SaaS Interviews with CEOs, Startups, Founders
1737 He Wants Enterprise Customer to Churn to Tackle Massive Technical Debt Issue
26 Apr 2020
Chapter 1: What is the main topic discussed in this episode?
Hey guys, I'm recording this here on April 5th. It's Sunday. Everyone's trying to survive the crisis. Quick note to you guys, we are moving, you know, we used to delay these episodes by, you know, four to eight months after we recorded them in terms of releasing them on the podcast. We've changed that.
A lot of these interviews you're gonna hear over the next many months are gonna be ones we recorded only
days prior we think that's a smarter way to run the show i've made the change so expect more urgent information coming out secondly i am getting destroyed on itunes reviews by these people that say nathan's rude he's hard-hitting blah blah blah which by the way i am it's part of my style it's what works the problem is people that love that style never take the time to go leave a five-star review
So I only get one or five star reviews on iTunes. And right now there's a streak of one star reviews that is driving me crazy. It would mean the world to me, guys. If you're loving the show, you love how direct I am. You like the style. If you go leave a review on iTunes now, if you do that and tweet it to me, text it to me, email it to me, whatever you want.
I'm going to reply with a very special surprise. I think a lot of you guys will really like it is heavy, heavy data oriented. All right. So I appreciate that. Thanks, guys. Enjoy the show. Launched CodeLingo back in 2016 to help solve this massive issue of technical debt. They built the company really around enterprises, which were chasing kind of a $50,000 ACV deal.
Then looked at themselves and said, oh my gosh, we're basically an agency, low margin, high touch, not productized. We want to change this. So they're going down market now, relaunching, really doing marketing strategy. related to going after open source kind of specs and helping folks make their code stronger and adhere to their own essential policies. They raised about $700,000 to do this.
Seven people on the team in New Zealand. They've got about four months of runway left hoping to raise here in the next month or two or at least start. We'll see what happens. Hello, everybody. My guest today is James Meek. He's got 15 years of software development under his belt.
In 2016, he quit his job with Canonical, the company behind Ubuntu, to found CodeLingo and tackle the technical debt crisis head-on. In a 40-hour workweek, a developer spends over 17 hours on technical debt. He's become obsessed with fixing this and unlocking the true potential for development teams. CodeLingo does this by transforming the whole software stack into a big data...
big data problem detects anti-patterns and then automates common development tasks such as code reviews bug fixes and generating contributor guidelines to name a few jesse you ready to take us to the top yep absolutely all right so tech debt is a very real thing it's even harder to actually quantify walk us through what you do and what your revenue model is how do you make money
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Chapter 2: What is technical debt and why is it significant for developers?
We've just started pushing out into the market at the end of last year and just starting to pull up those metrics there. Okay.
But again, so I want to capture more of that story because it's an important pivot. But if you look at your current customer base today, on average, about what are they paying per month?
So right now, the model right now with SaaS is we're just going to beta. So we're not actually charging anything right now. We're just trying to prove the value and try to get it into the hand. Okay, so you're pre-revenue. Yeah. As far as the SaaS model goes, we're pre-revenue.
We did have revenue with some of the enterprises we're working with, but since the post pivot, we're pre-revenue because we're trying to push a new model to go to a bigger scale.
Walk me through what you gave up, the opportunity cost. In the best month you had with enterprises, what was your MRR?
Nothing to write home about. We had one install in a large enterprise. We're looking at So it's going to be around, what we're looking at there was like around a 50K reoccurring annual subscription there. Well, did it actually close? Well, the problem, no, it didn't close. We could have pushed through with that, but the problem is we're a small team.
And we really had to choose one thing or the other. Either we could be, essentially we're turning into like a professional services model, interfacing with these large enterprises. There's just so many touch points with those large enterprises. Or we could become a product-based company and try to crack this SaaS model.
So Jesse, stick with me here. I totally understand you want to tell the story. I want to dive deeper into it. But in your best month, closed MRR from enterprises, about how much, are we talking about a grand a month or five grand a month?
Yeah.
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Chapter 3: How does CodeLingo aim to solve the technical debt crisis?
How much have you raised to date?
Yeah, sure. So all up, we've raised around 700K. The bulk of that came in 2017. So we raised from two venture capitalists. One was Reinventure, which is backed by Westpac. That's one of Australasia's big four banks. And the other one is RightClick Capital, which is part of the DFJ network of investors.
When you push them and said, guys, at the board meeting, listen, we've got to move to an SMB mod. I mean, were they generally on board or what was their pushback?
A hundred percent. Actually, they probably pushed me more in that direction because they jumped on board and they were just looking at the potential of this company and they're saying, Jess, you're not pushing this to its full potential. You need to play bigger. And really that was part of the push.
Yeah, but I'm curious why the correlation of play bigger meant go down market because the exact same line of reasoning could apply to, like we've had a lot of these companies on, for example, QA Rainforest, right? Like they did the opposite of you, right? They're playing, they're selling to devs, right?
And they went way upstream and then obviously they just did a massive merger and it would create a lot of value. So I'm just curious why you're associating going bigger with cheaper priced plans.
Yeah, sure, sure. So that would have to delve deeper into our strategy. Essentially, we're playing towards a two-sided market. So don't get me wrong, enterprise is part of the strategy. It always will be part of the strategy. but it's more of a stage two.
So stage one, what we want to do is develop a really vibrant developer community and make sure that it's really quick and easy for these developers with their knowledge to encode their knowledge and help other developers write better code faster.
How do you measure that? Is it like how many people in your Slack group or what?
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Chapter 4: How did the guest quantify the impact of technical debt on companies?
Sorry. By doing that in the open source community, how does that drive users back to CodeLingo?
Yeah, sure. So basically what we're doing now is finding open source repos that have contributor docs that say, hey, this is our standards. This is how we want contributors. These are the rules we want contributors to follow when they write code to our repository. And then CodeLink goes through, analyzes that repository and says, hey, did you know you're actually violating your own standards?
then we make a pull request which fixes those standards and then it's very hard for them not to accept that because basically they've been shown to not follow their own standards. So then basically you're proving value to the owner of the repository, you're proving value to the company behind the repository, you're proving value to the community of, uh, developers around that.
So it's essentially a bit of a marketing play where you're, uh, by proving that value in a very visible place, you're actually getting a lot of eyes on that. And then that you follow up with that and you say, Hey, did you know we can also automate reviews? Did you know we can also automatically generate computer?
What's your, how many understand the team makeup today? What's the team size? Yeah, sure. So we're pretty small. We're just seven. Okay. Everyone in New Zealand.
Yes, everyone in New Zealand. We tried remote at first, but we just found that we work better under one roof.
It looks so peaceful. You have like the light coming in behind you, the Belgian linen hanging down with the breeze slightly hitting. And I'm like, this is like perfect working environment.
Yeah, yeah, yeah. Middle earth. That's right. I'm actually working from home this morning. It's a school holiday. So I've just got my daughters here. We're at a co-working place down in Dunedin, so that would look much more like your traditional- The house looks beautiful.
I'd work there every day.
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Chapter 5: What changes did CodeLingo make to its business model?
So, yeah, around 4 mil valuation and we raised 540K on that. When we went out, we're actually just looking for a bridge. We're only asking for 300 because we wanted just a bit of extra runway to do the next round. All up, all of the offers we got in, we had about 2.8 mil all up in term sheets coming in.
We oversubscribed just to let on the two VCs we thought would work best with, which is Reinventure and RightClick. And so that's why we extended out to 540K for that round.
Jesse, you must be persuasive as hell. I mean, you basically have no revenue right now. You're building a great user base. It sounds like you have a really incredible piece of technology and you're selling it at a four or five million pre-money violation. I mean, you're a skilled persuader. I just imagine people listening going, wait a second, Nathan, am I getting these numbers right?
I'm telling you, yes, you're getting the numbers right. But again, really what you're banking on is the piece of code and the fact that this is a massive opportunity to go after technical debt.
Yeah, so I think what venture capital allows you to do is act irrationally in the marketplace. And that ability is what gives you the competitive advantage. Because we have this capital, we can do experiments and developments not tied to a more traditional bootstrap model. So yeah, absolutely. And really this is an all or nothing play. And everyone on board gets that.
We're aiming to hit it out of the park. If we miss, we miss. But we're not here to create a small self-sustaining business. We're here to tackle technical debt, which is one of the biggest issues in the software industry.
Very good. All right, let's wrap up here with the famous five, Jesse. Number one, what's your favorite business book?
Um, favorite business book, man, I'm going to really struggle with this.
You can pass, you can pass. Um, yeah. Can I pass?
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Chapter 6: What challenges did the guest face while pivoting the business?
As I showed you, we live out here on a little bit of land just outside Dunedin, and we've got the startup hub down in the city.
How many, out of curiosity, where you are right now, how many Megs up and down do you have on your internet Wi-Fi? Because here's what I always wonder. I always see these beautiful locations and I'm like, I do podcasts for a living and all this stuff.
I'm like, I would love to live in these locations, but I have this fear that I'm going to buy a big, beautiful $5 million house in the middle of New Zealand and then my Meg up and down is going to be like 2020 and I'm going to be like, crap, I can't do interviews here.
Dude, we're the gigatown. So we've got fiber throughout Dunedin and direct connection to the cable. Amazing. We had one small glitch at the beginning of this conversation. Otherwise it's been smooth, right?
Yeah, that's amazing.
And I'm actually, I'm out in the bush right now. I'm just, I'm not even using, taking advantage of fiber here.
This is just broadband. That's amazing. Okay. No problem.
All right. So Trello is a good tool there. Kiddos, three of them. How old are you? I am 38. 38. Last question. What do you wish your 20 year old self knew?
Oh man, where do I start? Um, my 20 year old self, I wish, um, man, I'm just going to sound stereotypical again, you know, just that obvious, just, just believe in yourself, believe in your instinct. Um, Yeah, don't compromise. Don't give a shit what people think. Just find that thing that you're really, really passionate about. And yeah, live for it.
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