SaaS Interviews with CEOs, Startups, Founders
1267 Customer Intelligence Platform Powerd by AI Passes 30 Customers, $300k in MRR
12 Jan 2019
Chapter 1: What motivated Derek Wang to transition from academia to entrepreneurship?
Work harder, never give up opportunity. He came out of academia and said, you know what? I want to make some money now. I don't want to be a broke professor. I don't want to get rich. So in 2014, he launched Stratified with his buddies. And now I've got 35 people between Charlotte, North Carolina, Ohio and Denver.
They're serving 30 enterprise customers doing about 300 grand per month today in revenue. That's up about three X from a year ago. So 300% year over year growth there. Each customer paying, call it 10 grand per month. They'll call it 120 grand per year. That's on average across their whole base. New customers today are signing up at an average of about 200 grand.
So they're going upstream, which is great.
Chapter 2: How did Stratifyd evolve to serve enterprise customers?
154% net dollar retention annually. Again, also a healthy number. Willing to spend up to six months of first year ACV on CAC. So about 100,000 bucks in CAC. 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.
Chapter 3: What is Stratifyd's revenue model and customer pricing structure?
Hello, everyone. My guest today is Derek Wang. He's an accomplished, published, and recognized academic leader in data analytics and a business visionary. He spearheaded techniques to analyze structured and unstructured data from resources around the web in order to create predictive algorithms for companies across the globe. This knowledge became the foundation for his current company, Stratify.
Derek, are you ready to take us to the top? All right. Thank you. All right. Tell us what Stratify does and how you make money. What's your revenue model? So we're into a custom analytic platform for Fortune 1500 enterprises.
So our primary focus is not adding just a thin layer of what the company does, a SaaS layer on top of it, but really rethink how in the AI era, a custom analytic can be powered by machine learning and AI algorithms. So we provide a full platform for organizations to improve their customer retention and their customer satisfaction. So we are a product-driven company.
Chapter 4: What role does AI play in Stratifyd's analytics platform?
Right now, we're about 30 different Fortune 500 customers, and they're our value as well. Sorry, you said 30? 30, yeah. Yep, yep. That's great. And give me a sense generally of, I mean, what are these guys, like, what are they paying for? How much are they paying for on an average month? So our initial deal is typically about in the mid six figures.
So this is that subscription, but they're paying this forward to finding out problems throughout their customer interaction data. Primarily, a lot of the data is from the textual side, their call centers, their emails, their surveys, really getting that omni-channel and the customer 360 coming back from their textual data, letting our AI to learn what are the issues, patterns,
So did you say the average customer is paying $200,000 per year for the platform? Okay, got it. But six figures is a huge range. I mean, are we talking like 100 or 200 grand or like 800 or 900 grand? So we got a big swing there.
Chapter 5: How has Stratifyd achieved significant growth in customer retention?
There's a big company paying us about $400,000, $500,000, $600,000 a year. We got typical land deals about $150,000 to $200,000. That varies about how widely deployment of our land deal was. Let's, for example, if it is department level, it will be $150,000 to $200,000. If it is a cross-function organization level, that can go up as high as $600,000 to $700,000 a year. Totally get that.
And I just want to save us time by not going on every customer cohort. Is it fair to say $200,000 is a fair average? That's a fair average. Okay. Tell me more of the backstory here. When did you launch the company? So we launched the company back in 2015 with the Fusion Fund support from Lou, for sure.
And then this is after I've done a lot of work with three-letter agencies in the States, where we're building our tactical analytics using machine learning help organization. I was a university professor before I started the company.
Chapter 6: What is the significance of Derek's customer acquisition cost (CAC)?
And really, with two of my co-founders, my postdoc and my PhDs, we launched this after modeling a lot of enterprise to provide this product for the enterprises. Okay. And again, so what was the first year, you know, the first year had a customer? The first year we had a customer is 2015. So we only shipped code in like less than 24 months. Got it.
And have you bootstrapped the company or have you raised? So we bootstrapped it for the first six months back in 2014. Then we raised about three rounds from 15 to now. Okay. So how much total have you raised today? We raised less than 12 million. Less than 12? Yeah. Yeah.
Chapter 7: How does the company plan to scale and increase its monthly recurring revenue?
Okay. And why decide to raise capital at all? Why did you need it? So essentially it's really a wide risk money. It's really how speed up the speed when we go to market, right? We come up with a technology company and then we need to bring in sales and marketing and all that requires cost.
But we have a very high efficient sales side so that we can grow the sales team to enter the enterprise side. The money for us is a war chest because every enterprise sales probably take 90 to 120 days. So that's the sales cycle we need to weather through as in our business model. I see.
Talking about sales cycles and specifically the cash component of that, what is your payback period today and what are you spending to acquire customers? Right. So it's very interesting. In our line of business, not like any other SaaS, which is months over months based on term-based SaaS model, we are an annual subscription with enterprise.
So typically we go with enterprise side on a net 30 every year, sorry, every contract.
Chapter 8: What lessons does Derek Wang share for aspiring entrepreneurs?
So as soon as our contract is done, they prepay for the first year on the next 30 terms. So our cash flow is very strong in terms of our line of business. Talk to me, though, on a deferred basis. So you take that cash flow. I understand you have no cash gap because it's all pulled up front.
But when you actually recognize that revenue per month, how many months of revenue recognition do you need to have a payback equaling, you know, get all your money back? Oh, get our profit margins in the high 90s. So really, that goes back really quickly to us. Yeah, sorry, not profit margins. I asked the question in a wrong way. Let me try something else. What do you spend to acquire customers?
Oh, our tag rate. So our tag rate is only half of what we are charging the organization. Per year? Per year, yeah. So you'll spend about 100 grand to acquire the customer? Um, average deal size. Yeah. Yeah. Okay. If they're on average deal size, it's 200 grand. Yeah. Yeah. Okay.
So payback period there is about six months all on a deferred basis, but in terms of a cash recognition basis, you're getting it all paid up front. So it's instant. That's right. Okay. And what's the team size today? So we're about 35 people in the US. Are they all based where you're at today in Charlotte? About 32 people are based in Charlotte. We're headquartered here.
Then we have our Columbus office for the central for sales operation. And then we have our Denver office for the West Coast operation. Okay, very good. And then talk to me a little bit more about economics. Obviously, churn is critical in a SaaS business. What is your churn?
Our return is zero, because ours is not typical SaaS SaaS, we're enterprise SaaS, so every turn here give me a heart attack. So we have a good customer success team, so that so far with all the customer we have, there's zero return. So over the past three years, no customers have canceled and nobody has downgraded? Nope. Okay. I that's remarkable.
Number one, number two, I don't think I've done about 3000 interviews. I've never had anyone with literally zero churn. So that brings up two questions. One, you're telling me no customers even downgraded lost revenue. So even if they're still paying you today, no one's downgraded. Because we're just going with total contract value that is committed as we go into our clients. No.
So the way we structure our business is it's a true enterprise sales, right? So they're paying on an annual basis on a subscription. And typically, we provide enough ROI for our customer. We're pushing for a longer term when we're talking to our customer, right? Typically, our... contract years are two to three years.
And those are the ones that they were committed to it for that three year period. Although they're paying year over year, prepaid fashion, but those are locked in contracts. I see what you're saying. Okay, good. That makes sense. So ultimately what's happening here is your sales, you're locking them in on the initial sale.
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