SaaS Interviews with CEOs, Startups, Founders
885 Auction Marketplace will Sell $500m This Year, Takes 25% As Revenue
26 Dec 2017
Chapter 1: What is the main topic discussed in this episode?
Good morning, everybody. I wanted to just quickly remind you, if you love B2B SaaS and you're loving all these CEOs I have on, remember, you can get all of their data in a big, beautiful spreadsheet at getlatka.com. That's G-E-T-L-A-T-K-A dot com. So I hope you're enjoying the month. I love December. I love the holidays. And here is our program for today.
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple hundred thousand dollars to 2.7 million. I had no money when I started the company.
It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode. Hello, everyone. My guest today is Andrew Blackman.
He's the CEO of a company called Top Hatter, the world's fastest, most entertaining marketplace for mobile shoppers, where he oversees ongoing business operations within the company. Previously, he was the CEO of Get Me In. Blackman has both a BA and MS degree from Stanford University. Andrew, are you ready to take us to the top? Sure. All right, what's Top Hatter, and how do you make money?
What's the business model? Yeah, so Top Hatter is a mobile discovery shopping app. What that means, basically, we have an app that that consumers use to buy products through their phones. Most of the products we sell are through an auction format. And it's discovery in that people aren't coming to Top Hat or looking for specific items.
They're coming to be wowed and to find new and interesting products. And that's what we do. So how we make money, we're a marketplace. Sellers post items up through our marketplace and we take a cut of every transaction. What cut do you take typically? So it varies based on the category and the seller, but on average, our take rate is about 25%. Okay. Yeah.
I'm looking at like how this works right now on the site. So like I'm looking at right now, this T8 smartwatch military quality, it says going once, going twice, bid $16 plus $4 shipping and Suzanne is winning. There's 14 bids. Oh, Catco just bid and now it's up to 18. So how did this, I see the real time aspect. Now it's up to 20. Like how are people discovering this in the first place?
Are you notifying them? Cause they bought a watch in the past. How do you bring in the bidders? Yeah, so we've built up an audience over time. So we've been at this for about six years now, actually. In the beginning, you had to build a critical mass. So we would market to people, let friends know, let other people know. We started with a very small group.
We would run auctions for a couple hours a day because we wanted to match the supply of the demand. But now today, we've got millions of consumers coming in. every day and what they do is they set reminders on products that they might be interested in and then they look at the items that are ending right when they're on the site and they bid in this sort of live competitive environment.
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Chapter 2: What is Top Hatter and how does it operate?
You cut out earlier when you said that. So 25%. Yeah. So this year we'll do somewhere between three and $400 million of gross transactions and our take be between 80 and a hundred million. Yep. So good. So you're taking 80 to a million, uh, right, obviously into your pocket off that volume. Do you have any other big expenses besides, uh, paying the seller for the object? Um, well, no.
So our revenue is again, that 25% and our expenses after that, I mean, there's Yeah. Sorry. I was going off the 300 or 400 million. Yeah.
Chapter 3: What factors influence the auction format on Top Hatter?
So, so yeah. So you're paying, I looked at it, I looked at it like you're paying yourself 80 million bucks, right? So the other 75% you're paying obviously out to the seller for that object, or do you have other costs in there? I don't know about. No, that's right. That's so we take the 25% and the other 75% goes to the seller. I mean, I could go into the weeds on that.
There's, there's some stuff that's, that's, that goes, you know, that gets passed through. So for example, we charge the seller sometimes for Shipping, then the seller buys that shipping through us, but that's kind of pass-through revenue. In general, the seller gets about 75% and we get 25%. Our costs after that are really, well, there's a few things.
Chapter 4: How does Top Hatter generate revenue?
There's the cost of running the site and the cost of maintaining what we do, so our gross margin on the 80 to 100 is about 80%. And then below that, we have a pretty big team and we spend on marketing as well. How much do you spend per month on marketing, would you say?
Yeah, so we're not sharing that, but we basically, one of the benefits of the business is that because, I don't know if it sounds like you've been on the site, you've seen what it's like, we get users engaged and bidding pretty actively. So we actually end up getting payback on our marketing spend, usually within about 30 to 60 days. So we end up spending quickly alongside our payback.
So essentially, we're trying to operate the business where we can grow as fast as we can right now and pour back as much of that revenue back into marketing as we can, provided that we've got payback. Yeah, yeah. company is breakeven. We, we essentially are operating at, at breakeven pace in order to grow as fast as we can. Yep. Spending more or less than 3 million bucks a month on, on marketing.
Would you say, uh, again, his face is saying right about 3 million. That's what I'm reading here. I'm just kidding. I'm just kidding. No, I get it. Where are you? Don't tell me how much, where are you spending it? I mean, is this like Facebook ads, Google ads? So our, our, our biggest channel is Facebook. Um, because again, what we do is,
100% mobile and Facebook is the best, most efficient channel to acquire users for us. But we do spend a lot of effort trying to diversify away from Facebook because as great as Facebook is, you don't want to be totally dependent on any one channel. So at this point, we spend on a lot of different channels. We spend on Google, we spend even on TV and radio, constantly trying new things.
As I'm traveling the world on planes, trains, and automobiles, you guys hear it, I'm closing loads of different deals, whether it's buying a company, closing a new account for getlatka.com, you name it, I've got to do it. And part of my issue is signing documents while I'm on the road. So I just found this new tool. I'm using it pretty aggressively. It's called SignEasy.
So you can get started for free at getsigneasy.com forward slash sign. podcasts. You'll see contracts that I've signed there and boy, oh boy, are they big and they work and the app is so easy to use. Get started today at getsigneasy.com forward slash podcast. Have you ever sold any digital products or they're all physical objects?
Everything we sell is a physical object that needs to be delivered. And then when the product gets delivered, that's when the seller gets paid. Yep, you would never consider doing any kind of digital product. What if Netflix came to you and said, hey, we'll give you a great deal on a Netflix monthly subscription. If you sell it, we'll give you this percent.
Yeah, no, we could explore all that stuff. Like, yeah, we're not opposed to it. It's just we haven't done it yet.
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Chapter 5: How has Top Hatter grown its user base over the years?
Yep. And give me, so I'm curious about this. So I just like dove right in like a hungry shark for these numbers. But go back, give me the history here. What year did you launch the company in? So we launched the, I shouldn't say company. We launched the product in 2012. So this is our sixth year. And we've essentially been, doubled the business every year since we started.
So before that, the company, we actually had been around for a few years before that, where we were playing with a bunch of different products, all sort of in a similar space of discovery commerce. But this product that we launched in 2012 was the first that really got a lot of traction and just had a life of its own. And yeah, since then, we've just been growing.
I mean, the experience looks very different than it did six years ago. But the underlying... the underlying idea and the underlying business model is pretty similar. Yep. And have you bootstrapped the thing or have you raised capital? No, we've raised capital. So to date we've raised, um, 35 million and most recent round was $21 million that was really
once the company, you know, the company has been profitable, as I mentioned, been sort of operating at breakeven and we, we raised 21, 21 million to accelerate the growth. When was that? What month year? So, uh, we actually announced that earlier this year, but we actually closed it last summer.
So you're either right now being bought by a big auction house for a lot of money, or you're raising your next round of funding. Which one is it? Well, neither because we're, we're growing. And so, and we're, the thing about being profitable. The thing about maintaining a positive EBITDA is that we control our destiny.
So we raised a decent amount of money, but not a huge amount of money for an e-commerce business of our scale. So we have a lot of options still on the table. But the fact that we're profitable means that we don't have to go and raise another big round. We don't have to raise any more money, frankly. We also don't have to be looking at exits right now. We can be looking at just growing.
And we think that within a few years, This is at least a billion dollar top line business. So right now it's about execution. Yeah, but if you're confident in kind of how your cohorts are performing in terms of your spend and your marketing spend recovery time period, you would go raise a billion dollars.
So why don't you have complete confidence that the current economics will pan out over a larger sample size? Well, it's not about the current economics. It's about option value for the team and for our investors as well. We could go raise a billion dollars to go be as aggressive as we possibly could globally.
But there's a downside to that as well, as I'm sure you're aware from talking to a lot of entrepreneurs. You raise a billion dollars. Guess what? the options available for you as a company in e-commerce is really just one. And that's to go public at some point. There aren't a lot of acquirers out there that can, that can, um, you know, create, create successful.
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Chapter 6: What are the transaction volumes and pricing on Top Hatter?
I'll put it that way. We like the fact that the unit economics are good enough that we get return on that payback, payback on that spend very quickly. We've got over $30 million of cash in the bank today and we can spend aggressively. There might be a scenario where it makes sense to raise more money and go even faster, but that's not on the top of our to-do list.
Where I'm getting stuck, Andrew, is you're saying you're comfortable spending aggressively, but then you're talking about how you still have tons of money in the bank. If you're confident in your growth rate, wouldn't you be spending way more of that? You wouldn't have that big a cushion in your bank if you knew it was going to drive growth.
So you must not be 100% confident that you actually will get a 30-day payback period. There's other constraints to spend as well. So We are spending aggressively and that's why the business is doubling every year and that's why this year we'll do 300 to 400 and double next year.
The constraints, if you suddenly said let's spend 10x what we're spending today, if you go to that tomorrow or you go to that within a week without naturally executing your way there. I want to know, Andrew, all these questions are trying to frame you so you can share the constraints. I'm trying to get at that. What are the constraints?
The constraints ā well, so it's like any other e-commerce business. The constraints are how much it costs for you to acquire a customer and then how quickly you get payback and what the lifetime value of those customers are. And if you take your marketing spend and you go 10x, it's going to cost you something more than it costs you today to acquire a customer. And that's just common sense.
So what we've done is we've been ā relatively conservative, although in some circles you'd consider it aggressive in that we pour all of the contribution back into more marketing so that we grow our marketing spend, but we do it incrementally instead of in one fell swoop. Because if you do it in one fell swoop, there's no way the economics are going to hold.
If you suddenly start buying Super Bowl ads, they're not going to perform. But if you get to a point where a Super Bowl ad is a small percentage of your spend, you can grow into that and perform. Makes a lot of sense. Andrew, let's wrap up here with the famous five. These are one word answers. You ready? Sure. Number one, what's your favorite business book? The Perfect Store about eBay.
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Chapter 7: How does Top Hatter manage inventory and shipping?
I love that book and it goes through a great history of the business. That is this one, which I finished recently. The Perfect Store. It's a good one. Number two, is there a CEO you're following or studying? Yeah, I think I'd have to say Bezos, just with what
Everything he's doing at Amazon, not just in the e-commerce world, but in the ancillary businesses that are actually now fueling his business. It's just awesome to watch and awesome to learn from. Number three, is there a favorite online tool that you have? Yeah, I'll actually also stick with Amazon on this.
I think that the Alexa stuff, I've been using it personally a lot at home and trying to like, make my house a smart house. And that's my favorite thing right now to play with. Number four, how many hours of sleep do you get every night? It varies widely because I've got little kids, but anywhere between sort of five and seven hours, I think is on average. So we'll say six on average.
How many kids do you have? I've got three. I've got a seven, five and one year old. That's amazing. And what's your situation? Married, single? Married. And how old are you? I'm 41. All right. Last question, Andrew, take us home. Take us back 21 years. What do you wish your 20 year old self knew? I was actually looking at this just before I jumped on the, the, the call.
Well, 20 years ago is when Amazon launched. So I guess if I could go back and, or when I was 20, Amazon launched, I could go back and tell myself to buy stock. I would do that. Um, but more seriously, I think that just looking at my career, I would tell myself to be a little bit more patient. Um, I've had a lot of success, but I've been impatient along the way. And I think it's healthy.
Impatience is good, but there's some things that just take time to learn and to understand and, and, uh, you know, there's flashes in the pan that you've got to avoid. So I would say be a little bit more patient. There you guys have it from Andrew at Top Pattern. He would have been a little bit more patient. They launched their product in 2012 and have basically doubled year over year since then.
This year, they'll do between $300 and $400 million in total transaction volume. They take 25% of that, so they'll do $80 million in revenue. This year, they have about an 80% gross margin on that $80 million that they make. They've raised $35 million, closing their last one at $21 million late last year.
They're doing about a million dollars per day in transactions, a $10 to $20 average price point. So doing about 100,000 objects per day on a good day. Andrew, thank you so much for taking us to the top. Thank you.
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