SaaS Interviews with CEOs, Startups, Founders
968 How Tumult Hit $5m in Sales, Handled Co-Founder Leaving for Apple
19 Mar 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. 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 Jonathan Deutsch.
He's the founder and lead developer of Tumult Hype. He's always had one foot in the programming world and the other in the visual arts. He previously was an engineering manager at Apple on various macOS projects. He was born in St. Louis, educated at Purdue, and now resides in San Francisco. Jonathan, are you ready to take us to the top? Absolutely. All right, tell us about Tumult.
What does it do and how do you make money?
Chapter 2: How did Tumult Hype achieve $5 million in sales?
Okay, so our company was founded with the idea of doing tools for graphic designers to make animated web content. So we have an app called Hype, and it lets people arrange text, images, video, and animate them with a keyframe-based timeline interface. And you can add interactivity, so when you click or drag, you can get all kinds of things to happen. Is this strictly mobile, or is this web-based?
So the application itself is a desktop application. It's for the Mac only, but its output is HTML5. So it can be used on phones. It can be used on desktop browsers. You can also export to video. So in formats where you can't necessarily even play HTML, you can usually use Hype's output. Okay. And what's the revenue model?
Are these one-time fees to download a license key or is it monthly recurring or what? Yeah, it's very old school. So we pretty much sell the software for a one-time license. With the one exception being that we have a standard version and professional version. So we do a bit of price differentiation that way. So you can buy the standard version for $50.
And if you want to, an in-app upgrade to get more features for an additional $50. Okay, got it. Just one time. Just one time, yeah. Bootstraps. And when we do new versions, we'll do upgrade. Like they have to repay the 50 or it's just incremental? Well, so we've done different strategies at different points in time.
So the last version we said the standard version would be free if you were going from two to three standard, that's free. But then you pay for the pro version. The one we went from version one to version two was you just had to pay it over again. And a lot of that had to do with the App Store model that the App Store doesn't really have. a way to do upgrade discounts, unfortunately.
What year did you launch the company in? The very end of 2010. Okay, and where was your brain at that point? Was this like, oh my God, I'm broke, I'm gonna be on the street if I don't make the company work or you had plenty of money and savings and it was a great time to risk starting your own thing?
Um, I had been working at Apple for a bit and had saved up, um, a decent amount where I knew I wouldn't need to at least worry about the fundamentals for awhile. Um, but of course you don't want to be in the weeds too long. So pretty much after launching, we were able to get version one out, uh, within about like six, seven months of release and see how that would do.
And luckily at the time, there weren't really the same tools for graphic designers, um, to do animated web content. And so it just kind of struck a nerve with people and the launch went really well. And so that was able to see, oh, okay, this will be a successful business. Who is we, by the way, how many co-founders?
So myself and I had one co-founder who is also a friend from Apple that left with me. Okay, you said had, is that person not with you anymore? Yeah, after four years, it was a good run, and he decided that he really enjoyed being at Apple again, so he went back. That stuff always sucks, but it happens, so I'm going to try and force you to talk about it so we can learn. This happens all the time.
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Chapter 3: What tools does Tumult provide for graphic designers?
First off, I imagine he had a large chunk of the company, right? More than 30%? Yeah. Correct. Okay. How do you, when they say, when he comes to you and says, Jonathan, I just, I really want to go back to Apple. I liked my cushy salary there. I liked the salmon lunches and I liked the problems that way I was working on. How do you get him out of the company, but try and keep some of the equity?
So we did have a discussion about that. And it really came down to the fact of, you know, if you're not going to be involved in the company anymore. And he, you know, at that point, wanted to go back to Apple. It was a matter of, well, I think this equity belongs with the company so we can use it for paying employees in equity, for example, or doing other things with it.
And I think four years is a really good run in a company, but over the lifetime of what hopefully is a very long-lived company, the equity equation makes a little bit less sense at that point. And I think most founders over the course of time want to sell their share and convert it to money as well. So he gave all the equity back? So we actually had a discussion about it and he agreed to do it.
But due to the mechanics of how this is a little bit more of kind of a cash business, we actually didn't go through with the deal. So he still owns a percentage of the company. OK, the same the same that you agreed on at the beginning. Correct. Yeah, because it was basically a four year investing amount. And so he left pretty much after all the deal. equity invested.
So I mean, I'm sure you guys are friends, but this must be frustrating as hell for you because every day that you add incremental revenue, you're going, this guy's not even with me anymore. And every dollar I add to the business that increases the valuation by $10, he's basically getting $3 of doing nothing.
I should just shut this down, go start my own thing with a clean cap table and start from scratch. How do you avoid that thinking? So part of it is the fact that we're a little bit more of a cash business. And so I think there is a point on are we like a Silicon Valley business where we're really trying to build up the equity?
And I think we've decided to go a little bit away from that and say that, no, we're more of a cash generating business and we'll do things like profit sharing. And so what is considered equity actually has a little bit less kind of importance and value in the company nowadays. If there were to be an exit event, that would be a different situation.
Maybe that would be something where I go back and talk with him because what we had said when he left the company probably, you know, is up for a little bit of renegotiation right now. How many team members are there now? So right now there's pretty much myself and one other full-time employee. Got it. And how many over the past, what, it would have been seven years, right?
How many people have signed up for the platform? Those are kind of numbers that we don't share, unfortunately. Are we talking though, like one hundreds, 10,000, a million? In the hundreds of thousands. Okay. In the hundreds of thousands. So we can say above a hundred thousand, but below a million. Is that a fair enough range? Yeah, I think that's a good range. Okay.
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Chapter 4: What is the revenue model for Tumult Hype?
And that's over kind of total time, the past, I guess, seven years, right? Yeah. Correct. Okay. Why? Tell me about the profit sharing. So when money does flow to the bottom line, do you still pay to people that have equity not inside the company? Or do you only do profit sharing with you and the one other team member you have?
Yeah, I mean, it's more of like a bonus structure is really what it amounts to. Okay. What I'm trying to understand is why you're okay with somebody else owning such a large chunk of the company. And what I hear you saying is, well, Nathan, he owns the equity, but we're not, this isn't a business we're going to grow to a hundred million and sell.
It's actually making me X amount of money per month and I can control the cashflow to go into my pocket. So I'm happy. Is that accurate? That's exactly right. Got it. So what do you do? You're a smart guy. You have this cash coming in. Where do you reinvest it? Like, do you put it in San Francisco real estate? Do you put it in cryptocurrencies? Where do you put it?
It typically goes either in the business somehow that I have progressively enlarged our marketing budget, for example. So that's kind of one area. I always feel like the company is the best investment because if I'm not investing in the company, then why am I even doing the company at all? I'm saying something else is a better investment, so maybe I should be spending my time there.
But no, I'm saying my company is actually the best investment, and that's what I want to do. And it's not just a monetary investment. It's also just a personal joy investment that the company is what I like doing. And the types of creations people make are something that I personally want to support.
I kind of have a mission that I want to improve how people are creative in the world because I like art. And I think that's something that's valuable to society. There's no art on your walls, by the way. I'm so disappointed. You have these blank, boring walls. Yeah. Um, I do have one painting. Show me floor. Go get it. Let's look at this thing. Okay. There it is. As it turns out, I just moved.
So my apartment is extremely bare. Where are you? You're in San Fran, right? I'm in San Francisco. Yeah. If you were to tell me the price, tell me the price. How bad is it? What are you in a one bedroom and how bad is it? Oh, it hurts far too much to even think about it. Is it a one bedroom? It is a one bedroom. Is it above or below three grand a month? It is above. Oh, my. That's ridiculous.
That's crazy. You could live in a penthouse in Austin for that amount of money. I will do many things. Yeah.
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Chapter 5: What challenges did Jonathan face with co-founder departures?
OK. Three grand a month. Interesting. Some other questions here. So you said you reinvest a lot of this cash flow back into a marketing budget. What are you paying to get like one new customer using you? So, typically, I would say it can range on where I go, which is kind of the fascinating thing where sometimes it can be around $1 or $2 to gain a customer.
And other things that have been perhaps less successful, it can be around $10. Why do you say a $10 CAC is unsuccessful when they're immediately paying you $50? Well... Because there's not that much customer flow. And so there's a lot of other things to do with the money. It's not like it's $10 is the only cost there. There's development costs, support costs, things of that nature.
But it's just you basically, right? I mean, there's one other salary in the company. Yeah. Yeah. What other costs do you have besides you, whatever you want to pay yourself and the salary of the other person? So at least we don't have a lot of like server infrastructure because it's a desktop application. But for the most part,
running a business there's just a lot of expenses whether it's legal whether it's um space support is actually a pretty big cost in both time hardware costs we do actually have a lot of different hardware that we need to test on so all that all that kind of adds up Guys, I get asked all the time, Nathan, you host all these interviews, hundreds of them per month. How do you do them efficiently?
And guys, the answer is simple. People always agree to my calendar, back-to-back meetings. I batch my interviews to stay very efficient. And the way that I do it is I use a tool called Acuity Scheduling at nathanlatka.com forward slash schedule. And the reason I use them is very simple.
They keep my no show rate very low because they send out reminders about when the interview or the meeting is coming up. And also they make it very easy to schedule time, right? I don't have to go back and forth via email 10,000 times with people I'm trying to meet with. Okay, at nathanlatka.com forward slash schedule. Helps me so much. And by the way, look, I like have so many meetings.
I'm the best at meetings. Okay, I do them back to back. Very, very efficient. You guys know me. many people say I'm the most efficient they've ever seen. Okay. So I use the tool. It's so efficient. And by the way, I got Gavin. I said, Gavin, he's the CEO. I said, I want a great deal for my people. He said, Nathan, well, most people get a 14 day trial. Isn't that great?
I said, no, he's given us a 45 day free trial at Nathan Latka.com forward slash schedule. That's not going to stay up forever. So go get it now. Nathan Latka.com forward slash schedule. What will you, what do you spend monthly right now just on marketing budget? Are we talking 10 grand, a grand or a hundred grand? Um, in the like five grand range. Okay. About five grand per month.
So anywhere between like 60 and a hundred grand per year, you'd say. Yeah. Okay. How do you contact people once they download it via the app store and you're launching a new thing? Do you have their emails? Like, can you tell them and get ideas from them or no, that all has to go through Apple? So there's a few different ways. Um, so customer feedback is really important.
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Chapter 6: How did Jonathan handle the equity situation with his co-founder?
Maybe three times. Okay. By the way, I'm assuming that's like somewhere between like five and 7 million based off at least a hundred thousand people paying 50 bucks. Is that generally accurate? It's a good ballpark. Okay, got it. So if you've lifetime sales have been between five and seven, you're saying, I wouldn't think about 10 to 14, but I would definitely think about like 15 to 25.
Yeah, I think there's a lot of value, both product value that we've developed over time where there's really been a lot of technology that's been developed into the application. I think that has pretty good value. And also I enjoy... the company and the independence. And so there's, you know, always, always personal factors that come into play as well. There are. Yeah.
I mean, you have a huge install base. I mean, you could have taken the approach of scale the team, add additional products, upsell the $50 people up to 105,000, but you're in a peaceful room. You have your artwork, you control everything. There's cashflow. It's peaceful. You're good to go, right? That's how I see it. All right, Jonathan, let's wrap up here with the famous five.
Number one, what is your favorite business book? Or book at all? There is a book called, I believe it's called Dealers of Lightning. It's about creation of Xerox PARC, which is the Palo Alto Research Center. And so that was always an inspiration to me and how you kind of make a team develop technology and do so in a very creative and innovative way and make that groundbreaking.
Number two, is there a CEO you're following or studying currently? No. Number three, besides your own, is there a favorite online tool you have? Don't make one up. One you use every day. The one I use every day is desk.com. That's what we use for our support and it's what gets us customer feedback. So I think that's really useful. Number four, how many hours of sleep do you get every night?
Six to seven. Okay, and what's your situation? Married, single, do you have kids? Single. No kids that you know of? No kids that I know of. And how old are you, Jonathan? I am 35. 35. Last question. Take us back 15 years. What do you wish your 20 year old self knew? I wish my 20 year old self understood some of the value of how people interact socially.
And I feel like I spent a lot of time at the computer thinking that was, you know, what I loved and what I loved doing. And I think, you know, I wish I would have gotten out a little bit more and interacted with people.
I mean, obviously, every step gets you from point A to point B. But at the same time, I think there was a lot of good social interactions that I probably missed in college that I wish I would have had. And there you guys have it from Jonathan. He launched Tamalt. He wishes he really would have valued how people interact socially earlier on. But Tamalt's having success.
He launched it back in 2010. He's done between $5 and $7 million in lifetime sales on this app that really helps creators create more efficiently and more beautiful things. And that's really what gets him excited. He's managing the company based off kind of cash flow, which is a perfectly healthy way to grow a company and get yourself some success.
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