SaaS Interviews with CEOs, Startups, Founders
1661 How Palo Alto Software Broke $14m in ARR Serving SMB's
10 Feb 2020
Chapter 1: What is the history and mission of Palo Alto Software?
pao alto software launched back in 1987 she joined in 2007 now on their live plan product more than 100 000 customers doing somewhere between call it 14 million they broke back in 2012 to kind of their stretch goal 1925 ish coming up here shortly so somewhere kind of in that range what's nice about it is they're totally bootstrapped privately owned cash flow positive which is great using a free tool basically a site with a bunch of organic inbound driving a lot of their growth call it less than two or three percent logo turn in some core
cohorts other cohorts it's more like five to seven but the payback is healthy as well a hundred dollar cac on a twenty dollar account so five month payback there a team of 80 in oregon Hello, everyone. My guest today is Sabrina Parsons. She is the CEO of Palo Alto Software, the company behind the best-selling business management software, LivePlan.
The company is dedicated to serving the needs of entrepreneurs and small business owners and offers an entire suite of software and tools to help startups plan, manage, market, and grow their businesses.
Chapter 2: How has Palo Alto Software transitioned from desktop to cloud-based solutions?
Sabrina is overseeing the transformation of Palo Alto Software from a desktop software company to a cloud-based software company. Sabrina, are you ready to take us to the top?
Absolutely.
All right.
Chapter 3: What types of products and services does Palo Alto Software offer to SMBs?
So tell us what, tell us what the company does. And today, are you a hundred percent pure play SAS or is there still some desktop software stuff?
There's a little tiny bit of desktop software left about, I don't know, 2% of our revenue. Okay. Um, but for the most part, we are a hundred percent SAS cloud. Palo Alto software has a mission of helping people succeed in business.
Chapter 4: What is the pricing model for Palo Alto Software's services?
That's our mission. We're very mission driven and, And the products and content and online tools that we develop are all about helping small businesses and entrepreneurs do better strategic planning, strategic forecasting, and financial management.
And particularly tackling the financial management issues that most small businesses have surrounding cash flow, understanding cash flow, forecasting for it, and being more strategic about their financial drivers in their business so that they are cash healthy and they grow. And as they grow, they understand the cash needed to grow their business.
That's great. And so what do these SMBs and mid-market companies pay you typically per month to get access to all this technology?
Chapter 5: How many customers has Palo Alto Software served since its launch?
So a couple of different ways that they can interact with us. We've got an online content site, bplans.com. And that is completely free. And it's got thousands of articles, free downloadable templates, 500 free sample business plans, the entire business plans that people can look at. And that's all free. And we are big believers in educating.
And we think that when we put out really high value content and we educate people for free, eventually some of them will come back and they'll buy our products. And most of our products are in the range of about $20 per month for two active users. So we really try to focus on products that help make a difference for small business owners, but it's about the price of a latte a week. That's great.
It's hard for them. They have a lot of things they have to deal with.
So 20 bucks a month is a fair average then, huh?
Yes, that's about it.
When did the company launch, what year?
So the company's been around for a long time. The Windows software business launched actually in 1987. I took over the business in 2007 and that's when we really switched strategically from developing Windows software to developing online SaaS software.
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Chapter 6: What strategies does Palo Alto Software use to manage customer churn?
And we expanded our reach from just being a business planning company and providing business planning content and tools to actually providing online strategic financial management tools. So that includes business plans, but also strategic forecasts and really focus more on a modern lean approach to business planning and financial management.
Totally get the product. I think it makes a lot of sense. So since 2007, when you jumped in, how many small business customers have you scaled to?
Oh, wow. Since 2007, we've had over 2 million customers, which is great.
And just to be clear, Sabrina, those are 2 million still actively paying today.
So in different ways and forms, not all in the same product.
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Chapter 7: How does Palo Alto Software ensure financial health for small businesses?
So some of them have come in in one side of the business and bought one part of the product and come in on the other side of the business. And then we have some new products. But yeah, so... Um, and then on the online content site, which is all free, we serve even more. We serve 2 million unique small businesses every month on bplans.com.
Yeah. Hold on, Serena. Sorry. I don't mean to cut you off, but I want to make sure my audience clearly understands this because I want to get to your free model in a second, but first going back to the paid channel for a second. So just to be clear, you've got 2 million small businesses paying you per month on average 20 bucks a month for the software.
roughly that, depending on... Yeah, roughly that.
Okay, so that would mean you're doing about $40 million a month.
So... We don't disclose any of those numbers, but you can do math and you can do separate things. But yeah, so we are- Well, Sabrina, hold on, hold on, hold on.
Something's not matching up there. I mean, that's not just a math error. That's like off by a factor of a big amount. So what's wrong there? Is it you don't actually have 2 million paying customers or it's a higher or lower price point?
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Chapter 8: What are the future growth targets for Palo Alto Software?
We've had over 2 million paying customers in terms of active customers at any given time. the average is different. So it's not necessarily 20, but I don't want to, I probably shouldn't go down the path of lots of numbers because being private, we don't disclose all the numbers. So we don't want people to do backwards math and get to any numbers.
So in a given time in, um, say live plan, we'll have over a hundred thousand pain subscribers, but then we've got, uh, some other tools, we've got Dell Center Pro and Outpost. And so we've got a variety of tools and the live plan on average is $20 a month. On some of our other tools, it's more expensive and we've got other trainings and packages that are in the thousands of dollars.
And we've got other things that are upgrades and they're five or $10. And so we have a variety of offerings. So it's not an average of 20 for 2 million, but we've had, and we've had over 2 million customers in the LivePlan product. They're not all actively paying us right now.
Yeah, so why have they, so why, you said 100,000 active right now, why, you know, the reason I'm asking this, Sabrina, is because we've seen a lot of really great SMB companies. I think Gail at Constant Contact built an incredible business, but she never got the respect of public markets in terms of her valuation because churn was so high.
And it's hard to build a SaaS company in the SMB space because SMBs go out of business. So- So you've had 2 million come through your system. There's only 100,000 active today. What are you doing? What has been the most effective thing you've done to decrease churn?
And 100,000 in the live plan product, but more overall. So in terms of churn, you're right. Customers are going to churn out because of survivability, right? So the average small business starts today and more than 60% of those small businesses that start today will be out of business in five years. So there's going to be a natural turn in survivability. In terms of how we address it,
If you are actively financially managing and planning your business, you have a better survivability. So anyone, whether they use our tools or not, if you actively engage in planning and financial management, you will grow 30% faster according to a research report by a Cranfield University professor who did a 10-year cohort.
There's other research reports like that, that if you actively plan, your survivability is better. So that helps us in terms of overall churn when you compare to, say, any small business tool provider who, you know, constant contact is a utility tool. They're providing an email marketing tool, but they're not necessarily dealing with
the financial management side, which is usually why a business goes out of business. So our small businesses have a better survivability.
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