SaaS Interviews with CEOs, Startups, Founders
EP 440: $700k MRR, 100,000 Pay $7/mo For Gay Dating App Hornet, Will Beat Grindr?
07 Oct 2016
Chapter 1: What is the main topic discussed in this episode?
This is The Top, where I interview entrepreneurs who are number one or number two in their industry in terms of revenue or customer base. You'll learn how much revenue they're making, what their marketing funnel looks like, and how many customers they have. I'm now at $20,000 per top. Five and six million. He is hell-bent on global domination. We just broke our 100,000-unit soul mark.
And I'm your host, Nathan Latka. Okay, Top Tribe, this week's winner of the 100 bucks is Rhett Gillins. He's in the restaurant industry and he feels stuck. He wants to start his own software business. So congratulations, Rhett, for your guys' chance to win 100 bucks every Monday morning.
Simply subscribe to the podcast on iTunes now in order to enter and then text the word Nathan to 33444 to prove that you subscribed. Okay, many of you heard I made a big league acquisition of a company called SendLater. And I'm a greedy business guy. I didn't want to give away equity to a technical co-founder.
So I found my coders on a website called Toptal at nathanlatka.com forward slash T-O-P-T-A-L. I paid over $12,000 to the site to a guy named He Sheming in China, who I've never met, but we're going to build a big business together. I'm taking SendLater public by the time I turn 30. I'll tell you more about Toptal later on in this episode. Nathan Latka here.
Coming up tomorrow morning, you're going to learn from Sujan Patel. His agency did $605,000 in revenue, and he's now spinning out SaaS products, one of which is already doing $35,000 in MRR. Top Tribe, good morning. Our guest today is Sean Howell.
He's the founder of Hornet, the second largest gay social network with 15 million members worldwide, known for its ongoing Know Your Status HIV campaign. He's a speaker on mobile technology, and his opinions have appeared in print in places like the New York Times. He's served on various nonprofit boards and committees like the World Affairs Council, PFLG,
Uni-AIDS, the World Bank, European CDC, and many, many others. Sean, are you ready to take us to the top? Happy to help. All right, let's do this. So tell us what Hornet app is and how you generate revenue. Yeah, absolutely. So Hornet is a mobile social network. It's focused on gay men. And we have a premium subscription model and have advertising that's sold programmatically and direct sales.
Okay. And which one of those revenue channels are your biggest? It's about 60% subscription. Okay. And the rest is divided between programmatic advertising and direct sales. And oddly, despite loving technology and loving auctions, we're seeing such a huge growth in direct deals that I'm sure someday that's going to eclipse programmatic very soon.
So let's break kind of these channels down for a second. So subscription revenue, I guess this is users pay something. What do they pay you and what do they get for that payment? Yeah, we actually have one of the software paywalls for a premium subscription service. So they get unlimited use of the app and they can send as many photos as they want. They can receive as many messages as they want.
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Chapter 2: What is Hornet and how does it generate revenue?
Yeah, it makes good sense. One of the things I kind of interview a lot of different people with different kinds of mobile apps and churn is something that's critical that they're tracking. What is your churn number that you track? Is it gross customer churn? Is it gross usage churn? Is it net revenue churn? What do you track?
Yeah, so we've really been actually focused on user growth because we're trying to displace competitors in key markets. And we've done that in France, Brazil, Russia, Turkey, Thailand, Italy, and trying to do that the rest of the world. So we've really been focusing retention of users and doing things to stay engaged and keep people happy inside the app. So that's actually been our biggest focus.
And now that we've kind of grown this user base, we're just really starting to focus on some monetization. So if you just look at, you said you have around 100,000 paying customers. Ignore what you're adding every month. How many of those folks are you losing? Is it 1%, 5%? What's the churn?
Yeah, so because we sell different subscription packages, mostly 50% of our subscriptions are actually annual subscriptions. Uh, that, um, on a monthly basis, we, we almost sell zero one month subscription. So generally people keep it for five, 5.5 months. I see. So, so you're selling packs, you're saying buy it for three months, buy it for six or nine or 12. Or it's a monthly renewal.
So, and on the monthly renewal, those average out to five and a half months. So that actually works out the best deal for us is when people sign up monthly. Got it, got it, got it. We were really happy when Apple launched that feature. And then it took Google a long time to do it. But now that is available on Google and we're seeing similar results. People get a buy-in at a lower amount.
You know, they don't have this fear of maybe I don't want that and to pay a small amount. So I think it's a great solution. all around. So Sean, is it fair to say if you have an average lifetime in terms of months of 5.5 months that the average monthly customer staying with you or the average monthly churn is about 20%? Yeah. Okay. Um, okay, cool.
Um, and tell us what about, what about acquisition costs? Well, first off, tell us your fundraising history. Have you raised at all? Yeah. So, uh, we raised, uh, Just about one and a half million very early in the company's history. And then we broke even through subscriptions in year three. And we haven't fundraised since then. So only one and a half million. That's pretty good.
So with that kind of powder and the revenue you're doing, I imagine you've spent a lot of money on acquisition.
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Chapter 3: What subscription options does Hornet offer its users?
What's it cost you to acquire a new paying customer? We haven't spent anything on acquisition since October 2011. Where are you spending all this money? We've got 40 employees and we are a very heavy photo data company. So we spend on making the product great. How are you getting new customers? Mostly through organic discovery and viral coefficient from our users. Okay.
Describe the viral coefficient. How does one user invite five of their friends? For us, they're probably sitting in a gay bar saying, I just went on a date with this guy last night. Oh, fascinating. And so it's really... That's hard to track. It is. There's some weak math that you can do to get an estimate of that.
Do you have location data on new users and you can pinpoint that back to another one that's already a current user? We don't go... Come on, Sean. Yes, you do. Come on. No, no, no. We do use some attribution links to... Like if an influencer shares on Twitter or something, we try to track that down and reward people.
But they have to really have been someone super popular to have us even be able to pick up on that. Got it. And what did you say your team size was? It's 40. 40. And where are you guys based? I live in San Francisco, but we're actually a super dispersed team. So we've got guys in Cape Town. We've got guys in Prague. Oh, cool. We've got guys in Brazil.
And I would actually say one of the things that has really helped us grow is we localized really early. And that's been great for our users. And one thing I see a lot of startup founders missing What did you, I'm going back just looking at kind of history here, because this is always an embarrassing number, but do you remember what your first year revenue was, you said back in 2011?
We didn't have any revenue. Okay, so 2011, it was pre-revenue. When was your first revenue year? 2013. And how much did you do in that year? Do you know? I would guess $300,000. That's a wild guess. Makes sense. Hey, makes sense. And who would you say, Nate, like your two biggest competitors?
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Chapter 4: How does Hornet's user base compare to other dating apps?
Yeah, I would say it's Grindr and Blue D, which are now both Chinese companies. Interesting, interesting, interesting. And you said you're raising right now. How much are you looking to raise? Several million. Several million. And do you have, I mean, how do you value a company like this? You don't have to say the specific valuation you're aiming at, but how are you valuing it? Uh, yeah.
So I think there's just a revenue multiple and, uh, there's some really public comparables. Um, so it's a heavily tracked industry. So what is the revenue multiple in the space? Uh, well, if you're a match, it's like 36. Um, but, uh, grinder, I think sold for seven, seven X of top line forward-looking annualized. Yeah. Okay. Yeah. So pretty good.
And you're talking about the, the, the last investment grinder took from the Chinese company, right? Correct. Yeah. Very cool. OK, awesome. Well, hey, Sean, as people follow you kind of building this tool and really, you know, hopefully closing this round of funding, where's the best place for me to connect with you? They can find me on AngelList, LinkedIn, Sean at HornetApp.com.
All right, guys, very quickly. Many of you heard I acquired SendLater at NathanLatka.com forward slash SendLater. And here's the thing. I don't want to hire a big team. I'm a business guy, though, so I need developers. So what I did is I found this little website. I found this guy named He Sheming.
I paid him over $12,000 to help me keep building this business, which I will take public by the time I turn 30. So it's called Toptal. And what Toptal does, it's a network of elite pre-vetted software developers. Basically, I told Toptal what I was looking for. They searched their network for the best people. They even test the candidates, which saves me time.
And then they just said, Nathan, here, use this candidate. They meet your individual needs and boom, I'm off to the races. So once you pick someone on Toptal, you can start working with them the next day. Now, for my people, TopTool is offering a no-risk trial period that you can get at NathanLatka.com forward slash T-O-P-T-A-L. Again, NathanLatka.com forward slash TopTool to get started.
This is perfect if you're a business person listening that doesn't know how to incentivize or find a technical co-founder. Go to NathanLatka.com forward slash TopTool and get started building your app now. Okay, top tribe, I have to tell you, many people go, Nathan, you came out of nowhere, your website's growing so fast, how'd you do it? The answer is simple.
So I use HostGator, I don't know if you guys know that, but I use HostGator, and the reason I do, they have like about 4,500 free templates I can use, because I don't code. They've got a great e-commerce plugin, and guys, I bug the heck out of their support. They've got 24-7 support, which I love. So what I've done is I've worked with them, you guys know I make great deals.
If you go to hostgator.com forward slash Nathan, HostGator, You can sign up, get your own domain for 30% off and a 45 day money back guarantee. Okay. Again, I make great deals for you guys. Go to hostgator.com forward slash Nathan to grab that now. Very cool. Top Tribe. We'll link to that in the show notes at NathanLacke.com forward slash the top 440. Again, forward slash the top 440.
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Chapter 5: What unique advertising partnerships does Hornet have?
hornet back in 2011 turn on the paywall in 2013 did around 300k in first year revenue now in 2016 here in august over 20 million total users or sorry 15 million total users 2 million monthly active users with about five percent of them paying seven bucks a month that's just one revenue stream out there financing now with this team of 40 that are in san fran and remote around the globe sean thank you for taking us to the top hey thank you
If you enjoyed Sean today, go back and listen to Laura Barron's Woo yesterday. Her company is GoShipo. They've raised $9 million. They're now shipping over a million packages per month and growing fast. Top Tribe, I love giving away free money. I feel like Oprah giving away cars, and I have something special for you today.
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HostGator.com forward slash Nathan. Again, that's HostGator.com forward slash Nathan. Okay, Top Tribe, I'll see you bright and early tomorrow morning. And don't forget, before you listen to any other episodes, subscribe on iTunes right now for your chance to win $100 every Monday.