SaaS Interviews with CEOs, Startups, Founders
How to Build SaaS Company in Small Biz Space, Sell for $30m With Jay Bean
27 Jan 2016
Chapter 1: What is the main focus of this podcast 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 is Rich Jones. Okay, Rich Jones, he is stuck in corporate. He wants to break free. He's binging on the show. For your chance to win $100 every Monday morning, simply subscribe to the podcast right now on iTunes and then text the word NATHAN to 33444 to prove that you did it.
Coming up tomorrow morning, Top Tribe, you're going to hear from Michael Devlin, and he breaks down how to predict sales success on Amazon using a very, very interesting algorithm. Okay, Top Tribe, good morning. I am here with my coffee, really excited to share my guest with you today. His name is Jay Bean and he's the founder and CEO of FreshLime.
He's also a focused and innovative entrepreneur with over a decade of online marketing and digital experience. Jay has a proven record of growing digital media technology and online advertising-based businesses with his singular vision. He brings to market startups that offer tremendous value to shareholders and consumers.
He was the founder and president of Aha.com until its acquisition by Marchex in 2003. Jay then moved on to found local online marketing company Orange Soda in 2006, which he then sold to Deluxe Corporation in 2012. He then left Deluxe. the position at Deluxe, which is chief strategy officer, to start FreshLime in 2014.
He's also won all kinds of awards, including in 2009, the Ernst & Young Entrepreneur of the Year finalist. He loves SMBs. That's why I wanted to have him on the show. Jay, are you ready to take us to the top? Absolutely. So let's do this. Let's go all the way back. First things first to AHA. Why did you jump into the startup space back in, what was that, 2001 or 1999? AHA
It was actually 1999, 2000. I was working for a guy that I thought that I could go out and I don't think he really appreciated me and he didn't build a great culture. And I saw the online space and thought that I could go out and create a cool little company. I just didn't realize how hard it was going to be. So what was AHA.com? AHA was actually one of the early pay-per-click search companies.
And we actually built a great little business that grew in three years from startup to about a $35 million run rate before it was acquired. And when you say $35 million run rate in kind of the pay-per-click space, I mean, is that a true MRR, monthly recurring revenue business? How do you measure that? Yeah.
I mean, we had about 40,000 small business advertisers, about half the revenue was actually paid out to our distribution partners, which at the time were a lot of the, the major, um, search engines that are now no longer around. Got it. Okay. Very cool. So you sold that to March X. You said it was a $30 million ronate. What'd you sell it to March X for? We actually merged with them.
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Chapter 2: How did Jay Bean start his entrepreneurial journey?
We made, I mean, most of us internally probably made more off the stock than we did off the upfront. Probably two to one. Okay. So what was it? Again, if you had to try and quantify, I'm trying to basically, the reason I want to do this is for a $30 million run rate back then. I'm curious what the multiple was. It's probably like probably equated to about one and a half or two X.
One and a half or two X of top line? Yeah. Interesting. Yeah, I'm having people on that are, I mean, Jay, you probably see this in the market right now. They're just getting ridiculous top line MR multiples, which I think is crazy because they're never going to grow into these valuations. I mean, they're sunk basically unless they go public. No, it is.
I mean, I think, and that happens within markets, right? I mean, I think you go through these evolutions and part of my current startup, I mean, we're very much more, we're very much, software based versus service based.
I mean, cause I think even orange soda, I mean, aha, um, both had a service component and service, anything that has a service component that is a little bit more service than software. Um, you take a, you take a huge hit on, on kind of that, that multiple, but just, I think, yeah, I think you're right though. I think that we're in a, in a little bit of a bubble there.
And it's what you're articulating basically when you have like a $2,000 setup fee and then it's 200 bucks a month. You know, those professional services fees are great for cash, but in terms of a discounted cashflow model to get a exit price, they're really just going to look at the MRR. They are. Yeah. Everyone's going to look at the MRR. Yeah. Okay.
I just wanted to make sure I was following you. Okay. So walk us through, you sell to March X, you get some cash, some stock. Why'd you found Orange Soda? And then walk us through the sale to Deluxe in 2012. Yeah, I mean, we actually stayed there. I mean, almost our entire team stayed at March X for about three years. I left and moved my family to Europe for a year.
And while I was over there, I started Orange Soda. And at the time, I mean, I saw this transition small businesses really kind of exiting yellow pages needing to get online. And we thought that we could create some simple solutions that enabled them to see success with not only paid search, but really SEO, which was on the local or small basis in 2006, 2007, and was really unheard of.
I mean, just because the prices were not affordable. And what we were able to do was to take an enterprise level SEO solution and And put it onto almost like an assembly line approach where we basically cut it down to little bits, use technology to tell us what to do. And then we had people do, we had manual people write the content and do the postings and other things like that.
But what we were able to do was to take a $1,500 a month SEO project. type of account and sell that for $200 a month or $300 a month and be profitable with it. Interesting. So about $200 to $300 a month was about the average ARPU across the small business that we're using, you guys. How many small businesses did you grow to in terms of paid customers before the sale to Deluxe? About 10,000.
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Chapter 3: What was the story behind AHA.com and its success?
What would you tell people who are currently stuck in a position like Chief Strategy Officer that want to get out? I think it's extremely hard. I mean, I've been in kind of a startup mode for the past 15 years. And so when I start something, I know I'm going to ā
I know I'm going to sell it at some point, and I'm going to work there for a little while, and then I'm going to go probably start something else. And so for me, the decision was pre-made even before I sold to Deluxe that I was going to leave at some point. I just didn't know what that point was.
But I think it's really hard because, I mean, if you have a great salary, you have great benefits, you're working for this company, and then leaving knowing that you're not going to get paid for a few years ā and that you're going to have all these other stresses.
I mean, I think it is really hard for a lot of individuals, but at the same time, I mean, it's so rewarding when you see, Hey, we've started with a clean piece of paper here and we're building something and coming up with the right product market fit, so on and so forth. I mean, there's also so many rewards and, and you, a lot of times you do, you get a payday at the end.
It may take you three or four or five years, but you do get a payday at the end if you're successful. And so, but I think, I think it's hard. I think it would be helpful for people to understand the opportunity costs, like what you really gave up in order to like take this leap. It'll give them more confidence. I think to do it themselves.
Do you mind sharing as chief strategy officer at deluxe, just ignore benefits and everything. What was just the pure salary there that you gave up? Um, well, I don't want to give my exact salary, but I mean, I, I, I made more than I, I, I've ever made as a CEO of my own company from a pure, um, or a range. What's a range Jay. Give us a big old range. Um, two 50 to three 50.
I mean, somewhere in there. And so, I mean, you're, you're, you're making decent money and, um, and then, but you know that you're going to go and I've done this, I've done this a couple of times now. So,
between aha and orange soda i essentially went for four years with making zero dollars um i'm back to that again so i mean you have to have you have to have some confidence that um in your abilities to actually build something um but i don't know i think it's i think it's it's it's still difficult for people i mean they have to kind of get over that and be prepared um from a
From a financial standpoint, knowing that you're going to be going a while, don't think that you need three months worth of money on hand to pay your mortgage, right? So there was a lot of recent graduates listening that are maybe making $50,000 or $60,000 working in New York or Chicago or San Francisco or Austin, Texas or whatever.
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Chapter 4: What challenges did Jay face when selling AHA.com?
I had no experience starting a company. But you can persevere through it. I mean, you need to figure things out. And I think that Every startup I've had, there's those hard times where you don't think you're going to make it to the next day, but by just kind of sticking with it and persevering and believing in that dream and getting others to believe in that dream, you can make it.
So I don't care if someone's making $30,000 a year or $50,000 a year. They'll figure out a way to make it happen, right? Well, when you left that $43,000 a month job at 29 years old with two kids, did you have some money saved so you knew you had some runway for yourself if the business failed? Yeah, I had six weeks of runway. You had six weeks of family expenses and rent saved.
You are a crazy man. Yeah, I literally had nothing. And I remember, I mean, I've sold... cars when I've needed to, to get along. I mean, I mean, so you do what you have to do. I mean, you, you, you put money on credit cards. I mean, I've had, I've had times where I've had well more than a half million dollars on credit cards. Half million dollars, Jay. Holy shit. That's crazy. How did you do?
So you just basically use that just with the confidence, knowing that one day you're going to pay it all back. You're going to be successful. Yeah. Yeah, I mean, but part of it is, I mean, just leveraging. I mean, it's harder today, I think, from a credit card perspective. But in Orange Soda's case, I mean, yeah, we would just use credit card to help us float our Google payments and other things.
So it gave you 60 days of extra runway on without raising more money. So, I mean, but anyway, you kind of do those things, right? What did your wife think about all this? She's actually used to it. I mean, I think she knows what we're getting into when we when we when we're going to go start something new. And and we know that we look at our expenses differently.
We we I mean, our lifestyle does change even now. I mean, being in a startup, I mean, we do change some things. I mean, we still there's some things that we do.
don't change i mean we like to go on vacation a couple times a year and so we still plan those out but um but we're not probably taking um the trips that we would if we had more if we weren't in startup month plus you don't have the time right yeah yeah okay so let's this is really valuable people are going oh my gosh jay's just like me they're going to research the heck out of you and jay will link to everything about you your twitter your facebook your websites your your history in the show notes at nathanlaca.com forward slash the top
So tell us about FreshLime. On your homepage, it says, build your business, grow loyal, dependable customers. When people pay you, what do they buy? So they're really getting two things. I mean, so small businesses have a hard time attributing their marketing dollars all the way through transactions.
So any real marketing function for a local service-based business today, for example, let's say it's an air conditioning company. company or someone, a salon or whatever, they really attribute most of their value to the clicks and the calls that they get. What FreshLime does is we actually take it one step further and we actually help them attribute value all the way to the transaction.
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Chapter 5: How did Jay grow Orange Soda before selling it to Deluxe?
Yes or no. Do you get eight hours of sleep every night? No, I'm not an eight hour. I'm a five or six hour night sleeper. Hey, there you go. Extra efficiency. Last question, Jay, you said you're 43 now. I'm 45. 46. 46. Okay, take us back 26 years. What do you wish your 20-year-old self knew? That's a really good question.
Probably, I mean, have confidence in yourself, but also, I mean, I think utilize... others to help you accomplish your goals. No one's going to build a successful big business all by themselves. And so kind of the network and relationships are super key. And that's something I did not understand when I started AHA. I learned it. It was very key in Orange Soda.
But I think as much as you can network and utilize others and mentors to help you get where you're going, the better off you're going to be. Well, guys, there you have it. Jay Bean from founding Aha.com back and selling it in 2003 for somewhere around $30 million to founding Orange Soda and exiting to Deluxe to now relaunching, giving up everything and relaunching Fresh Lime in 2014.
He'll do $250K this year and hopefully $3 or $4 million next year. Jay, thank you for taking us to the top. Hey, thank you. 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. Guys, Jay was a star today. He did so well. Everyone's going to love this.
And if you enjoyed Jay, go listen to Troy yesterday. He's got a great business. And I flat out asked, would you sell to WP Engine for a million bucks? He answered live on the show.
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