SaaS Interviews with CEOs, Startups, Founders
HR SaaS Hits $500k ARR Helping Teams Give Rewards to Employees
28 Aug 2021
Chapter 1: What is the significance of employee recognition in HR tech?
I refer to it as net platform revenue. So net platform revenue for last month was closer to 40K.
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My guest today is Aaron Carr. He spent 15 years in the customer loyalty industry before jumping out and launching Carrot, a cloud-based employee recognition platform. Aaron, are you ready to take us to the top?
Certainly am.
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Chapter 2: How has COVID-19 influenced employee engagement strategies?
Fair. Yeah. So your 3% take on that then would be about 45 grand. So you're doing between like five and 10 grand a month right now on percent of GMB revenue. Exactly. Interesting. And is that included in the 23K number you just told me for MRR?
No, no, MRR is completely distinct. So MRR is pure, like the customer has two charges effectively. They've got their recurring charge, obviously for their subscription, and then they separately buy rewards. So those are more on an invoiced basis.
Yep. Yeah. So on average, across these 100 customers, you've got, again, 230 a month coming in per customer per 23k in MRR. But then each customer is also spending some amount then on these rewards. So really, when you add in the reward revenue, your 3% cut, you're more like $30,000 a month in total revenue, right?
Correct. In fact, our total, I refer to it as net platform revenue. So net platform revenue for last month was closer to 40K.
That's great. Yeah. So you're almost at like a half a million dollar run right now. Have you done all this all bootstrapped or did you guys raise capital?
I'd like to say we're mostly bootstrapped. In 2018, I got it in my head that we needed to raise some capital. We did a very small pre-seed round, less than 300K Canadian. So very little in terms of dilutionary impact. What was the valuation on that? So we did, we had, it was a safe, we did a valuation cap of 2 million.
Okay. And would you change anything about like we redid it today or did that, does that feel like the right move?
Do you know, honestly,
was i think we needed the capital at the time but we've also had a friendly relationship with the business development bank of canada bdc and we probably could have just borrowed the capital as well what we needed to keep running i mean we plowed it all into marketing and sales so it paid some dividends um but you know 300k really isn't a lot in the grand scheme of things so if i were to go back i might have deferred that and maybe just look to an alternative non-dilutionary source
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Chapter 3: What is the pricing model for using the Carrot platform?
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So when you look at that plus the $300,000 raise and the dilution associated there, how much equity do you still own today personally?
So on a fully diluted basis, I'm about 65%. So I still have like a good chunk.
Yeah, that feels really good. I imagine that feels really good. How do you grow? Like how do you double revenue?
So fantastic question. Honestly, I think for us, it comes down to plowing more money into well, intelligently plowing more money into demand generation and possibly starting to build out a bit more of a sales team because we're mostly dealing in the small to mid market. The economics are more oriented towards inbound versus outbound.
but we are starting to add a lot more sophistication to the platform and starting to get calls from the much larger multinational organizations so those calls are very welcome but it's like we're in that intermediary phase where we still get nervous picking up the phone when somebody huge calls us um we're more just super comfortable in like the sub 1000 uh level uh we can knock those guys out all day but um
How do we grow? I think investing more in demand generation.
Have you already run a test there and you know, it sort of works? How much did you spend last month on demand gen?
So all in direct advertising costs are between five to seven K Canadian a month.
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Chapter 4: How many companies are currently using Carrot's services?
Um, so we've only been around for, as I mentioned, three and a half years. So we don't really have full visibility on long-term, uh, churn trends, but based on those numbers, we're seeing accounts last like up to five years. Um, and certainly we do have accounts. Our oldest account is like since the inception, like we got a number of accounts that are three and a half years.
Are you upselling them, Aaron? Does, do you have upsell revenue that makes up more than 16% of the churn?
We're trying to get there. We're actually just about to embark on a pricing and upsell strategic review to figure out what services can we append or what upsell packages can we add into the mix. Right now, upsell is more just as our customers grow and add more employees, they subscribe to more seats. We do see that consistently that there's a natural occurring revenue growth
As the economy improves and as things rebound in particular, they hire more.
What is it today though? In the last 12 months, did you expand more to get to 100% net dollar retention or no, you're still below that?
Sorry, can you repeat that?
Of the customers you had exactly one year ago, it sounds like 16% of the revenue churned. How much upgrade revenue were you able to drive? Was it more than 16% upgrade revenue?
Yeah, it's about 20 to 25%.
Got it. So your net dollar retention is like 109%. Yeah. I see. That's great. That's a good place to be in. And you're trying to expand that, it sounds like, which is nice. Any acquisition, folks reaching out, trying to buy the business? You're in a hot space. There's a lot of money floating around.
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Chapter 5: What challenges did Carrot face in its early years?
I'm not sure. I'm not sure.
Come on. That's one, but you own 65%.
That was our valuation cap back in 2018.
Yeah, that's fine. But you own 65%. What is that? 1.3 pre-taxes, post-tax in Canada. What is that going to put in your pocket? 900,000 post-tax. Are you married? Single. Single. Are your parents alive?
Yes.
Will your mom kill you if you tell her you turned down a $900,000 deal that would put that in your pocket post-tax?
She may not talk to me for a few years, but for my daughter, her grandchild.
That's so funny. All right, man. Good stuff. Let's wrap up with the famous five, Aaron. Number one, favorite book.
I'm going to give you two if I can, because I have to give credit to Liar's Poker by Michael Lewis. That's what inspired me to get into business when I was like 15 or 16. More recently, though, the more applicable nature to what I do is The Innovator's Dilemma, Clayton Christensen. I'm sure you've heard that a million times. Just...
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Chapter 6: How does Carrot's revenue model work with rewards?
Any kiddos running around?
I got a beautiful 10-year-old daughter and a nine-month-old puppy.
Oh, wow. Okay, got it. One kiddo and how old are you? I am 47. 47. Last question. Something you wish you knew when you were 20. Oh, gosh.
Honestly, I just wish that I'd known to get in earlier. I remember a classmate in 1996 saying, I'm going to go off and build apps for BlackBerry. And I thought, what is that? Why don't you become a banker or a consultant? That's what all the cool kids are doing. So I just wish I'd had that entrepreneurial spirit a lot earlier.
Guys, there you have it. Aaron at Carrot.com, HR tech player. They help you reward your employees and put together great incentive plans doing $15,000 a month in revenue back in 2019. Now doing $40,000 a month in revenue. Combination of SaaS plus percent of GMV. That GMV are companies buying rewards for their employees. And they take a little cut, 3% of those rewards.
They've got 100 customers today paying an average $230 per month. They raised 300 grand back in 2018 at a $2 million valuation. Team size is six today, four engineers. It looks to scale. Aaron, thanks for taking us to the top.
My pleasure, Nathan.
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