SaaS Interviews with CEOs, Startups, Founders
924 How to Spin a Million Dollar SaaS Company Out of Media Agency
03 Feb 2018
Chapter 1: How did Matt Britton transition from MRY to Crowdtap?
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 of 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 Matt Britton.
Chapter 2: What was the strategy behind spinning off Crowdtap from MRY?
He's America's leading expert on the millennial generation, having consulted for over half of the Fortune 500. In 2002, he founded MRY, which he grew to 500 employees and was acquired in 2011 by The Publicist Group. In 2016, he joined CrowdTap as CEO, which is what we'll really focus on today.
That's a company that was spun off from MRY and was since focused on bringing CrowdTap's real-time consumer research product, Suzy, to market. Matt, are you ready to take us to the top? Let's do it. All right, so break this down for me. So back in, I think it was between 2009 and 2016, you were listed as the founding partner and chairman of the board at CrowdTap.
How did CrowdTap get created off of MRY?
So MRY was originally called Mr. Youth, and it was called Mr. Youth because we were founded on the premise to help big brands target teens and college students, basically right when the internet was starting as a thing, not to date myself, but It's the reality. And one of the things we were doing back in the day is we had these major student rep networks.
So we had student reps for Microsoft and P&G and Coca-Cola, and we built the software to manage and measure them. Then when bloggers, which became influencers, kind of took off, we had a lot of third-party agencies and companies asking if they could license our student rep software to manage their own blogger platforms.
So I saw a business opportunity, so I took a couple developers, put them in the corner of the office, didn't let anyone mess with them, and they essentially incubated a new company, which we spun out, which would become CrowdTap. And we so we spun it out of the agency, raised venture capital, put in a different CEO. I continued to build the agency and sell it.
And then when I left the agency after it was acquired, CrowdTap was kind of right there waiting there for me.
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Chapter 3: How did Crowdtap achieve rapid growth in its early years?
So I'd always been involved on the board, but I was obviously running another company. So I didn't have time to run both companies like Jack Dorsey does. So I left and I joined and it's been great, great experience so far.
When you spin a company out of a larger agency like this, what does the cap table look like in the new company? Does Mr. Youth actually just, is it listed as Mr. Youth or is it listed as you or how does it look like?
So the cap table's mirrored. So we actually did that after we had sold. What does that mean? So basically what happened is, before we spun it out, we sold a big piece of the agency to a private equity firm. Um, and the private equity firm had different kind of pieces to it. So the cap table was already not just the employees, but there's a cap, a private equity firm that was in there.
We basically took the same cap table that existed for Mr. Youth and And that became the cap table for Crowdtap on the individual basis. But then very quickly thereafter, we raised venture capital from some big-time venture capital firms. How much? We've raised to date about $15 million. Our first round was, I believe, $6 million.
Foundry Group being the lead investor out of Boulder, who's a really prominent VC who I absolutely love working with. So once they put money in, it really changed the cap table kind of instantly anyway, and they were really two different companies.
So let me ask you a question. Your first big thing once you spin this company out is you've got to go find a CEO. But if the cap table is mirrored as the agency, I imagine you have to convince the private equity people and everybody else, hey, this is the CEO we should go do. How did you manage that decision?
Well, the CEO actually was the person who was kind of the lead product manager and crowd type within the agency. We just kind of took it and run with it. We didn't have to bring in anybody new. And Brandon Evans did a great job, took it to a certain point. Then we brought in an outside CEO. And then I replaced that outside CEO when I joined.
Okay, that must have been an awkward conversation. How did you manage that? Did the CEO you brought in kind of know that you are selling your media company and you would join as CEO and he was only going to be there for a year or two? How did you manage that?
It just kind of worked out that way. It was timing. We mutually decided to part ways with the CEO. the same time that I decided to leave. It actually wasn't even completely aligned from a timing standpoint, because as you know, I was running an organization called Summit Series for about a year in between. And then, you know, the opportunity arose for me and I decided to join.
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Chapter 4: What challenges did Crowdtap face in the influencer marketing space?
So it wasn't really planned in advance when we had hired Brandon's replacement. It was just more timing and it worked out that way.
Okay, let's dive more into the business. So obviously Crowdtap, remind us again, what year you spun it out?
So we spun it out of the agency at around 2010, 2011.
Okay, 2011. And I believe my research team is unbelievable. TechCrunch reported in 2011, you guys, I think hit a million in AR that first year. Is that right?
Yeah, but you know, CrowdTab, it's interesting because Influencer marketing, in my opinion, is never going to become a fully programmatic software solution. In fact, there hasn't been one influencer marketing company that sold for $50 million.
And the reason why is that when you deal with people, especially higher level people that are represented by William Mars, you have to give them creative briefs. You have to get back to them. You have to ensure brand safety. It's not something you're ever going to be able to push a button and do.
So I think the business model of Crowdtap being a pure play software solution as an influencer company was never really something that had the potential to be as The company really exploded early on. But the reality is that the market kind of caught up. And when I came in, there was definitely need to disrupt and reinvent the model of Crowdtap.
But yes, it did achieve a lot of revenue very quickly as a byproduct of being incubated in the agency. And it's just having so many brand connections versus being incubated by engineers who really didn't understand how to sell, you know, how to sell advertisers.
Yep. Now, tell us about your business model today. So I assume it's a SaaS model. What do people pay you on average per month?
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Chapter 5: What is the current business model of Crowdtap?
incredibly successful as giving our clients real-time insights. There's game mechanics behind the Crowdtap platform, where if a client asks a specific segment of our audience a question, they get answers back immediately. And that's something that is a pure play software business model, because it doesn't involve people, it doesn't involve creative, et cetera.
So we're taking our creative and our kind of influencer business, and that's staying as Crowdtap, and it's going to be more of an agency model. And then we're rebranding our software platform, Suzy, as a business intelligence tool. Which is kind of funny. It's cyclical, right? So we spun off a software company from the agency. Now we're spinning an agency off the software.
But I think that's what you have to do as the market evolves.
So why not ā I mean 2012 was a hot year for this. So I played in ā my first company was called Heyo.com. We were drag-and-drop Facebook applications. So I was very much in this. We raised less money than you, but we raised capital, grew to a significant amount of ARR. And in 2012 ā you know, we had many offers to sell because it was so hot.
You remember Wildfire and Volver, Bitrue, Buddy Media. I mean, you know, why didn't you decide to sell in 2012?
I mean, in hindsight, we probably should have. I think that, you know, when you have VC investors, they swing for home runs. They're not about singles or doubles. And while the company had grown, we were certainly not at the home run level. We maybe could have convinced the buyer that, you know, we were, but it's just not something that we decided to pursue at that point. The company was growing.
Um, but you know, I think it's going to be fortuitous because this second time around, I really think we're building the business the right way with a true software solution, um, on our marketing intelligence side. And we're seeing incredible results already.
Yep. Now in 2014, you guys were on the Inc 5,000 list and they put up there about 16.5 million in ARR that year.
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Chapter 6: How is the new product Suzy positioned in the market?
Is that accurate?
Well, 16.5 million in revenue.
Okay, so break that out for me.
Well, so not all revenue is recurring revenue. And as I mentioned, the influencer business isn't really, it's not like Salesforce.com or MailChimp or a true SaaS platform. So I think you just basically illustrate the issue is that all revenue is not annual recurring revenue. And a lot of that revenue was service revenue.
Do you mind splitting that out for me since it was so many years in the past?
You know, I don't even think you could go back and actually... you know, in a valid form, say what was recurring revenue because it was never really a self-service platform. But I mean, I would say, so we, there's always a service element to it. So I could tell you it's 50% and maybe it was, but you know, a buyer could come in and say, no, it's really only 20%. I see.
Now I can tell you the business we're doing right now on the Susie side, it's all ARR. It's all software revenue because it really is a software driven platform where Crowdtap in the past was almost like a tech enabled service.
Got it. So, OK, let me let me let me ask this question differently. The revenue on CrowdTap was more predictable than Mr. Youth, but not as predictable as a pure play SaaS company.
I think it's fair. And I had higher gross margins. Yeah.
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Chapter 7: What are the financial metrics for Crowdtap and Suzy?
It's not the best work wins. It's really the people who can play the best politics wins, where I think a software business, your product can really stand apart.
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I'll see you there. Your last big round, I believe, was $5 million in 2014 before you chose to do a debt financing in 2015. You're now going through a spinoff. You're highlighting some positives and negatives about the business.
Is it fair to say that that revenue between 2014, where it was $16.5 million, and today is generally flat, and that's what's driving the spin out, and that's what drove the debt financing instead of another next series round of equity funding?
I think what I'll say is that the, God, no softballs today from you. No way. I think it's fair to say. But these are fair. These are good.
You like these kinds of questions deep down, right?
I love it. I love it. I love it. This is how business works. Nobody talks about it, right? Right on, right on. The growth of the company definitely tailed off because the market caught up with CrowdTap in the influencer space. And I think there were some fundamental issues with the model to begin with, thinking that influencer marketing was going to be a pure play software business.
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Chapter 8: What lessons does Matt Britton share about building relationships in business?
So yes, that did have a reason why. And sometimes you raise debt financing versus equity financing, not so much because you can't raise equity financing, but because you can't at the right valuation. And with a business that has eight-figure meaningful revenue, you have the cash flow that you can pay it back, which we did.
We also knew we had a business model that we could turn to profitability anytime if we ever needed to. So that's really why we did it. Now we're in a position though, where we're, we're spinning off essentially a cashflow positive agency model, uh, with crowd tap. And we have really a rapidly growing pure play SAS model that you're going to hear a lot about in 2018. Oh, Susie already launched.
Susie's already launched. Oh, wow. Okay. Yep. As Susie.com. Um, we've launched, we've kind of been, we haven't done a major launch yet. Um, it's kind of been a beta launch if you will. Um, but we already have an upwards of 75 customers on it.
Sorry, what was the link?
It's AskSusie.com.
Ask Susie. Yep. Jeeves is going to be mad. Ask Jeeves is going to be jealous.
Jeeves is long gone. We'd like Susie to hang out with girls like Siri and Alexa versus Amy Watson versus Jeeves. That's more her speed. That's the clubs she wants to hang out in.
That's a good story. I can see you giving keynotes around the country using that as your lead in line. Okay, good. Okay, now I'm on Suzy Beta. This makes a lot of sense. So you said you had, and sorry, I was so focused on the link, I missed when you said customer count. You said 70?
Yeah, that's 75 enterprise customers who are licensing the product from us. And essentially, it allows them to uncover insights and data during the same meeting they ask the question in. So would women 18 to 21 like the blue dress or the green dress? They can learn with confidence during the same meeting and allow them to make decisions.
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