SaaS Interviews with CEOs, Startups, Founders
Madwire $100m ARR Looks for Private Equity Partner for SMB Rollup Strategy
26 Oct 2021
Chapter 1: What is Madwire's current revenue and growth strategy?
We're about a million a month right now is about what our average is. So, and that's been growing. It's hard to tell because it's new. It's been growing a lot, but we think it'll flatten out, probably be like 20% monthly growth here over the next couple of years. You are listening to Conversations with Nathan Latka, where I sit down and interview the top SaaS founders, like Eric Wan from Zoom.
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My guest today is JB Kellogg. He's the co-founder and co-CEO of Madwire and Marketing 360. He's a 3x top CEO award winner by Glassdoor, an 8x Inc. 5000 fast-scoring company. 4x Glassdoor, best place to work. But more importantly, he left us out of the bio, but I love it. Bootstrap founder. Let's say very capital-efficient founder with more than $100 million in AR.
JB Kellogg, are you ready to take us to the top? I am. I appreciate you. Glad to be in here. I can't say fully bootstrapped, but anytime someone's raised way less than their ARR, I can say they're bootstrapped, right? Right. Pretty much. And we were for the first five years legitimately. What did you do then? You did like 7 million or something, right? 7 million. Yeah. Seven and a half. Yeah.
Why'd you do that? I mean, you're crushing it, it sounds like. Yeah. We were growing really well, but we thought we could grow a lot quicker and could use some of that additional capital. So we found some partners that we liked and went with it. And that was what? 2015? That was in 2015, 14, right in that area. Yeah. Do you remember? What was the valuation back then? Do you remember?
You know, I was just thinking about that the other day, trying to remember what that was. I think it was in like the 40 million range, right in that area. And you were doing what, 40 million on what? What was revenue back then? Revenue at that time was, I feel like our recurring was like 15 million a year or something like that, maybe 20, right in that range. Yeah, that's wild.
Well, what always has impressed me about you is you're, and we'll get into this here in a second, the product, we see the 360 banners hanging behind you, but you're selling to the SMB cohort, which traditionally has a very high churn.
I can count on one, like two hands, the amount of companies with more than 100 million in revenue where their average ARPU, starting ARPU at least, is like the SMB cohort, right? Like less than 200 bucks a month. But I think you fit that mold. So tell everyone what you're selling to these SMBs. Well, we're selling a marketing platform where they can manage and grow their business from one login.
So manage their leads, their customers, payments, and then also marketing. And a good percentage of our customers also add on our marketing program. So they might need help with ad management or content marketing or social media marketing, something along those lines. So in addition to our platform, which is $395 a month, you can add on additional subscriptions for the marketing component.
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Chapter 2: How did JB Kellogg transition from bootstrapping to seeking investment?
Essentially they're on a paid trial. And our goal is to try to retain them past a year and then upsell them from there. So a good percentage do churn in the first year. It's not nine out of 10, but it is about probably close to 60%, 50, 60% will churn, but we recapture our marketing costs.
So it essentially becomes like a free trade for us to discover the golden customer, which is our core customer. And once people are in month 13 and 14th after that year renewal, what's the ARPU there? I imagine it's probably way higher on average than $1,800 a month. Yep. Some of them stick with us in a hosting capacity. So that sort of pulls the average down.
But if you excluded those, it's probably 2,500 a month. Yep. Interesting. And you mentioned something interesting. You casually mentioned payments. I mean, do you have a real revenue stream that's growing where you're now taking a percent of GMV, throwing through your platform a very small percent? Yeah, we do. And that's new for us. So we rolled that out last year.
So it's not been quite a year, but We've onboarded, we're currently onboarding about 75% of our new accounts to payment. So then they're using the platform to process their payments. So this is additional, like you said, ARPU that the customer doesn't really even see because it doesn't get added to their subscription.
It's just a residual on the backend, but that helps increase the MRR per customer. And it's still new for us, but it's growing very quickly. So it's exciting. I can imagine. Some of the fast-growing SaaS companies today are SaaS plus percent of GMV, or even better, SaaS plus GMV plus consulting on your ad accounts or your marketing initiatives. You touch all three.
Before we leave the GMV space, can you quantify that? I mean, this year, how much GMV do you think will be processed through Madwire? Well, about a million a month right now is about what our average is. And that's been growing It's hard to tell because it's new. It's been growing a lot, but we think it'll flatten out, probably be like 20% monthly growth here over the next couple of years. Okay.
Okay. But right now, like last month in September, your customers processed about a million dollars of GMV through you. Yeah. And then your cut on that is what, like one or 2%? Yeah, it's a little less than a percent, but at scale, it moves up to a percent. So we're using Stripe Custom, which is the same thing Shopify is using in most tech companies these days.
The customer doesn't know it's Stripe. It's just marketing 360 payments. They can onboard themselves and do whatever they need to do, but that's the rails on the back end. Okay. So your percentage GMV product in the net is making you something like 10 grand a month. So still a small business line, but growing. Yeah. Small on that end. Yeah. Yeah.
Take us into the third beachhead you're doing, which is consulting. A lot of people say, JB, you can't do consulting. It's low margin. It eats up your time. How do you make it work? We view that piece as adding additional salespeople because the execution of the marketing programs that we have, we've automated a lion's share of that.
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Chapter 3: What marketing services does Madwire provide for SMBs?
Mm-hmm. Mm-hmm. Well, this is interesting. So new account ARPU now is about $1,800 a month, really because of that $400 a month SaaS fee plus the... It really is SaaS. It's recurring marketing-enabled high-margin consulting, but it's really salespeople who are not on hamster wheels.
But I bring all that up because a year and a half ago, you told me your average ARPU starting was like $500 or $600. So you've almost 3x that. Is that right? Or are my numbers off there? No, we have. We've increased it a lot. And a lot of it's because small businesses are really leaning into digital now. I mean, COVID even accelerated that. So your only presence is digital now for the most part.
So you have to invest in that. So we've really ramped up a lot of those marketing programs. That's great. So when you sum all this up together, how many customers do you have on these products today? On which products? It would depend on the product. Well, how would you quantify, right?
So maybe how many customers paying at least a dollar a month for one of these things, percentage EMV consulting or SaaS? Total customers paying? Yeah, that's about 20,000. Okay, about 20,000. That's good. And are you seeing most of your growth these days coming from upselling those folks?
Or do you think most of your growth is going to come from go finding a new 20,000 customers over the next two years, three years? I think most of our growth... coming down the road here is going to be upsells as part of it. But I think acquisition will be a big part of that new customer acquisition. But even more so, we see a big opportunity for M&A.
There's a lot our platform does, but there's also some gaps. So particularly with different verticals, each different business has one or two technology tools that they're using that we don't have that functionality in the platform necessarily, like a HVAC company wanting to track their trucks on the road or something like that.
So there's all these tools and we see it as a great opportunity to acquire the company. We don't need their back office or sales team. We have all of that. We just need their engineers so we can make it extremely profitable. And also it tacks on that growth of revenue and customers through acquisition of which we can then cross sell and upsell from there. So see a big opportunity there and.
Their software engineers are very competitive right now. And so that's also a good opportunity to get a good team with a good piece of technology that's sticky, that customers using it have good churn profiles. That's kind of what we're targeting. Do you have enough dry powder in the bank right now to go do some of these acquisitions whenever you want?
Still smaller ones, but we are looking for a possible new partner that sees in that vision and buys into that, that would be excited about that for additional gunpowder. But we have no shortage of opportunities. We have a huge list of opportunities. We're actively talking with those companies.
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Chapter 4: How does Madwire manage customer churn and upselling?
And we have a good process for that. We've done two acquisitions now. Both went very well, very smooth. And we'd like to go faster if we could. I just need the capital for that. And what is MRR today? MRR today is right around 8 million, right in that range. Last year for COVID was our first sideways year. And that was by design.
We intentionally paused and didn't bill a lot of our customers because we truly work with small business. So for example, a lot of our customers were restaurants, fitness clubs, places that couldn't be open, even if they wanted to in a lot of states. So they were paused and now they are all reactivating. Some of them didn't come back at all. They just went out of business, which was sad to see.
But new businesses are coming on. So our growth, if you looked at it on our chart, our growth was moving up an average of about 30% a year, went sideways last year. This year, when you look at it quarterly, it's about 30% again. So- we're feeling good about the future direction and everything that we have.
So you're sort of flirting back and forth really since 2019, I believe, or 2018, you're sort of hovering between like a low of 95 million in AR versus a high of 110 million in AR for the past four or five years. Is that about right? Past couple years. Cause last year threw us off. If, if last year didn't happen, we'd probably be in the one 20, 30 range right now.
And that's what we're projecting next year where we should be right now. Yeah. And what is, if you're doing $8 million in MRR right now, what is the right valuation? Is $700 million the right valuation? Well, I don't know. The eye is in the beholder. We see companies that are very similar.
And one thing that was really cool last week that unsolicited to us, but exciting to see is DA Davidson did their top 100 in the herd, private companies in the country for tech. And we made that list, which was exciting because when you look at the list, it's actually pretty crazy at the capital raise. When you look at that column,
It's in the hundreds of millions, some billions, and we have an NA next to us. It was so small, it didn't even get anything. It's just NA. And so for us to be competing with those companies with such little capital raised, I think just shows that we're capital efficient. And if we had more capital, we could really do some damage. Oh, I mean, totally. I mean, compare you guys to like Gong, right?
Which, you know, just recently broke a hundred million bucks in revenue, but they raised like 450 million bucks to do it. Right. I mean, you're extremely capital efficient from that perspective. And, and I believe that's reflected in the cap table, right? You and your dad still own what more than 60, 70% of the business. Yeah. About 60. Yeah. Yeah.
And then what probably employee options is pretty big too. Yeah, exactly. Yeah. Really interesting. Got it. So how do you think... I mean, look, I'm sure you have open discussions right now with growth equity firms. How do you pick which one to work with?
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Chapter 5: What new revenue streams is Madwire exploring?
I think there would need to be in order for them to own the percentage that they're looking for, and then additional capital on the balance sheet in order for us to execute the strategy. Yeah. Yeah. Look, right now in my head, I'm going, okay, here are four or five companies right now I'd put in front of JB if he had capital to go do it.
And these are four or five, $6 million companies that sell to your same customer base that you as the hub would be a great hub and spoke monitor to go buy these things and run the whole thing all together. Yeah, that would be awesome.
And the way we're looking at it is if it's a tool that benefits all the verticals that we serve, we would probably eliminate the branding and just make it part of the platform functionality as an upsell or cross-sell opportunity. If it was a tool very specific to one vertical, we would have a marketplace of which we would eventually try to own the whole marketplace. We'd keep the branding.
Those would just be additional fish hooks out there pulling customers into the platform for that one tool that they pay for, but then they can upgrade to the rest of the platform or add additional tools that we own. So that's our strategy and kind of how we're looking at that. Yeah, this reminds me a lot of EIG's model in the early days.
You know, they went and bought, you know, Godat or HostGator and then Constant Contact and all these things. Maybe, hopefully five years from now, you're sitting on a billion dollars of AR too. That'd be awesome. Yeah, Apple Commerce kind of did that too. Who? BigCommerce? EverCommerce. Oh, EverCommerce. Yeah.
Name your verticals, just so founders are listening and they want to maybe have an M&A conversation with you. They know whether to reach out or not. What are your main verticals? Everything small business across contracting, medical, fitness, entertainment, e-commerce. We have tons of e-commerce customers selling anything you could think of online.
So pretty much anything you would have seen in the phone book in the old days, that's all of our verticals. Very cool. Anything I've missed that you want to make sure we touch on before we wrap? No, I don't think so. Check out marketing360.com if you want to learn about the platform. Guys, marketing360.com. One of my favorite bootstrappers at scale. Very rare.
JB, I appreciate you making time for us. Let's wrap up with the famous five. Number one, favorite book. Favorite book. I just read one that I absolutely loved, which is A Man Thinketh. Number two, is there a CEO you're following or studying? Not currently. Number three, what's your, besides your own, what's your favorite online tool for building Madwire? My favorite tool, probably WeVideo.
Number four, how many hours of sleep do you get every night? Six during the weekday and about nine on the weekend. That's perfect. And what's your situation? Married, single kiddos? Married, four kids. One boy, three girls. Oh my Lord. You are a busy guy. And what, you're 41 now or 40? 41. When was your birthday? It was birthday was what? Early this year? May 15th. May. Happy late birthday, man.
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