SaaS Interviews with CEOs, Startups, Founders
818: AdTech: Spongecell Passes $13m+ ARR, Lets Old Customers Go, $26m Raised
20 Oct 2017
Chapter 1: How did Spongecell achieve rapid growth in the AdTech space?
founder of sponge sell back in 2006 it was a very different company back and they've pivoted many many times really started growing rapidly when they started reporting numbers tank back in 2009 2015 was the last year they reported over over 13 million dollars in arr and at the same time they really started sinking in and getting comfortable with their current product line
which they're scaling very, very fast. $26 million raised, 95 people around the world.
Again, making programmatic ad buying more efficient, especially on a CPM basis, but also they probably have a base monthly fee for folks to just understand and get access to the value that their software's created that helps them test creatives, organize creatives, and really launch multiple, multiple thousands or hundreds of thousands or even more than that in variations all at one time.
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Chapter 2: What is Spongecell's revenue model and how does it work?
So we're full this month, but you can go to getlatka.com to get on the waiting list for next month. And look, there's big people on the waiting list. I mean, the biggest VCs you've ever heard of. You've probably heard of them. They're big, private equity, billions and billions under management. So it's an impressive waiting list. Go get on now at getlatka.com. Hello, everybody.
My guest today is Ben Kartzman. He's the CEO and co-founder of a company called SpongeCell, one of the fastest-growing companies in the United States. Earlier, Ben worked at venture-backed GuideStar in product and business development. He graduated with honors from Carnegie Mellon with a dual BS in human-computer interaction and information and decision systems.
Ben, are you ready to take us to the top? Ready to rock. All right.
Chapter 3: How does Spongecell target enterprise customers and why is it significant?
So, look, I have to hit you on one of the fastest-growing companies in the United States. Back that up. Measured by what?
Yeah, so that's all revenue-driven. So thanks to our friends at Inc. Magazine being able to measure revenue, I think, over the span of three years.
So when was year one?
I think the first year that we measured revenue was 2009, and then that jumped into 2012, and it's kind of continued on.
So what did you report to Inc. in 2009?
Oh, uh, maybe, maybe a couple hundred thousand revenue or maybe, oh, nine was a million. Maybe. Oh, eight was a couple hundred thousand revenue. Okay. Oh, nine was a million.
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Chapter 4: What strategies does Spongecell use to let go of clients?
And then it sort of has grown from there.
And what was, take us forward to 2015.
Yeah, I think we stopped, I don't remember what it was when we stopped, but it was maybe one and one to four and then four to seven and seven to 13 and just kind of kept growing in that.
What's your goal in 2017? I'm curious. Will you break 20, 30 million?
That's the plan.
Which one, 20 or 30?
Yeah, so we're not disclosing full revenue these days because one of our largest investors, but we're on a nice path.
How much have you raised and who's the largest investor?
Yeah, so we've got about $26 million into the company. The largest institutional investor is a group called Safeguard, based out in Philadelphia. Very knowledgeable investors in the ad tech space, specifically. They're a great partner for us.
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Chapter 5: How does Spongecell's technology optimize ad creative variations?
Yep. And what feedback did they give you when they saw the Inc. reporting? They just said, hey, Ben, strategically, you should stop doing this, or what?
So I think, yeah, for them, it's more of just focus on, you know, Inc. I think is great in the early days as you're sort of building and getting growing. And then from there, it becomes less about those awards and more just about execution and client delivery.
Yeah. So just to be clear, who the hell knows if you're the fastest growing now, but at one point you were growing really fast.
yes yeah it's funny i joke with people and by the way guys i we went right for the numbers since it came up and it was natural but i want to talk obviously about sponge on what he's working on but uh it's so funny ben it's so easy my first investor report i ever sent out in my first company we went from like in one month we did like a hundred bucks in revenue and the next month like 200 and i'm like fuck yeah baby 100 month over month growth it's got harder when you're doing 20 million a year
Double revenue. It's tougher. All right. All right. Tell us about the company.
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Chapter 6: What challenges does Spongecell face in transitioning to a self-service platform?
Tell us about sponge. So what do you do? How do you make money?
Well, yeah. So today, Sponge Shell is a dynamic creative company. So we work in the advertising technology space. What we do is we help marketers. We take the data that marketers have and we use that data to make smart decisions around what actual creative digitally to show someone.
So data can be things like we know for a cell phone company, we know that they have someone who is currently a subscriber. is on a certain type of plan, and they want to upsell them into a family plan. Have all that data, we know that, and that's a creative message that we show them. So what our technology does is manage all of those different variations.
So we have some customers that can run up to, like, one customer actually did 80 quintillion different possible creative variations when they mixed. This was a supermarket chain. You can mix price with product.
Chapter 7: What unique customer acquisition tactics has Spongecell employed?
uh description all the sort of content around it and then recommend that to different customers and show three different products in the same piece of creative so the variations can grow very very quickly uh and it's all the logic behind how that happens and then the optimization around uh around that that our technology provides so how are you making money i mean is it a sas platform a flat fee per some usage metric or is it a percentage of spend like how do you make money
Yeah, so we sell a license to the platform, which is a base license. And then beyond that, it's based on usage. So as customers run more impressions, they'll spend more with us to serve those additional impressions.
Okay, so on average, what is this base license? And is it something you bill annually or monthly?
Yeah, so it's typically done monthly, and it can run. I mean, some of our smallest clients are spending, you know, $20,000, $30,000 a year with us, and our biggest clients are spending $3 million a year with us.
Okay, got it. Wow. Okay, so, I mean, it's a huge range. And how many, give me a sense, I mean, are you a, well, this isn't obviously low ARPU, but, I mean, are you working with, what, hundreds of customers or dozens of customers or thousands? Give me a range. Yeah, hundreds. Okay, got it.
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Chapter 8: What insights does Ben Kartzman share about leadership and personal growth?
And are you targeting like 80% saturation of Fortune 1000 or Fortune 500 or down market from them? What's kind of your ideal customer target?
Yeah, and the way the business has grown, we ran a slightly different business, let's say five or six years ago. And we were in actually more of like the six, 700 customer range. So a lot more on the low end, more transactional business, no licensed software.
And as it's moved and morphed into this dynamic, creative self-service platform, it's moving in that direction where we are going after the large enterprise customers. So yeah, the Fortune 100, Fortune 500, that's really where we focus most of our energy.
Okay, so here's a bit. I love this growth story. I think it's really, really smart. People listening, they struggle with firing clients. How do you fire your clients that just they're not a good fit anymore?
Yeah, it's tough. What we did was we raised minimums. So, you know, we phased out certain products when there were certain products we just stopped doing. And then we raised minimums really around those products. And we just said to people, hey, listen, we know you've gotten accustomed to working with us. We know you like working with us.
And it's been great providing you with this level of service over this time.
but you know we're increasing our minimums and i know based on historical spend that's that's going to be tough for you guys we get that we understand why is that is that because like all of a sudden their minimums are like 50 of their total spend and you know that ratio isn't going to fly exactly yeah interesting what is that breaking point like that people are comfortable with is like 20 of spend on the fee or 30 what's the typical breaking point
What do you mean?
Like where you know they're not a good fit for you anymore. Is it when the fee they're paying you is like 20% of the spend or 30% of the spend or 40%? Like when do people typically leave ad tech tools like yours?
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