SaaS Interviews with CEOs, Startups, Founders
737: 3000 Hotels Are Paying Them to Optimize Pricing, Investors Put in $50m
31 Jul 2017
Chapter 1: What is Duetto Research and what do they do?
They launched in 2012, three co-founders, now 105 people helping hotels and specifically hotel locations better optimize their pricing. They raised $51 million, serving over 3,000 individual hotel locations, paying on average 17 grand per year.
So they will very soon be doing about a $50 million run rate, 75% gross margin, which they've really like tripled over the recent future, which is incredible how they worked that fixed cost structure to drive more growth and bring the margin up over time. Additionally, again, spending about 20,000 bucks on CAC, so super healthy payback.
period about healthy payback period at about 14 months again based out there in san francisco and vegas this episode 737 coming up tomorrow morning i talked with mariano the question is is he the future of design collaboration well folks 1200 customers are paying him and three million dollars every year my answer would be yes what's yours but first here's today's episode
This is The Top, where I interview entrepreneurs who are number one or number two in their industry in terms of revenue or customer base. You'll learn how much revenue they're making, what their marketing funnel looks like, and how many customers they have. I'm now at $20,000 per talk. Five and six million. He is hell bent on global domination.
Chapter 2: How did Patrick Bosworth leverage his MBA for business growth?
We just broke our 100,000 unit sold mark. And I'm your host, Nathan Latka. Hello, everybody. My guest is Patrick Bosworth. He's the co-founder and CEO of a company called Duero Research. and his focus really is driving vision and growth at the company. He has nearly two decades of experience as a leader in the hospitality, technology, nonprofit, and government sectors.
He also holds an MBA from Harvard. Patrick, are you ready to take us to the top? Yeah.
Chapter 3: What unique pricing strategies does Duetto use for hotels?
All right. Is your MBA from Harvard worth anything in the startup world or no?
Yeah, I don't think the company would exist without it. Tell me why. Well, so the company was started through a section mate of mine convincing me that there was an opportunity to build a tech business here. And then he introduced me to one of my co-founders, Craig Weissman, who is the chief technology officer of Salesforce.com at the time and was looking to found his own business.
And then in the fundraising process, whether it's the just way the world should run or not, it definitely created a lot more credibility that I had an MBA from Harvard. Another co-founder had an MBA basically from Cornell. And my third co-founder also went to Harvard. And
Chapter 4: How does Duetto's business model generate revenue?
Those networks are very strong, and it helps you get meetings with venture capitalists. And that's how we raised our first round.
For a young student listening right now that doesn't want to go through the work of actually completing a degree at Harvard but sees the value in the network like you do, is there a way to hack that? Is there a way to get access to that network without actually going through classes for four or five years?
Um, yeah, there are. Um, I, I, I think that you do get other benefits other than just the network by, by going through, I did the two year program, so it wasn't a four or five year commitment. Um, but, uh, so in particularly in my case where I was going from a non-traditional background, having, um,
worked in the arts as an actor and singer to then working in politics, it was really helpful for me to have a grounding in business terminology, the way businesses work, meet a lot of people that had worked in banking and consulting and other things that had a lot to teach me, aside from just the network. There are abbreviated programs.
So there are things like the Executive Education Program, the Advanced Management Program,
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Chapter 5: What challenges does Duetto face in the hotel industry?
and other short courses that you can take that give you access to the network. So that's the primary interest. Now, they tend to be expensive. So it's like 60 or 70. I think it's like 60 or 70 grand. I mean, don't quote me. I don't know the pricing. But I think it's like $70,000 to go through an abbreviated program that then gives you full access to the alumni database.
You can put it on your LinkedIn and and start kind of networking in that circle.
Chapter 6: How has Duetto achieved a 75% gross margin?
Maybe that's what I'll do. I'll raise a VC fund. And all I will do is write a hundred grand checks to smart people to go through the program so they can get access to the network with a guarantee that I get 5% of whatever company they create coming out the other side. Tell me more about Duetto. What do you guys do? And what's your business model? How do you make money?
We are a hotel software company. We leverage what I would refer to as medium data, not really true big data, but large data sets to help hotel managers at the property level make smarter decisions about their business. Like what?
Chapter 7: What factors contribute to Duetto's customer retention?
So our first product is pricing optimization. So we pull in a bunch of different signals of demand at the market level and for that particular hotel and help them pick the right price for each customer segment, each channel, each room type for every day for the next 13 months. And in general, that increases their revenue by anywhere from 6.5% to 8.5%, which increases their profit by...
75 to a hundred percent.
What is the, I mean, how do you make money on this? Is it a software as a service product or you're taking a cut of revenue rise you generate or what?
Most of it is just a subscription payment that's paid annually that's based on the product that they're buying and the number of rooms in the hotel. We do have a performance kicker that allows us to get a share of the upside and helps align our risk with the client. Surprisingly, hotel companies typically want that to be a small part of the deal.
Of course.
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Chapter 8: What advice does Patrick have for aspiring entrepreneurs?
Why is that surprising to you? That's what I would have guessed.
Well, I think I thought particularly in the earlier stages of our company when we weren't as proven, I would have expected them to want us to take on more of the risk and then make money more on the upside.
But because of the fragmented nature of the hotel industry where you have a separate party that owns the property, another one that manages it, and then another brand that could be on the outside of the building— getting alignment among those three parties can be pretty complicated. And what they want is to know what their expenses are going to be and have a fixed price contract.
And so anytime we try to do a more variable contract, a pricing negotiation that might take one to two weeks would drag on for one to two or three months. And so they wanted to limit the risk. But having some of our fee at risk does give them the confidence that we're willing to kind of um, put our own, uh, livelihood and, you know, behind their success last month.
What, what percentage of your revenue came from just the flat SAS model versus the, you know, Hey, we got a percentage of the upside. We created a model.
I'm not certain, but I'm guessing it's about 5% from the variable.
Oh, got it. Yeah. Okay. Yeah. So this definitely is like 80, 20, even, even more sharply at like 95, five, something like that.
Yeah, it may have been 7% or 8%, but no more than that.
Yeah, yeah. Okay, cool. So take us back. Actually, help us understand kind of averages here. So I imagine you have all kinds of cohorts of different customers that you're selling to. Who are you actually selling to, though? Is it the person that owns the building? Is it the Marriott that operates the building? Who's the buyer?
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