SaaS Interviews with CEOs, Startups, Founders
High Volume, Low ARPU Sales Playbook: 14 Page Process We Used to hit $3m Revenue, Profitable
31 Oct 2022
Chapter 1: What is the main topic discussed in this episode?
Hey folks, hope your Q3 and Q4 is off to a good start. We just wrapped up Founder 500 in Austin, Texas. Hundreds of bootstrap founders showed up. It was an amazing time. I loved meeting so many of you.
This interview today is a recording from that session, which you're gonna love because now we have visuals, we have the founder teaching, and I made every single speaker include their revenue graphs and real artifacts in their presentations. Without further ado, let's jump in.
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.
Chapter 2: What insights were shared from the Founder 500 event?
It's like a big Excel sheet for all these podcast interviews. Check it out right now at getlatka.com. Welcome to the stage, Chris Vandersloot. Thanks a lot. Oh, don't do that. What if I suck? You'll want to take that back. And trust me when I tell you that Nathan's stressing over whether I'm entertaining or not. Can the old guy deliver? I don't know.
Okay, so as you said, my context is a little bit different than some of the things we have heard today. I'm not on a track for an exit, even though I've been tagged twice today by people who go, would you like some money? We'd love for you to exit. You know, I got into the business in 1984. Founded it with a partner because I wanted to be in that business. And that's true still today.
So that's going to color my comments a little bit as we talk about a few things. The business has gone up and down at different times. I'm going to tell you about that. Starting the very first year where I took home some $13,000 out of the business. That wasn't a good year for paying the rent. and things are on track for this year to be at about three. So things are generally going quite well.
Here's what I wanna talk about. I really wanna talk about three phases of the business, starting with the first 10 years getting the business started. Getting to that first million and then the buyout of my partner.
And then the next round that included industrial investor, institutional investors who got into the business and getting the business and then owning 100% of the business since and how you need to focus on things. So we got started. as a consultant firm.
Two guys who had limitless optimism, knew that we could write any kind of code and deliver any kind of solution, and it would only take us 20 minutes. We learned a lot in those first years, but we also took on project management software to distribute. So we became a Canadian distributor for project management software.
Hard for some people to remember what the IT world was like in 1984, but PCs were new. That was a new thing. PCs in offices, that wasn't a thing. And so project management software available on a PC, that was kind of a new deal. And we wrote timesheet software to go with project management software. That was really our first, wasn't time control then, it was just customized timesheet software.
That got us going. Our very first client was Philips. the Phillips Information System out of Holland. We thought they called us because we were so smart. No, they called us because they had tried to deploy a project management system four times. We were given the attempt number five. The management didn't trust their own staff to do it anymore.
We didn't know that going in, or we would have charged more, I think. But we arrived to put in the system, which in the end worked great, and a timesheet, and that also worked great. We've never sold to a client our size. I mean, we're now, you know, 20 ish people, but we've never sold to a company of 20 people.
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Chapter 3: How did the guest start their business journey?
Same thing for General Motors Defense who make the light armored vehicle. You know, it looks like a tank but has eight wheels. Yeah, so the LAV was something that we were helping them work on. We didn't work on the tank. We worked on the project management of how that worked. And so even though we were a small group, we were able to move that forward.
And coming to the end of the 90s, we arrived into the early 90s into a recession. That was my first. If we have another one and, you know, the jury's out, that'll be my fourth. But this recession meant that we had a 1993 year that was awful, really a miserable year. We generated a lot of loss for the size that we were at the time. And my partner said, I'm done. We should let it go.
We are already 100K in debt. We should just let the company go bankrupt, walk away, and we'll start something new. but I had a problem with that because I wanted to be in and he wanted to be out. If you need to buy your partner out, buying them out when they want to leave and you want to stay is a really good moment for negotiating.
He wanted out and he didn't want to be saddled with assuming the debt. He said, well, you'll have to assume the debt. I said, sure, because I'm staying in. I'd already called our vendors and made arrangements. And I mean, I had to do things that I wasn't used to doing. And in the end, we found found a price for him that would work was about a year's salary.
And we knew it was the right price because his wife said, wait a minute. if he buys this from you, could he make millions? And Don said, well, yeah. And my wife at the time said, well, hold on a minute. If we give him this money, could we lose everything? And I went, yeah. And so we knew we had the right price.
So I gave Don a year's salary, which I had to go borrow from family and friends and, you know, find the money to get going. Again, stuff I was, you know, made me uncomfortable to go ask for money, but I did and I paid them back and I got Don out and I said, we've got to shift the company. I don't want to be a distributor anymore. I don't want to be a consulting firm anymore.
What I want to do is I want to be a publisher. Let's take something that we could write. Hey, you know, we've done all these timesheets on a custom basis for clients. Let's just do a timesheet. We'll call it time control. And so we did that because it was low-hanging fruit. Would be easy, timesheets. We've done it so many times.
Turned out to just make that into a commercial product wasn't so easy. But we got time control out as a product in 1994. So now we're in the publishing business. Now people that I used to compare... We used to compete against a Primavera, who's now an Oracle product. I called the president of Primavera. He tried to make me a dealer multiple times. I said, Joel, got a minute?
He goes, yeah, what do you need? I go, I need to be a partner. He goes, okay, you're a partner. Got to go. And hung up. which was a very bizarre partnership conversation. I've never had one quite like that again. But then I got a call a day or two later from this fellow, John, who says, I've had a very strange interaction with Joel. He says, you're a partner now. Is that true?
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Chapter 4: What challenges did the guest face in their early years?
And so, yeah, we became a primavera partner. Used to compete. Now we're in partnership because I can make a link to your thing. And we expanded the use of the product. And so between 94 and 99, things grew. You know, the number continued to go up in again, hard to remember what life was like just pre Y2K. How many people had software businesses pre Y2K? Just me? One, two. Okay.
So then you'll appreciate it. But for the IT business, that was a bonkers time. We had trouble keeping IT staff. They were in high demand from everybody who had never done their Y2K stuff. People wanted more and more money. We had people coming into us for three, four times. during the year asking for raises.
And if you didn't have stock options, if you weren't on the way to an IPO, they were out. So we made stock options and we talked to some investors to say, well, we'd like to work towards that kind of life. Great, so now we found a couple of investors who came in, worked together, and we cut a deal that included a whole bunch of vets.
It included some debentures, loans that could be converted into shares, it included some equity. It also included them co-signing for lines of credit. and other things that came more from the bank. Altogether, we had access to about $2 million. We'd done about 1.3 the year before. So $2 million was no small thing. I was like, wow, now we've got everything we need.
That was in November 1999, just in time for the tech crash of 2000, which started basically at Christmas. So terrible, terrible timing. You know, looking back, the whole curve had been going up. Nobody really thought that it would immediately crash, but there it was. And so now I arrive over the next couple of years with equity partners who have a lot to say. They're on my board.
They want me to grow. They are still in the mind of we're on a hockey stick curve. And so we need to, you know, we need to grow no matter what the cost. It worked for Amazon, they go. Look, they still haven't made a profit in 99. Well, that's true. But I wasn't Amazon. And so under their guidance, we built the business up to $2 million in REV by 2002.
And that year, that $2 million in REV cost me $3 million to generate. So about a million dollars in losses. And the investors went, well, it's all over. Each of them went back to their boards and said, that's the last board meeting we'll have at HMS. Those guys are toast. We'll never hear from them again.
They were kind of stunned when six months later I called and said, so we're having a board meeting. Are you guys coming? They went, what, you're still here? We said, yes, come on back. Because I wanted to stay in. And I had to sweat blood that year and continue to, to start cleaning up all kinds of things. Starting with the bank going, we're calling the line of credit. You owe me $100,000.
Like, okay. And credit cards and other things. So it's like piece by piece, we had to make arrangements. Once again, I was back in that place of I have to find this money to build things back together. And over that year, then gradually I got a hold of things, but I had to cut staff. I cut half my staff on a given day in 2002. where by the end of the day, I was literally in tears.
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Chapter 5: How did the guest navigate a recession and its impacts?
And now we said, we'd already pivoted several times. We'd pivoted to make the product a client server database product, to make the product an enterprise product that lived on a server, to make the product a web-based product, one of the first browser-based products. And then we made it a web-based product. Again, all new to the market. We were at the edge of that.
And our first mobile product, we actually have a failed mobile product that was never released that we wrote for the Blackberry. I still have a Blackberry with that code on it that was never released. And you know, long story that I tell project management people about when to cut your losses. And this is the product that exists today. Now that's the web-based screen.
There's also a mobile-based screen. It's also still available on-prem or as a SaaS. If it's on-prem, then we charge people an annual service fee. And if it's SaaS, then just like every other SaaS, we just charge them for the entire thing. We kept the on-prem because the kinds of clients that we have. Turns out the Federal Reserve Board of Governors doesn't want to use our SaaS.
I don't know, I think we're trustworthy, but they went, no, no, you're not even in the country. So, well, you're in the country, but the company's not, so no. The US Coast Guard won't have it in the cloud. We could put it in the government cloud. We go, they go, no, no, it's going to come here in the office. So that's fine.
So we've maintained those things and tried to adjust to those to make it work for those clients. So that's a long story to getting to a business that's highly maneuverable. Um, and that, uh, that makes people happy. That being said, end users could care less and users. Aren't happy with the timesheet. That's what we built, right? A timesheet, no end user wakes up on Friday morning and goes,
Friday, it's timesheet day. I mean, we may have that fantasy at HMS, regular humans do not. They view the timesheet that they only spend five minutes or so looking at a week, they view that as a barrier between their week and their weekend. So no one says, oh, thank God for time control. We have as a goal for those, for end users, make them the least unhappy possible.
Ask them the fewest questions. Have it go as fast as possible. Have the numbers be right. Because a project management tool might be off by $1,000 at the end of the year. But if your paycheck is off by a penny, sooner or later you're going to roll into the payroll office and go, I know it's stupid. I know I'm petty. I know it's only a penny. But it's my penny and I want it.
So we have to work the quality of the costing for time control has got to work at that level. that's different than a lot of people who go, well, we're just writing a timesheet in Excel, it'll all be fine. So we can make managers and administrators super happy, but the end users, yeah, not so much. So... When we look at how we did that, I just want to make sure I don't run over time.
So when we look at how we did that, we wove it into everything. Our mission statement says, part of our mission document says that our standards are that every client will be referensible. And if you meet with our people and you're talking to them and a client has a problem, something they are not happy with, the whole staff like starts to adjust.
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