?
Sorry, so when you said payback period, I was answering kind of on companies. So how long it takes for them to hit break even on their initial gross sumo investment. Oh, got it. I meant the other side. No, ours are ridiculously low. So the way that we acquire companies is Intuit launches their program. Companies that integrate with Intuit right away want to participate in our network.
Asana does the same thing. Everything integrates with your accounting solution or your task management solution. So those integrated companies want to join. Similarly, we have our own network of 40,000 partners that have solutions that they want to sell, right? They have products that they want to promote. So they go out and speak with these companies and say, look, I want to sell your software.
And easily the best way for me to do it is if you were to use GrowSumo.
Yeah. But even with that, though, I'm sorry, I don't mean to keep cutting you off, but we're running out of time. You have a small sales team inside the 20, maybe three, four people. So when you do fully weighted CAC, I mean, there are salaries you're kind of dividing there. I mean, what do you look at fully weighted CAC or it's not really something you care about right now?
It's not really something that we care about right now. It's not even so we're not even necessarily at the point where those efficiencies and those kind of metrics matter because the growth is very real and pretty rapid.
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Chapter 8: What advice does Luke have for aspiring entrepreneurs?
Last question. What do you wish your 20-year-old self knew?
You know what? Fearless, man. Like, it was... It just doesn't matter there. I read a lot of books on how to start a company early on. And that stuff really kind of slowed me down because you try to be perfect and then you get it out there and it's just not. And I think that that would be the biggest thing was I hesitated a lot until you realize you just can't care.
And then all of a sudden it starts working.
Guys, there we have it from Luke. You just got to go in, get it out there, rock and roll. Starting back at his dad's place, working with NGOs, realizing, wow, the real market here is we're selling ā NGOs through consultants to NGOs. And so they built up this concept, GrowSumo, which basically helps people like QuickBooks and other big folks manage all of their resellers.
They have a base fee that they charge their 200 customers plus performance fee. The performance fee is obviously growing faster. The base fee helps them cover costs. They've raised north of a million bucks, but not any big significant amount of capital. Growing 25% month over month in terms of growth rate. Less than 2% logo churn per month with our team of 20 folks based there in Toronto.
Launched in 2015. Luke, thank you for taking us to the top.
That was through the roof.
Thanks, Nathan.
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