SaaS Interviews with CEOs, Startups, Founders
925 How to Grow ARR 48% YoY from $17m to $28m in SMB SaaS Space
04 Feb 2018
Chapter 1: What is the main topic discussed in this episode?
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.
Chapter 2: How did Brendan King start Vendasta with no money?
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 Brendan King. He is the CEO of a company called Vendasta.
It's the innovative force and really is the innovative force behind the company. Constantly in discussion with partners, Brendan is committed to finding new ways to help enhance brand awareness, increase revenue, and drive down cost of acquisition for his customers. It's his ability to look at the big picture while maintaining quality on the finest details that ensures the company's success.
Brendan, are you ready to take us to the top? You bet. All right. So the bio missed what Vendasta does. So update us. What's the company do and what's your revenue model? How do you make money?
Sure. Well, we like to think of ourselves as the number one platform for delivering digital solutions to local business. And we don't sell to local SMBs direct. We actually sell through what we call partners, which are resellers. So anyone who already has a relationship with small businesses. So newspapers, yellow page companies were our first
And we've since moved into any type of business that has a relationship with small businesses. So media companies, website development companies, search, SEO, pure play digital companies, you name it.
And what's your revenue model? Is this a SaaS play or how do you make money?
You bet. So we we have a subscription that we sell to those companies. So they pay us a subscription simply to use our platform. It's a sales and marketing automation platform and it has a marketplace full of those digital products. And then so that's our first order revenue. And then as they sell those solutions to small businesses. So think websites, reputation management, local listings.
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Chapter 3: What is Vendasta's business model and revenue strategy?
Got it.
So your, your, your run rate will be the 28 million. And what, what is that up over in 2016, December 26th or December 2016? What was it?
Well, when, um, you know, we're, we're growing a little faster than we did last year. So we're, you know, we're coming from, um, you know, we're coming from about 14.6. Oh wow. So, um, you know, it's, uh, you know, we're,
the law of small numbers when we were smaller back in the early days, we have a higher growth over a hundred percent, but we've, you know, we're, uh, we're trying to, you know, maintain that sort of rule of 40. So we're, uh, we're very capital efficient. We're in, uh, we're in Canada, we're in Saskatoon, Saskatchewan.
A lot of people don't know where that is, you know, so we're, uh, we're about 250 people.
That's great. And just to be clear. So last year in 2016, you did 14 gap, but what was the run rate in December of 2016?
Yeah, it was about, um, uh, about, 18, seven, just a little under.
Yeah. It's still good growth. I mean, going from 17 or 18 million in an ARR run rate in December, 2016 to 28 million the next year, it's still pretty healthy growth.
Oh, 48%. Yeah. Yeah.
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Chapter 4: How does Vendasta achieve a 48% year-over-year growth?
Well, go deeper there then, right? So, like, if you tell me your altitude to category is 18, my initial thought is, why isn't Brendan being more aggressive? He's got plenty of room to play with.
100%. 100%. So, we wanted to, you know, we don't, We haven't been like most companies where we have a lot of cash and we can't run directly into a, you know, I see these guys spending money running into a brick wall without slowing down. And we're in Canada and it's not as easy to raise money as it is in some other places.
So we really, really wanted to make sure that we had a repeatable, scalable sales model before we do that. So right now we're actually considering that. uh, scaling up, um, and, uh, and going for it, maybe taking around and, and, uh, and doing exactly that. Cause we really do believe we have that scalable repeatable process, but we want it to, to get there.
You know, we've, it's been an evolution for us from a point solution provider to a platform that does start charging subscriptions. Now we've, you know, we only had a couple of products in there that we built this, this, uh, this year we've, introduced our marketplace, which we released in February, which brings in third party vendors.
So we've got, you know, other people that even compete with us. Like we've got Yext as a listing solution inside of our marketplace. And so we're adding in, we've got about 45 products in there. So now we're going to be able to increase, you know, beyond just adding new customers, we can increase the penetration to existing customers.
So when we asked those 1100 resellers, how many small businesses do you guys, you know, have that you're selling to today, traditional stuff? And they tell us and we add it up and it's about 10 million. But yet we're only marketing to 700,000. So there's a huge room for us to penetrate our existing customers.
Where I want to go, Brendan, I feel like I'm missing something, though, because if you have such a healthy LTV to CAC ratio, like usually the reason a company is burning cash per month is they've jacked up variable marketing spend through the roof, which brings obviously down your LTV to CAC ratio. You don't have that problem, which means you've got costs that I haven't I haven't figured out yet.
What costs are making you not be able to be profitable right now?
No, there's not costs. I would say that we've done that on purpose. We've invested heavily in R&D. We've got a team of 100. So we can totally control that. I could be profitable tomorrow.
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Chapter 5: What challenges did Vendasta face in its early years?
Well, we're very close right now to being profitable. So we're not earning a ton of cash. We're We're right where we need to be.
And just to be clear, you don't include those 100 people. That is significant. Almost 50% of your company is R&D, which is great. But you don't include those salaries in your fully-weighted CAC, correct?
No, not at all. And maybe we should.
No, no, no. That's completely your call. But that helps me understand why you're not yet cash flow positive. You're really close, but you're not yet, even with such a healthy LTV to CAC ratio.
No, and we tend to, you know, I believe that as a tech company, I think you want to move fast forward so fast that you don't have to look in the rear view mirror. You don't have to worry about that as much. I mean, I, everyone's always looking in the rear view mirror. We always worry about competition, but it's better to be moving fast forward.
That is all right, Brandon. Good stuff. Let's wrap up here with the famous five. These are super short answers. Number one, what's your favorite business book?
Oh, probably good to great.
Number two, is there a CEO you're following or studying right now?
Um, yeah, there's a couple actually. Um, I, uh, Geez, that's a hard... Yeah, there's a couple, but I would rather not throw any names.
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