SaaS Interviews with CEOs, Startups, Founders
1363 Test IO CEO: We'll Pass $10m in ARR Soon
18 Apr 2019
Chapter 1: What is the main topic discussed in this episode?
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Chapter 2: What is Test.io and what services do they provide?
cherish the ones you love and also on a business side of things remember there is life outside of academia he in 2011 well sorry not he but in 2011 test io was launched by some founders in a couple years later 2016 after a five million dollar round of funding philip joined the company they're now serving 180 customers kind of doing functional testing in the smb space each customer is paying caught four or five grand per month they're kind of in the nine million dollar ar range hoping to pass that 10 million mark soon and
Net revenue retention, they are flirting with the 100% mark. Obviously a really healthy place to get above. Willing to spend three to four months of first year ACV on acquisition. Most of that acquisition cost is tied up in a 27 person or 20 kind of person sales team. They got 40 people between San Fran and Berlin. Again, growing nicely at about 60 to 65% year over year.
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. Hello, everyone. My guest today is Philip Sofer.
He's the CEO of Test.io since May of 2016, and it has been since May of 2016, splitting his time between Berlin and the San Francisco Bay Area. Before Test.io, he held senior leadership roles in product development and marketing at Plumtree Software, Lithium Technologies, and Piazza. Philip, are you ready to take us to the top? I am. All right. Tell us about Test.
I'm guessing it's in the DevOps space, which we know is a very, very hot space. So what do you do?
We provide software crowd testing services to companies. So if you need your software tested by real human beings using real devices in the real world, we have a network of people around the world who like to do that. And you can get that done in as quickly as an hour for an exploratory test.
Okay. And how is this compared to something, you know, I've used usertesting.com before. It's kind of manual. You say who you want to test it and you say, go through this process and it screen records and sends it back to you. How do you differ?
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Chapter 3: How does Test.io differentiate itself from competitors like usertesting.com?
What's your churn today and how do you think about it?
Well, so we think about it basically on a cohort basis. So are we getting better at retaining and expanding the customer's that, uh, that we, that we've been signing on. And so, you know, a couple of years ago, we were not so good at that. Come on, Philip, tell me how bad.
I'm not going to, I'm not going to give up all the numbers, but, uh, what's bad though, North of what, what's bad in general, not, not for you specifically, but in the industry.
Uh, well, I think the industry is, is a, is a, is a weird term, uh, because you have to segment it in a lot of different ways, right? Like if you're a system of record kind of SAS, uh, SaaS company, then your stickiness is very high because the switching costs are extremely high because you hold the data.
Whereas for somebody like us, we're a service and we basically aspire to be, for our customers, a really easy way to turn on software testing and the way that you can turn on more servers if you're Amazon, if you're using AWS or Google Cloud or whatever. So we operate under a slightly different set of assumptions than if we were a system of record.
But anyway, in our latest cohorts, we're close to 100% net revenue retention. Per year. Yeah, on the cohort basis.
Yep. So that's a combination of expansion revenue, more and more making up for any lost revenue. That's right. Yeah, that's great. CAC, what's CAC look like today and how aggressive are you being on payback periods?
Well, CAC is good for us. I mean, our CAC to LTV ratio is really good. And so I'm not going to I'm not going to quote all the numbers, but we don't spend a lot of money on marketing. So our customer acquisition costs are fairly low.
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Chapter 4: What is the pricing model for Test.io's services?
What's your total team size today, Philip?
I'd say the team totally in both geographies is 40 at this point. And what are the two geographies? Where are you guys based? So there's a group here in the United States in the Bay Area. And then there's another group in Berlin.
Berlin. Okay. So 40 people. And how many of the 40 are based on like sales or marketing or onboarding?
Well, sales, I would say, is about half of those people. Marketing is one full-time person. And then we have a customer success team as well, which is not sales and not marketing, more on the onboarding side, I guess you'd say, and that's about seven people.
Okay. So call it 27 people, you know, or maybe 28 people total. That's, you know, out of 40, that's actually a pretty significant chunk, right? So you're not doing any direct paid spend, but if you did take a fully weighted CAC, you do have significant cost with obviously all those salaries. What do you like to see? Like how quickly do you like to get your money back in terms of payback period?
Um, three to four months. Okay. That's super healthy. Now, was it, was it really bad when you joined? Because again, they had 5 million bucks of play money and they were kind of overspending on acquisition or no?
No, it's never been bad. I mean, this has always been an extremely capital efficient company. So as much as I would like to take credit for going medieval on CAC, that was definitely not what we were doing. And I think where we've gotten better, we've gotten a lot better at sort of the onboarding process, the customer success process. I don't I put those folks as part of CAC.
I put them as, because they do, They're not just about acquisition of the revenue. They're really about the lifetime customer success and retention. So I think about those folks differently than I think about salespeople or marketing people.
That's interesting. But I mean, if you didn't have that team, right? And these people, you could say we acquired the customer, but they churn after three months because they weren't properly activated. That activation team is, I mean, it's critical to you being able to hit your payback period targets and your lifetime value targets.
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Chapter 5: How does Test.io define its target customer base?
Are you raising capital today?
Not that I want to talk about. I mean, I'm like, I'm not out raising capital for VCs.
If you did have additional, you know, an additional 10 million bucks, where would you spend it? Have you identified kind of a growth channel?
Yeah, I mean, I think, We have historically spent not as much as we might on marketing, specifically on getting our name out there, brand recognition kinds of things. If we were marketing aggressively to what I call the enterprise companies, that is companies that are really big that rely, for example, on analyst reports and so on, we're not We're not in that world.
Yep. Yep. Um, QA symphony just went through an interesting merger. The combined company is probably going to be caught between 80, 85 million bucks in ARR. Um, if they approach you and say, Hey, we want to buy you guys for 80, 90 million bucks. Do you sell the company?
I couldn't answer that. Um, but it, I mean, it obviously like everybody's got their price.
Let me ask you a different question. Whose decision is that to make? Do you have enough of the company where it's your decision or is it really kind of turn river and the other investors?
Um,
I think it's a board-level decision, obviously, to sell the company.
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