SaaS Interviews with CEOs, Startups, Founders
977 How Mindtouch Landed $1m+ Customers, $7m ARR Bootstrapped, Now $20m+
28 Mar 2018
Chapter 1: What background does Aaron Fulkerson have before founding MindTouch?
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 Aaron Fulkerson.
He's an information technology businessman and co-founder of a company called MindTouch. He helped pioneer the open core business model, which we'll dive into, along with collaborative networks and the application of web-oriented architecture to enterprise software.
Before finding MindTouch, Aaron was a member of Microsoft's Advanced Strategies and Policies Division and worked on distributed systems research. Aaron, are you ready to take us to the top?
Yeah, sure. How's it going? Great to see you today. Doing good. I'm sitting here. I haven't been on Skype in so long. I've got stickers now, man.
I was about to say, I see these little hearts going. I'm like, what the hell is this guy doing? This is great. Awesome. I love these stickers. So Aaron, tell us about MindTouch. What's the company doing? What's your business model? How do you make money?
Well, we are a SaaS, software as a service product. And what we do is we help customers or companies automate their entire customer support chain. So nobody wants to phone into a customer support call center. Nobody wants to send in a support ticket. So we make it possible for all of that to be entirely automated through self-service technology.
And, uh, by, by that, what, what happens is somebody who simply runs a Google search and they find the right information from the company about how to fix their product or how to use their product or how to, um, achieve a specific business outcome with the product.
Is that literally what it is? You help these folks launch articles that rank in SEO terms and you just encourage the customers that was support to just Google the answer.
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Chapter 2: What business model does MindTouch use to generate revenue?
I mean, they just don't. And I don't know that MindTouch did. I mean, we never, like when we made the transition from our open source offering to our cloud offering, the people who were doing the open source were mostly developers and IT guys. And the last thing they want, I mean, their job was to maintain the servers that ran MindTouch.
Can you, Aaron, sorry, can you, for people that are not tech savvy, can you just explain the difference between open source versus cloud?
Sure.
Chapter 3: How does MindTouch automate customer support?
So, We used to take all of our source code and release it to the public for free. And we even took it one step further. We would package and test our product. This was up until 2010. January 2010 was when we stopped doing this. We package and test our product from six different operating systems so that you can install it on your servers very easily. We built installers for it.
We put it in virtual machines. So people would just use our software for free. And then we had a model that allowed us to upsell them from a free version onto a paid version. And that's what that open core thing was that you talked about in my bio. That's a Wikipedia page. I don't know if I could assume credit for open core. I mean, there was a lot of people who were doing that stuff.
And I don't know that we were the first. We were one of the first. I know I get credit for having pioneered it, but I don't know if that was me.
So give me some more of the story here. So first year revenue, 2011, I sense, is when you launched the pricing. Do you remember how little you did in that first year? What was the number?
Well, you know, when we were selling support subscriptions, we grew that business to a few million in annual recurring revenue. Yeah. Oh, wait till 2010. And, um, Uh, we, we first started selling the support subscription in 08 and, uh, we did, we did under a million. It was like eight or 900,000 in, in cash in 08. And then we grew that to like three and a half million by 2010.
Um, and my numbers are a little fuzzy cause it's okay.
It seems like two lifetimes ago, but it was like an agency model back then consulting gigs, right?
Yeah, we built a product that we released for free. We sold a support subscription. And then open core was we kept some features as part of a commercial offering. You wanted some of the more sought after features, you had to buy the commercial version. We introduced that in 2009. And then
what became clear was that we just, the economics of open source really can work as a business model, as a way to drive down customer acquisition costs if you're talking about infrastructure. But I am unaware of it ever working as a way of, as something that's powering the business model when it's a business application. So to get to your question about when we released the cloud product,
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Chapter 4: How did MindTouch evolve from an open source project?
Now, in order for those incentive stock options that all of the staff are being awarded to be worth anything.
At least 2X, 3X, liquidation preferences, $300 million, $400 million.
So their valuation will be at $400 million. OK, so on one hundred million dollars invested, that company pre money valuation is four hundred million dollars. Right. So multiply that by three at a minimum.
So in order for a company to see like as an employee of a company that's raised one hundred million dollars in capital for me to see a dime for my incentive stock options, that company has to exit at one point two billion dollars.
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 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. No, I get it. Listen, we've done about 1,000 interviews with B2B SaaS CEOs. Altogether, they've raised about $7 billion.
And all the revenue added up together, they do about $3.9 billion in ARR. And I can't tell you how many of them. I mean, we just had Namely on a few days ago. They raised $157 million. They're doing $3.3 million in monthly recurring revenue. They have a long way to grow to grow into a valuation where any of the common equity holders or common shareholders see it anything. Yeah. Makes good sense.
Hey, I just realized, cause I'm loving this. We basically have run out of time, but real quick, cause I want to, I want to make sure I get the full story here. Launched many years ago, 2016 bootstrapped to early 2016. Uh, you were doing about, uh, you said, I think 12 or you raised 12 million in 2016, but you're doing about 7 million in ARR at that point. Totally bootstrapped. You said you grew.
And at the time we were growing at 70, about 70, 80% ARR and track it forward. Right now it's going into 2018.
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