SaaS Interviews with CEOs, Startups, Founders
He's the Real Unicorn: Bootstrapped to $10m, Owns 100%, Shares Profits with Team
28 Jun 2022
Chapter 1: What is the main topic discussed in this episode?
Well, I mean, but can we multiply 5,000 customers times $10,000 in ACV? You're doing about $50 million in annual revenue.
No, I would say it's not. Because again, the average is not weighted. So our revenue right now is just under $10 million.
You are listening to Conversations with Nathan Latka, where I sit down and interview the top SaaS founders, like Eric Wan from Zoom. If you'd like to subscribe, go to getlatka.com.
We've published thousands of these interviews, and if you want to sort through them quickly by revenue or churn, CAC, valuation, or other metrics, the easiest way to do that is to go to getlatka.com and use our filtering tool. It's like a big Excel sheet for all these podcast interviews. Check it out right now at getlatka.com. Hey folks, my guest today is Adam Sandman.
He founded Inflectra in 2006 and has been a programmer since the age of 10. Today, he serves as the company's CEO and is responsible for product strategy, technology innovation, and business development. The company helps you manage the entire software lifecycle. Adam, you ready to take us to the top?
Sure, absolutely. So Inflectra was founded really in 2006 to help companies of all sizes improve their quality of their software development, software testing. At that time in the market, there weren't many products focused on the smaller and medium-sized businesses, a lot of tools for large companies. Not a lot for the midsize and, again, startup companies.
So I started the company in 2006 to provide that missing solution in the market. And as the market evolved, basically, we've grown the company now to focus a lot more on more complex regulated industries and more complex business problems, providing quality, reliability, and compliance to customers in various different industries.
So who are some of those customers, Adam?
The customers from large defense contractors, you probably don't know the names, large supply chain companies, banks, insurance companies, people like Cincinnati Insurance, people like Northrop Grumman, Lockheed Martin, healthcare systems, hospitals, supply chain, food retailers, people who import bananas.
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Chapter 2: What is the main focus of Inflectra and its market position?
That's still fantastic. Okay. And if revenue today is 10 million, what were you doing about exactly a year ago?
It was about, oh my goodness, eight point something last year.
And so where's that growth coming from? This is fantastic. You found a way to drive growth without having to go give up a bunch of equity.
Really, two main channels. The online channel, which has been our traditional channel, direct sales, online SEO, all the stuff you do online. And then we recently launched our partner channel. And this is something I would recommend anyone look at doing.
As a small company where you don't have a huge sales force, launching a partner channel where you can bring in off-sheet sales folks is really important.
Who is the partner?
These are partners. We're consulting firms for the most part because our software is used for development and testing. So companies that will do software testing and project management, they need tools. They're going to bring in clients to us. And so bringing in partners that can bring in the product.
And a lot of times independent consultants who move from client to client, they will sell the tool for us, but they're not actually employees. They're just simply freelancers and then consulting firms that need tools and are evangelists for us.
Adam, you mentioned SEO is critical for you. Name a keyword that's driven you a bunch of great customers and traffic.
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Chapter 3: Who are the primary customers of Inflectra?
So first of all, I would recommend what we did is do AdWords, do paid search, find which keywords you bank for, find the competitiveness of those keywords on paid search, and then translate them over to content writing in organic, in the SEO search. Write articles, write blogs, see what starts to rise, and then write more of them, and ultimately bring in an SEO firm.
We did a lot of it organically ourselves, but at some point you will need to bring in an expert who can help you deal with the technical and links and the structure side of things.
Adam, what's the name of the SEO firm you used?
Effective Spend, based in Austin, Texas.
EffectiveSpend.com.
Yes, correct.
And they were good.
They are good. They do paid search. We've used them for paid search for many years. We brought them onto SEO a couple of years ago.
And when you say paid search, they start off, how much are they managing per month for you?
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Chapter 4: What is the average deal size for Inflectra's services?
A lot of founders listening right now, they go, I want to find an SEO firm, but all the agencies I've tried are trash. So it's hard to find ones that are really good. What have you done? What assets have you given effective expenses? Effective spend. Yeah. Effective spend where you think you've set them up for success.
Oh, that's a good question. I think working very honestly with them and being very transparent with them. They did an index for our website. They spent a lot of time researching and analyzing it, looking at what was ranking. They also were our paid search vendor, so they knew which keywords were affordable and profitable and had a good ROI already. So it was actually easier bringing them in.
I think also we spent a lot of time looking at the content on the pages. and doing some partnership work. But they would suggest pages that needed improving. We would write some of the content. The problem with an SEO vendor, especially in B2B, is they don't know your industry as well as you do. So they're not going to write such good content, potentially.
But you can write good content, but you don't know what to write, where to write, where to structure it. So I think having some organic writing resources combined with an SEO firm is paramount. You can't just say, here's my website, SEO it. That's, I think, unrealistic. And if you don't spend at least $5,000 a month on SEO, it's not worth spending anything.
If you're not going to spend at least $5,000.
Yeah, a firm that's not charging at least $5,000 probably isn't going to make any difference to your ranking.
Very interesting. Okay, what year did you start working with Effective Spend?
For paid search, it's about seven or eight years ago. For SEO, it's only two years.
Wow, that's incredible. You rarely see relationships this long. You've been working with them for seven or eight years.
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Chapter 5: How did Inflectra achieve significant revenue growth?
Shout out to USC in a few months. So I've got to pay enough to cover that. But my wife works full-time, which really helps. When I started the company, she works for the government. So that really helps having a working spouse who can let you follow your dreams.
Chapter 6: What strategies does Inflectra use for customer acquisition?
What's the largest M&A deal you've turned down?
Oh, for us to buy us? Honestly, we haven't pursued any. We've had people come close to talk to us about generally buying the company. The problem is that we don't really want to sell the company at the moment. And so we haven't gotten, just to avoid distracting us, we haven't gone too far down that path.
So we've talked to some people, but nothing's gone to the point where we've resolved the table, really.
What kind of number would have to be out there where it's worth your time to be distracted to pursue the deal?
I think at this point, probably 50 to 100 million, something that we'd want to be the point where this was going to be, they're going to take us to the next level as a company that we can't do ourselves. We're growing 50% year over year. We're making good revenue. We've got a strong culture. We'd have to be able to do that at scale.
If we're just going to roll them into a large BMS that's for other companies, we don't want to do that.
Would you be open to something that's like $75 million where 50% is cash, 50% is stock, and you keep running this thing and growing it together? Yes, definitely. Yeah, that'd be great. Very interesting. I think you might get some calls after this interview. We'll see. Okay. So again, just to be clear, totally bootstrapped today. You still own 100%. Any co-founders?
No. My wife and I, I mean, she technically is a part owner just to keep our marriage straight, but she doesn't really work in the company. I've got a leadership team, but no one has any equity. if we ever decide to go public or something, we obviously figure out what to do with that. So that's something to think about is what do you do when you've founded a company?
You're going to want to reward people long-term. The problem with giving out stock when you're private and you're not going to invest it back is it's a lot of legal complications dealing with that, giving away private stock. So we have a good cash-based compensation. We have a team bonus. We do things that are encouraging for the culture. Wait, Adam, teach me about that.
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Chapter 7: How does Inflectra leverage SEO for business growth?
Give everyone based on their role an allocation of the bonus pool. And then at the end of each six-month period, we say, If, say, we were going to make X thousand dollars in revenue, sorry, in profit, and we made it, everyone gets their full bonus for six months that they had in their pool. If we made 50% of our target, everyone gets 50%.
But we have actually, and one thing, we have no sales commission. So everyone, even salespeople, are all on salary, and everything is a team bonus that the company makes as a whole. And for us, that's really important. It encourages that we work together as a team or sync to the team.
So last year in December, when you looked at this sort of six-month thing, what was the profit pool at the end of 2021?
I can't give you the dollar number, but I can say we fully funded it for the year and for that six-month period. I see.
I mean, are we talking like a million bucks or more like 500 grand you're splitting up?
The lower number, yeah.
Okay, lower. So just to run the math with hypothetical numbers, your target is 500,000 bucks in profit last six months of last year. You hit it. Congratulations. Correct. You didn't take 500 grand divided by 40 people on the team.
It's not a straight because some people make more money and have been longer, potentially have a higher. Because when we give raises, we might give a raise in base. We might give a raise in bonus pool. So it's not as simple as everyone gets exactly.
So that's what I'm saying. How do you decide the multiplier or the percentage of the bonus pool that each person gets?
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