SaaS Interviews with CEOs, Startups, Founders
1565 Why CloudSponge CEO Thinks Killing Agency for SaaS Is Actually Bad
06 Nov 2019
Chapter 1: What is CloudSponge and how does it help companies grow?
Launched the company back in, sorry, yeah, Jay, launched back in 2010. Now about three people full-time on it based across many remote locations. 2% logo turn per month, 350 paying customers, about 100 bucks per month per customer. That's the 35 grand, obviously, per month. That's flat year over year because they've changed their customer mix. Higher ARPU, but lower volume.
They put about 200 grand in the company to get it going. Again, gonna test some things over the next year to see if he can fuel growth again while he keeps the agency on the side. Hello, everybody. My guest today is Jay Gibb.
He's the founder and CEO of a B2B SaaS company called CloudSponge, which sells an address book widget and context API that companies like Airbnb, Nextdoor, Yelp, GoFundMe, and Stitch Fix use to grow their customer bases virally. Jay, are you ready to take us to the top?
do it all right so um people know again when they sign up with maybe airbnb and it says invite a friend and you know get a kickback or get something free i think they understand that mechanism are you the guy powering that uh well they they build their own referral program so they send out those emails and they do all that split testing but the part of that um that ui that we're responsible for is everything that comes after like the gmail button or the yahoo button or the aol button
So we have a few dozen integrations with all the different address book providers around the world, like webmail providers like Gmail and Yahoo. And these companies, they don't want to build all those integrations and maintain them themselves, right?
So we're responsible just to make those address books available inside our customers' websites so that their users don't have to switch between tabs and windows and go try to copy and paste and create a comma-separated list of email addresses, right? just make those address books available really easily for the, for the user.
Interesting. And is this a SAS model? Yeah. Okay. So give me a general, I don't want to go down every customer cohort cause I'm sure you have a ton of them, but for the sake of time, what, what, I mean, what is the average customer pay per year for your tool?
A blended average is a hundred. Just actually, we just breached a hundred a month. We just went over 100 a month.
Okay, 100 bucks per month? Yep. Okay, got it. So you do have a long tail then. There's a lot of kind of gamified little kind of apps, widgets, things like that that kind of build you in as well. Yep. Interesting. Okay, so 100 bucks per month average there. And put all this on a timeline for me. When did you launch?
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Chapter 2: What is the business model of CloudSponge?
Well, it's kind of similar to the Basecamp 37 Signals story where we're an agency. We have an agency with a couple dozen developers, and this is one of the products that we've spun out on our own. So the agency still exists. We still do client work. It's still a services business sort of powering it and allows CloudSponge to have an elastic workforce.
But CloudSponge itself was something where back in, I think it was 2009 or so, we decided we were going to start to you know, try to get into the product game and get, you know, get some more, some more irons in the fire in terms of, you know, passive income sources. So that's kind of where it came from.
And when you spun it out, I mean, is it a clean cap table or, or does the agency own call it 10% of the, of the tool?
Yeah. So it's its own company, its own, it's got its own cap table, but it's, yeah, it's not identical to the agency. There's some differences there.
And do you spend most of your time on the tool or the agency now?
I'm probably about 60, 40 in favor of cloud sponge right now. I'm the one I'm responsible for cloud sponge. But I, you know, I still have work to do at the agency.
But come on, Jay, you know, the margins are way better on a tool than selling people's time. Why not take the leap and go all in on the tool?
Yeah. Yeah. It's a good question. I ask myself that all the time. Are you bootstrapped? Uh, well, if you count like some initial funding that came from the agency as bootstrap, then yeah.
Yeah. Basically how much did the agency put in? A couple hundred grand. Okay. Just a fun kind of initial prototype.
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Chapter 3: How did CloudSponge evolve from an agency to a SaaS product?
Yeah. And so every time we try to do CAC, we'll try to create channel-specific calculations for CAC, and they always end up being awful Anytime we really try to do much like paid acquisition and things like that, it ends up just being wasted money.
So if you're not going to like go all in and really commit to the tool, I mean, or vice versa, I mean, why not pick one and sell the other thing? Either pick the tool, sell the agency, or pick the agency, sell the tool.
Courage, I guess. You're just scared? Yeah. I mean, it's a tough question. Like I said, it's a question I think about quite often in terms of making a choice between them. It is a lifestyle choice, a lifestyle business, I guess, in a lot of ways. And I, I really enjoy doing both. So, you know, at this point I'm happy. I really enjoy my day to day.
Let me, let me push you Jay a little bit on this. So 35 grand a month times 12. So let's call it 420 grand per year right now on the tool. You know, it is flat. So you're not going to get some crazy valuation on it, but I bet you could probably find a buyer for this for call it one or two X AR.
So maybe between 500 and call it 700 K. Let's say you got an offer for, you know, 500, you know, 600 K to sell the tool. Again, will you take that money then go double down and build up the agency? No. Okay. So you said that pretty quickly. Yeah, no, I wouldn't. Okay. And why is that?
I think there's a lot of potential. I think we have a lot of, a lot of experiments left to run, a lot of things left to try on the tool. But Jay, it's flat.
You've tried for two years, right? You've been trying for a while to grow it. Yeah, you're right. So what's going to change? Like what are you going to, what do you think is going to, I mean, what's your plan? What do you want to do differently?
Well, like I mentioned earlier, I think one of the things that I'm really excited about for the next 12 months is focusing on those one-to-many sales opportunities. So building the tool into platforms and establishing pricing models for agencies, building reseller programs, affiliate programs, and things like that. We haven't tried those things before.
So I think there's still a lot of ground left to cover. Uh, and it just, you know, I'm not ready to get rid of it. I think, I think we can do a lot better than 35 K a month.
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