SaaS Interviews with CEOs, Startups, Founders
How Pavilion Hit $10m in Revenue While Balancing Investor and Customer Demands with CEO Sam Jacobs
06 Aug 2024
Chapter 1: What inspired Sam Jacobs to start Pavilion?
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Let's kick it off. I'm going to be talking about really the themes, if you're familiar with sort of what I've been talking about on LinkedIn. It's a combination talk, the history of my company, Pavilion. Raise your hand if you're familiar with Pavilion.
okay great there you go so uh so you know what it is hopefully it's the largest community for go-to-market executives and rising executives in the world our goal is to help everybody in this room and everybody at high growth companies unlock and achieve their professional potential which really means uh there's learning there's community there's events and there's insights that we bring together to help you get where you want to go in your career at the same time pavilion is also a company
Chapter 2: How did Pavilion evolve from a support group to a business?
And what I want to talk about over the next 15 or so minutes is just the evolution of our company because as much as I pontificate on social media as if I have all the answers, the reality is that I've made all of the mistakes that I'm commenting about in the world at large.
So why not dive a little deep and build in public and show you some of the decisions that we've made, where we've emerged on the other side, and how I think about the future because 2024 is a very different world than 2021 or 2020, as we all know. So this is how we got started. This is one of our very first dinners in New York City.
Pavilion emerged really as a support group for chief revenue officers, VPs of sales, specifically in New York to come together and to help each other. I had no real intention of building it into a large business, but it turned out that we had a point of view. We had a point of view that
Revenue executives needed support, they needed education, and also they needed information about not just how to run their companies, but how to manage their careers more effectively. And that idea took hold all over the world.
Chapter 3: What challenges did Pavilion face during its growth phase?
And we developed chapters. We have a chapter here in Austin. We have a chapter in San Francisco. We have chapters all over the world at this point, and we have over 10,000 members. This was a picture probably from GTM 2023 in Nashville, which was our big conference. So this was primarily intended to be a bootstrap business. And for the entirety of our...
of our existence, this is just some additional demographic data, but it's not really that interesting. I think what's interesting about this talk and the reality of the world that we live in is really this line compared to this line over the course of the last couple of years. And so, and it, for better or for worse, it coincides pretty closely with
Chapter 4: How has the shift in the tech economy affected Pavilion's strategy?
are taking in outside capital, which doesn't mean that outside capital is necessarily a terrible thing. But I want to talk about the shift from profitable efficient growth, really from growth at any cost to profitable efficient growth. You can see that our journey, I started working on this full-time really five years ago in this city.
So five years ago, pretty much this month, I had moved to Austin for a couple of months and I'd begun working on Pavilion full-time. And it was completely and really largely to this day remains almost entirely word of mouth driven, almost entirely organic social media driven. We don't really do paid acquisition.
We don't really have at this point, and I'll talk about that evolution, we don't have much of an outbound go to market machine. And we've learned a lot of lessons along the way. And then what happened coinciding with really the tech economy downshifting the rise of interest rates and the entry of the world that we live in is that our growth really has shrank, right?
Chapter 5: What lessons did Sam Jacobs learn about capital investment?
And we've moved from a world where we were growing and all through here, all through 2021, we were extremely profitable. And then what happened at the beginning of 2021 was that I got a call from Elephant Ventures. And again, effectively, Pavilion has been really a dinner club, a membership organization and association. Never intended it to be a venture-driven business.
But I got a call, and this was sort of the height of the bubble, right, or the height of peak Zerp, as you might say, peak zero interest rates. And Elephant Ventures emailed me. I had just had a conversation with a friend. We had just gone from one to four million in ARR. And a friend of mine had said, you're probably worth 1 to 1.2 times revenue.
And I said, I don't really know of any company that grows 4x in a year and is only worth 1 times revenue.
Chapter 6: How does Pavilion prioritize customer experience over growth?
And that was the moment that Elephant Ventures emailed me. And they said, if you give us a look at your financials, we can tell you what we think the relative valuation is. I said, well, I just had a fight with my friend. So I would love to get your read on the relative valuation. And I sent them by quarter. They came back and they said, we think it's worth roughly $80 million.
We're going to put in this amount of money. Post-money valuation, we think we're going to put in $25 million. It's going to be worth roughly $100, $105 million.
Chapter 7: What strategies did Pavilion implement to improve retention?
And I said, wow, OK then. And that was the beginning of of a different period of evolution for us. And again, coinciding, we had good growth in 2021, but for the last couple of years, the growth has slowed a little bit, and I've made a number of strategic errors, I would say. But also, it's been emblematic of the times, I think. So what are we talking about in this world?
Well, in a world of growth at any cost, investors control the company largely, right? So what is the shift that's happened over the last couple of years? The shift that has happened as we've begun to focus on efficiency, when you're burning capital and when you have 0% interest rates, what do 0% interest rates represent about future cash flows, right?
Chapter 8: What is the future vision for Pavilion as it aims for $15 million in revenue?
Fundamentally, if you go to finance class, you'll learn that companies, there are multiple ways to value a company, but the essence, the foundation of how to value a company is discounting all of the future cash flows back to the present day, right?
And what happens when you have 0% interest rates, when you have free capital, is that the optionality of future cash flows, even in years 10, 20, 30, are equal to the value of cash flow today, which is why it made sense in the old world to burn capital so aggressively. Because if even there was a chance at realizing some kind of outcome in years 10, 11, 12, 13, 20,
Right, all of those years, those out years where you were making a bet on the future, all of those years were effectively worth the same as the years today. Now that's not historically true, right? Historically true is that interest rates themselves discount the cash flow so that cash in 10 years is not worth the same as cash today. Cash today is worth much more than cash in 10 years.
But in a 0% interest rate environment, that's not true. Any optionality on the future is equal to the value of today. If you think there's even the slightest chance that you can generate $100 million in cash flow in 2055, in a zero interest rate environment, it makes sense to invest against that reality. And that's fundamentally why there was quote unquote growth at any cost.
And that's why the equities markets were so inflated, because there is a direct relationship. It's not perfect, but there is a direct relationship between the value of equity, right, and the discount rate that you're applying to it, which is effectively the cost of money. So in that world, and we were we fell victim to that world in a way.
Because what happens when you take in all that capital is that the race for market share becomes the preeminent and predominant race. And what we saw over the course of the last couple of years is that all of the companies were driven by investors determining the outcomes because we needed to deploy that capital.
And when you deploy that capital and you're burning capital, when you're spending more than you make, at some point, one way or the other, the people that own the company are the investors. Now, what happened over the last two years as the Fed and other central banks have raised interest rates is that we've shifted to a different world. Again, mathematically, as we shift into a different world,
the value of dollars today becomes much more valuable than dollars tomorrow or dollars in 10 years, right? That's one of the things that happens. The other thing that happens is that efficiency becomes more valuable because again, profit becomes more valuable because again, money isn't free. Profit becomes more valuable.
And as a consequence of profit becoming more valuable, maybe we look at the relationship between growth rate and profit. But one of the great things about the world that we live in. It's a different world.
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