SaaS Interviews with CEOs, Startups, Founders
39 Year Old Public SaaS CEO Doubles Revenue to $400m Over the Last 24 Months - His Genius M&A Playbook
23 Jul 2024
Chapter 1: How did Savneet Singh double PAR's revenue to $400 million?
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We have less than $10 million in the balance sheet and we're a public company. He's effectively bought for $400 million of cash in stock, two companies totaling $80 million of top line revenue. Three months ago, we won a deal that was $23 million of ARR with one customer. Which restaurant are you guys most penetrated in right now in terms of the checkout terminal? Most penetrated?
Gosh, our largest deal is Burger King, but we're just starting to roll them out. So you'll probably see us in Dairy Queen, Arby's, Five Guys, Sweetgreen. So you guys can see the logo here. You see it up here. When you guys check out on the station, that hardware is par.
And to describe how that legacy business, the audience can see sort of how this flatlined and then what you did when you came in. So we were actually founded 56 years ago, so well before any of the management team was born. And we were originally a defense contractor. We sold IT services to the Department of Defense. Our company was called Pattern Analysis Recognition.
We were Palantir before Palantir, so we were a little bit ahead of our time. Fast forward, in 1978, our founders invented the point of sale terminal. That's the device that you see the McDonald's cashier banging on. In 1982, we went public off the success of McDonald's, actually saying, we're going to use that device across all our stores. We had a bunch of success, call it in the 80s.
In the next 25, 30 years, we sort of had a long, slow decline. And it's primarily because we got stuck as a hardware and services company. So you'd buy our hardware and services, and you'd buy the software from Oracle or somebody else. And then in 2014, we bought a small software company. 2018, I came in and started running the company on this idea that the restaurant was going to the cloud.
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Chapter 2: What challenges did Savneet face when taking over as CEO?
And I thought the point of sale was going to be the fulcrum product. And a lot of times, I think about your careers are oftentimes built off of picking the right end market. You can see really smart people banging their heads trying to build a $10 million revenue business, where if they put their efforts into a different industry, it'd be a $100 million business.
And so what was fascinating about restaurants was they were just going to this idea of digital transformation. Every part of the workflow was becoming software. And we thought that the point of sale system would be the place to build off of. This wasn't an easy recruitment, though. The board sort of stuck to it and said, Sabneet, please lead our CEO search. Yeah, I said no for a very long time.
So I got on the board. This is a true story. I got on the board, I think, February, March of 2018. And then within two or three months of joining the board, our prior CFO literally got sentenced to jail for stealing money. We were under DOJ and SEC investigation for bribery and corruption. Our employee NPS was negative 60. Our customer NPS was negative 50.
So don't complain if your co-founder quits, OK? And so I went to the board and said, hey, I know I'm the young guy, but I've got to go see what the hell's going on. This is a little scary. This is my reputation. So I went and met the management team. And I went back to the board and said, my advice is we sell the company.
We do have this really cool product, but it's like a few million dollars of revenue. And we've got $175 million of very average revenue. And so it's going to take forever for the software business to become meaningful. And so it's just not going to work. And so while it's a great, amazing product that has tremendous potential, point two is we're a structure setter for failure.
We have less than $10 million on the balance sheet, and we're a public company, which is kind of crazy. We have a culture where everybody doesn't swim the same direction. I remember asking all the executives, what's the best job you've ever had?
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Chapter 3: How did M&A strategy contribute to PAR's growth?
And I literally went to the top 10, 11 people. And nobody said their current job. And that's crazy, because I was on the compensation committee. And you'd think somebody would lie to me and be like, oh, this is the greatest job I've ever had. And literally nobody said the same, that this was their current job was their best job. And then I'd say, what's the vision?
And everyone didn't have the same vision. And then, not to mention, we had this SEC investigation, DOJ investigation. We had two activist hedge funds come in trying to sell the company. And so I was like, let's sell the company. And the board is, unfortunately, as boards do, sort of said, hey, no, let's find a new CEO. So we spent a few months being CEO.
And every month they said, take the job, take the job, take the job. So when I actually got the CEO job, it was really like, all right, nobody wants to be the CEO. We'll sell the company if you become the CEO and sell the company. And so that's how I got the job.
On that note, over the next 18 minutes, we're going to talk about product strategy, operation strategy that Savneet executed, and then also M&A strategy. I first want to start off with public markets, though, today, because at that high point, your revenue, 2.1 billion valuation, his revenue was half of what it is today. But today's valuation is half. What's going on with the public markets?
Not half, like a fifth. So, you know, markets go through cycles. And that was sort of the poster world where any enterprise software company was getting multiples that were wild. So you think you were overpriced at that peak? Oh, yeah. We had $30 million of software revenue at that peak. $30 million. $2.1 billion valuation. Yeah.
Now, we had a couple hundred million of other revenues, but maybe that was worth $300 or $400 million.
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Chapter 4: What is the significance of public market valuation for SaaS companies?
But still, we were 30, 40 times ARR. And so I started going to our board and saying, we've got to take advantage of this. And so we went out. We bought a half a billion dollar business called Punch that's based here in Austin. now, and we started using our stock because we thought it was very inflated. And so it was the greatest we ever did because it gave us tremendous scale.
We used an inflated currency. And so the way I think about it is we're a $30 million SaaS business that had a $2 million valuation. We bought a 30- Are you doing Task right now or Stuzo? Neither. I'm doing the 2021. Oh, punch, punch. Okay, got it. Yeah, so we were $30 million revenue that was worth $2 million.
We bought another $30 million business for $500 million that was growing faster, had better retention, and for 25% of our value. So it's like a great deal. It's sort of like trading in a very overpriced thing for double at half the price. So we felt it was kind of an amazing strategy. Fast forward, we kind of realized that, gosh, that M&A motion worked really well.
We were able to combine the companies well, integrate our cultures really well. And so in the last couple years, we've started to accelerate on that M&A path. So just so you guys can get your bearings, Savneet's named CEO right in 2018. He's officially coming and taking over. This is what the product strategy looks like in terms of the buckets. You correct me if anything I say is wrong.
I'm just trying to get through this so we can get to the good deal stuff. The upper left point of sale was the core business. Everything else is where Sabneet's trying to take the company now in terms of growth, in terms of product strategy, et cetera. So my question to you is, because a lot of software founders I think mess this up and wonder why they don't have the success, is sequencing.
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Chapter 5: How does Savneet prioritize customer needs in product development?
You have to do the right things in the right order. You can't just do the right thing. So how do you decide how to do stadiums, for example, before hotels? You've got to listen to your customers. I mean, I think business is a bunch of logical decisions oftentimes. And you've got to have, particularly enterprise software is different.
If you're Apple and you're Steve Jobs, you've got to predict the future and tell people where they're going. But enterprise software, there's a little bit of that, but it's a lot more of listening to the needs of your customers.
If I went to our customers at PAR today and said, hey, instead of me telling you your normal QBR about our product roadmap, I'm going to tell you about the future of AI, they'd kick me out the room. Because they're going to say, no, no, no, that's really cool, but how are you solving my problems today?
And so in enterprise software, I think one of the biggest mistakes CEOs do is you get really big, you get farther and farther from your customers. You create org charts that are completely functional, where you have one CRO, one CPO, so on and so forth. And the decision makers get farther and farther and farther from the customer.
And so what I work really aggressively is how do we constantly redo our org charts so that leaders are closer and closer to customers. And so that's kind of how we got there. And it's really simple. Restaurants are no longer growing in the United States, right? It's like we're over retail, we're over restaurant. And so the growth of units of restaurants is now in stadiums.
It's in convenience stores, EV charging stations. It's not going to be in that new box. And so we wanted to kind of pull our products in that way. And so that's kind of how you figure it out. But you have to just listen to your customers intently and then obviously listen to your developers. And they'll sort of tell you what they're hearing from the customers as well.
So Sabneen is not only listening, he's driving both organic growth and inorganic growth. Over the next six minutes, we're going to talk about the inorganic growth, what that means is acquisitions, buying revenue. If I ask you guys today, just to run through this math, I'm going to ask you to yell it out. If you guys saw a $20 million or $30 million software company today,
with $5 million of true profits, right, Ben Murray?
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Chapter 6: What are the key factors in executing successful acquisitions?
Not like someone with adjusted EBITDA where there's not real money at the bottom. Like true money profits, $5 million. So 30 top line million, $5 million at the bottom. What would you guys pay for that company? Just think about it for a second. 30 million top line, $5 million EBITDA. What would you pay? On the count of three, yell it out. One, two, three. It's a tough comment.
Jor, what would you pay? $150 million. Any other? Anyone else? You think that's high or low? Matt, you've taken the over the under. You've sold a company. You think cheaper than 150. These guys, they're just like, wow, you're a great dealmaker no matter what. Okay, we'll put this in a button. I'll put it in a button, then let's have me break it down.
He's effectively bought for 400 million bucks of cash in stock, two companies totaling 80 million bucks of top line revenue, and over 20 million bucks of profits. So 20 million of profits into 400 million. You guys can do that. That's a 20x EBITDA multiple. There's some SaaS founders that are like, I'm not going to sell unless it's a 20x top line revenue number. He's paying 20x EBITDA number.
So break down the first acquisition. How did you get tasks done.
Chapter 7: How does Savneet manage cultural integration post-acquisition?
Yeah, and listen, I think just on the valuation thing, I think it's important for everyone to remember that software is not software is not software. Not every software company is going to say multiple. So you can have two different companies with the exact same metrics, and they shouldn't trade the same. And so you've got to be very specific about what you're acquiring and what you're buying.
You can see software companies going at 100% that trade it three times. And you can see several companies growing 20%, they'll trade it 10 times. And you have to be very discerning about how you think about that. And the stuff that we look at at PARS, we obsess over, A, how sticky is that end market? In the end, you can't outgrow the churn of your end market.
So if you're selling to an end market that is churning, You can pretend you have high net retention, but in the end, your cost of capital will be very expensive because that end market is turning super fast. So if you're selling software to Uber drivers, that's going to suck because those guys turn over a lot.
If you're selling software to McDonald's, that's a great business because McDonald's is probably not going out of business anytime soon. So we acquired a business called Task. It's based out in Sydney, Australia. They are $47 million of ARR. We obviously undercut the numbers a little bit. They are McDonald's loyalty solution international.
So if you go to France and open the loyalty app, that's Task. If you go to Japan, you go to Italy, The app is beautiful. It changes language. It changes menus, currencies, payment. I mean, it's incredibly complex. Six billion API calls a month. Real scale. And so we discovered them because they do that for Starbucks in Australia and McDonald's, a bunch of other brands. And we were all US-based.
And the challenging thing we were finding out was our US customers, think of it as big US restaurant chains, are growing more outside the United States than in the United States. And so we wanted to do more.
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Chapter 8: What advice does Savneet offer to founders considering debt financing?
When you said that on the call, I didn't believe that. Because I'm going, well, all the McDonald's in, obviously, Russia have now shut down. The US economy is killing it. Why is McDonald's not growing faster than the US? Because the footprint's already been built out. And by the way, McDonald's is the only one that's growing in the US again.
They've sort of made a commitment to redo their store footprint. But the vast majority, like Popeyes, super fast growing chain, they've got 900 store openings, 800 international. And Burger King's the same thing. It's just because we are over-restauranted here, and so the growth is international. And so we wanted to kind of follow our customers.
And the challenge was, when we started the company, our ARR, sorry, when we took over the company, our ARR was less than $10 million. Three months ago, we won a deal that was $23 million of ARR with one customer a year.
And so as we've gotten to these bigger and bigger customers, we realized that we can't just be like, oh, we're just going to service in the US and find something else international. And so this is super synergistic from a product strategy perspective. We bought the business for less than four times ARR for a business that's been growing 30% a year with 100%
almost 100 well over 100 net retention gross retention at 96 97 i mean these met it's just really hard to find assets like this and the reason we convince them is you know we i used to joke that i wanted to start the berkshire hathaway software um but what i realized was uh we're a growth business but when you're a founder and you have to make that decision to sell your company you still want your product to succeed and so the reason we were able to convince um you know daniel pause right there
He'll tell you how I convinced him in the VIP room after this. So what you see here, we've got to hold that. It's a genius story. What you see here, though, I'm putting this up here because this is how a guy like this thinks about buying a company. You guys a lot are at the stage, revenue-wise, that you have, if you want to sell, someone like this that you'd like to buy you.
This is how he sells it internally. So notice it's not just financial metrics. It's the usage-based metrics you see up on the screen. Talk about some of the usage-based metrics you love. A lot of things I ask for in the second round of diligence is I want your telemetry data. I want to see are people actually using your product.
Because one of the things I find fascinating is product-led founders are amazing at building product, but they're very bad at rationalizing product. And the reason why you want to rationalize product is not just a P&L exercise, which is, hey, you've got too much work going on on parts of your product that your customers aren't using.
It's actually you are starving the investment in the products that people are using. So if you've got a product that has 25 widgets on it and five widgets are being used, those 20 widgets that you're spending money and time on are actually taking away from those five. And so I love to get into the weeds.
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