SaaS Interviews with CEOs, Startups, Founders
1642 How He Spent $150k To Buy Struggling SaaS Copmany, Now At $5M in ARR
22 Jan 2020
Chapter 1: What challenges did SheSoftware face before the acquisition?
SheSoftware launched in 1995. He swooped in and bought it many years later for literally about a dollar, put another 150 grand in to really turn it around. It was doing less than 500 grand in ARR that year when he bought it. And a lot of that revenue was in jeopardy because of a customer conflict. Now today, over 200 customers paying about 25,000 bucks in terms of ACV.
So about 400 grand per month in revenue or about a 5 million annual run rate. That's up from 300 grand a month just a year ago. So about 60% year-over-year growth. Burning money today because they just raised another $3 million. So they've put about $4.5 million into the company. To date, team of 90 in U.S., Scotland, and New Zealand. Economics healthy, 110% net revenue retention annually.
That's from 15% expansion and 5% churn. And they're spending about 18 months of lifetime value, customer LTV, on acquiring the customer in the first place with their field sales team. Hello, everyone.
Chapter 2: How much did the guest invest to turn around SheSoftware?
My guest today is Matthew Elson. He's a business leader and entrepreneur building a motivated team in high-energy business. Owner of SheSoftware, which is a fast-growing SaaS solution to health and safety challenges. He's a leader in the UK entering the US, home in Scotland and Chicago, previously CEO and consultant at McKinsey and member of Prime Minister's policy team.
Matthew, are you ready to take us to the top? Yeah, I am. All right. So tell us about SheSoftware. What does the company do and what's your revenue model? How do you make money? Right. So if you're responsible for health and safety, you need to be able to record and investigate your incidents and follow up the actions.
You need to understand your risks and mitigation measures, make sure your people are trained, assets are inspected, contractors are competent, and lots of organizations, even quite large organizations, are still doing that with pen and paper and Excel spreadsheet. So we provide a solution that helps them to capture and organize that information.
Simple workflows around reminders, reviews, alerts, and then comprehensive reporting.
Chapter 3: What is the current revenue model of SheSoftware?
And help me understand like, yeah, I was going to say, help me understand the revenue model. Yeah. Revenue model. So we sell to mid-sized businesses, 250 up to 10,000 employees. It's a modular solution. So it's a solution sale. We will talk to the customer, try to understand their needs and, And then we will propose a set of solutions and then a number of names users. Okay.
And so when you say mid-market, I was going to say, Matthew, so when you say mid-market, help me understand like from a price point perspective, what are people going to pay on average per year to get access to your technology? Right. So our current average cost per organization is about $25,000 per year.
great okay and it's an annual it's an annual it's an annual renewing contract what is it we typically sign up for three or five year contract and then it renews on an annual basis after that and it's it's cash up front they're paying off three years up front uh no the first year up front occasionally three years up front but as i say if you're getting people to pay all three years up front i want to know what you're eating because that's that's some good cash flow there that would be nice wouldn't it yeah all right put this on a timeline for me when'd you launch the company
So I bought the company. The company's been around since 1995.
Chapter 4: How has SheSoftware's customer base grown since the acquisition?
I bought it in 2011. So I'd been doing consulting and interim roles, and I was interim chief exec of a private equity business that we sold. The partner said, what next? I said, well, more of the same, but I've always been looking for companies to buy without ever super actively searching. They said, why don't you take a look at Sheet Software? So Sheet at the time was small and troubled.
How small? Like, what, you started with less than a million in revenue? Yeah. Oh yeah, yeah, yeah. So like half a million and nine staff in commercial dispute with its largest customer, which was a third of the revenues, right? So it was clearly a turnaround and I backed myself to buy it for the proverbial dollar. Was it actually a dollar? Well, I had to put cash in for working capital, right?
Oh, I see, I see.
Chapter 5: What strategies did the guest use to drive revenue growth?
Other than that, right, it was a dollar and, you know, turn it around. How much did you have to put in to get the turnaround going? Are you talking like a hundred grand or a million or what? Yeah, like 150. That's not horrible. Initially, right? But then I've been bootstrapping it until February last year. So I've been kind of feeding in small amounts of capital.
So initially, I was non-exec, maybe spending a day or two a week with the business. And then four years ago, I realized there's way more potential in this business than was going to be realized with the existing team. So I stepped in as chief exec. And, uh, since then we're going about 60% per Adam. That's great. And what's the team size today? So we're up to 90 staff, 90.
Chapter 6: How does the guest structure their sales team for success?
And what you said, something happened in February related to your cap structures. You raised capital. So we raised, we raised capital in February. Yes. We raised 3 million Sterling. Okay. Um, and that was to do two things. One was to strengthen the top team because we're in one of those transition phases where you need to make sure you've got the right structure to keep the growth going.
and also to seed investment in the North American market. So $3 million is about $3.8 million in terms of U.S. dollars. So total into the company, including what you put in as well, like maybe $4 million, $4.5 million, something like that? Let's say $4.5. $4.5 million. Okay, that's great.
Chapter 7: What is the significance of the recent capital raise for SheSoftware?
And you said the main priority behind that $3 million is really to now go into the U.S. market. Yeah, and strengthen the top team, right? So in the last six months, I've recruited a VP talent, I've recruited a VP product, I've got a new CTO. And so we're kind of making sure we've got the right top team to sustain continued growth. And what have you scaled total customer base to?
How many are you working with today? So we're working with 200 customers. Okay. I mean, that's pretty healthy. Can I take that 200 times the $25,000 ACV that puts you at about 400 grand a month right now? Yeah, we think of it annually, yeah, but yes, it's somewhere around there, exactly. So 400 grand a month would be about five, you've passed five million annual? Yeah. That's great.
Chapter 8: What lessons does the guest share about business resilience?
What's the next big revenue goal? Well, we're pushing towards the 10 million, but the problem is every revenue goal that you say you're heading towards, the investors say, well, if you were a bit bigger, then, right? So it's always the same story. Yeah, and you said you're growing 60% year over year. So if you had a five million run right today, what, you were at about 3.7, 3.6 about a year ago?
Yeah, something like that, exactly. That's great. And help us understand how you're driving this growth. I mean, turnarounds are not easy. Some say turnarounds are harder than starting from scratch. So how did you lead them? Where are you getting your new customers from? Well, I mean, we finished the turnaround a long time ago, right? So we're very much a scale up now. It's a direct sales model.
So we've got a field sales force. I've got sort of 10 new business revenue carriers. And although it's mid-market, it's like an enterprise software sale, right? So it's a six to nine month sales cycle, multiple customer meetings, trying to understand the buying circle, et cetera. Yep. You said you have 10 people doing field sales that are all quota carrying? Yeah, exactly. That's great.
So that's new business size, yeah. That's right. How do you set up the structure of your field sales teams in terms of comp plans? Let me ask specifically. Some people drive incentive around driving expansion revenue from year one to year two of the customer. Some people pass that off from the field sales team to a customer success rep. How do you handle it?
Our new business sales field team are very much new customer acquisition, and then we have internal account management and customer success managers. Are the customer success folks actually, I mean, do they get a commission on expansion they drive or no? Sure. They do. Yeah. So, yeah. So we, so we, we, we drive about 15% upsell for Adam. Okay.
I guess my, my real question though, is there's a big debate about, do you incentivize CS reps, right? With a portion of the expansion, you're saying, yes, there is a part of their salary that is commission based, based off their expansion. Yeah, no, absolutely. So we're looking for them to do two things, right?
Have great customer relationships and retain those customers, but also to look for expansion opportunities. So because we're modular solution, very often we might go in with three modules and then the opportunity is to upsell additional functionality. You just gave me 15% expansion.
Obviously the peeling back the onion one level, obviously gross churn, revenue churn would be right below that, right? So what's gross revenue churn annually? Yeah. So gross, gross 95% retention rate. Yeah, exactly. So, and, and, and net 110. That's great. Uh, yeah, that's really great.
So, so do you see significant opportunity to drive additional expansion or is most of your growth going to come from new customer additions? Oh, right now it's for sure. It's the main priority is new customer additions. Yeah. Yeah. So, so field sales seems the main strategy there. Are you adding any additional layers there to try and grow quicker?
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