Chapter 1: What is the main topic discussed in this episode?
Good morning, everybody. I wanted to just quickly remind you if you love B2B SaaS and you're loving all these CEOs I have on, remember you can get all of their data in a big, beautiful spreadsheet at getlatka.com. That's G-E-T-L-A-T-K-A dot com. So I hope you're enjoying the month. I love December. I love the holidays. And here is our program for today.
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple of hundred thousand dollars to 2.7 million. I had no money when I started the company.
It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode. Hello, everyone.
My guest today is Pete Lamson, and he is the founder and CEO of a company called Jazz HR, responsible for Jazz's strategic direction, performance, and day-to-day business operations. He's a results-oriented executive with a 25-year history of a strategic, metrics-driven approach to accelerate a revenue focus on the global small business market.
He's got deep experience in B2B high-velocity customer acquisition as well. Pete, are you ready to take us to the top? I am, although one quick correction. I wish I was the founder. I'm not. I am the CEO, but I was not the founder of Jesse. Good. Well, I can't wait. I can't wait to dive into that story. A transition from the founder to a to a CEO is always an interesting one.
So tell us what the company does and how you make money. What's the revenue model? Jazz HR was founded and exists today to help small businesses who have between 25 and 50 employees achieve more effective recruiting results. And I think we've all worked in environments where companies recruit using an antiquated recruiting process, which usually is some hodgepodge.
of email inboxes, Excel documents, or Excel sheets, Word documents, and so forth. And it's very manual. It's cumbersome at best. And Jazz HR is a very simple, easy to use tool, highly affordable, that is designed to allow our customers to make better hires faster. And what's your business model? So we sell through ā we're a SaaS model, so it's a software as a service.
We sell through a combination of an inside sales model through our direct team. And we have indirect partnerships with both small and large players in the HR community who offer Jazz HR to their small business customers as well. Give me an example of one of those partners, one that you're really proud of.
So we have a great partnership with a company called Namely, for example, you may be familiar with. They have a terrific comprehensive HR platform that they offer to their customers. And they have the ability, Namely's customers have the ability to purchase Jazz HR through the Namely platform. Another example would be perhaps a company a little less known, although very large in scope and scale.
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Chapter 2: What innovative strategy does JazzHR use to drive customer conversions?
Sure. So Jazz HR was founded in 2009 by a very talented entrepreneur by the name of Don Charlton, who remains on our board to this day. And I came on board in December of 2015 as CEO. The business had grown rapidly under Don's leadership and vision, and we continue to benefit from that. And like I said, I came on a little over a year and a half or so ago.
And walk me through, I mean, was that, has the company been bootstrapped or did you come in with a capital raise? You were an EIR at a VC firm or something like that. So the company was venture backed prior to my arrival and still is to this day. And we have raised an additional round subsequent to my joining the company. How much total raised? I'm sorry? How much total has been raised?
20 million. Okay. And how much was the round that you led when you were CEO? 6.5. 6.5. Okay. Sorry. And I cut you off. Keep going. That's all right. And so it was venture-backed, still is. And like I said, under Don's leadership, the business had grown rapidly. And our charge now is to continue to accelerate our growth, which is wonderfully happening.
We've expanded our go-to-market strategy beyond direct acquisition into indirect, both strategic alliances and what we call channel. Our channel is the ability for small players in the HR space, such as recruiters or HR consultants to offer jazz to their customers as well. So we expanded our go to market. We're increasing our new customer acquisition velocity.
And the other thing we're really doing is focusing on lifetime value. You know, you can sell anybody anything once, but you don't have a business until they renew, especially the SAS model. As you're putting some of these plans together currently, what do you kind of back the napkin think your lifetime value is in terms of dollars and what are you trying to grow it to?
So the average customer stays with us for about nine years right now. And how do you get that number? Can you teach us there how you get that? Well, that's simple math by looking at retention metrics over time and projecting out, assuming our current retention metrics, which we believe will continue to improve.
But even if they stayed flat with where they are today, the average customer is staying with us for about nine years. If I follow that logic correctly, I mean, you're looking at sub 1% monthly logo churn. When you take one divided by 0.01, that gives you about 100 months of lifetime value or close to nine years. Is that kind of how you're getting it? That's about right.
We have listening posts for not only prospective customers, which is, of course, critical. but for our existing customers as well. And really paying attention to product utilization, how they use our products, what delights them, what feedback they're giving to our success team or our customer support team in terms of wishes and needs that we don't cover.
And all of those things are then cataloged, prioritized, and make their way as appropriate onto our future product roadmap. Now, Pete, am I correct here? If you've got 108 months of lifetime and the value of that lifetime is $200 per month, I mean, you're looking at almost $21,000 of lifetime value there. But you said you feel like you need to grow that? Yes, we can.
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Chapter 3: What is the revenue model for JazzHR?
Now, the reason I tried to nail down that number is I want to get in your head and understand how you think about CAC. So how do you think about what you can spend to acquire a customer relative to the lifetime value? Okay. So right now we want to be, we think about CAC to LTV ratio, which is kind of, I think what you're getting at. We aspire to be north of three.
We have just gotten there a couple of quarters ago. And so right now we're about three and a half. So we feel very comfortable assuming our funnel metrics hold, pouring more dollars into the top of the funnel so we can turn the crank and have more customers spit out at the bottom. But our benchmark is if we can keep our CAC to LTV three or better, we're in pretty good shape.
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Now, LTV to CAC kind of ratios can get you in deep, deep trouble if it takes you a long time to recover the CAC, even if the ratio is healthy. So what is your payback period? Do you try and get it back in six months, two months, 12 months? Yeah, we'd like to be 12 or better. Right now, we're just north of 12. It is coming down, but we're just north of 12.
That's I mean, that's still pretty healthy. So I mean, even if you call it 13 months and and again, if you got folks paying 200 bucks a month, that's 2600 bucks the first 13 months. So that means you're spending on CAC about 2600 bucks, which is which is healthy if you're making about three and a half times that on lifetime value. Yeah. Interesting.
What's a weird thing, Pete, you guys have done to acquire customers? Not paid, not inbound marketing, a really weird thing you've tried and it worked well. It surprised you. So great question. I think the strangest thing we have tried is incentivized product demos, which I'll admit I was skeptical. Yeah. You know, Hey, you know, as always try anything, right?
This is your head of sales going, Pete, let me give out a hundred dollar Amazon gift card. Just let me do it. And you're like, what the hell? Why not? Well, you know, and it's one of those, if the math works, you know, you would, you'd keep doing it. Right. And, and I was skeptical. And what we learned was We were driving incentivized demos.
And to receive the gift card, the prospective customer does have to respond, show up, actually attend a demo. It's not just signing up for one and go through it with our salesperson. And then we send them a gift card. For how much?
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Chapter 4: What partnerships has JazzHR formed to expand its reach?
About three. I'm sorry? How much is the gift card? We have tested both $25 and $50. They both work the same. Oh, that's interesting. And where is it too? It's just like a generic Visa kind of gift card or what? Amazon gift card. Amazon. Interesting. And what we learned was about three months post doing this, the numbers were lousy. And we said, kill it.
Now, this is why whenever you're running this kind of a test, both the numbers and the narrative matter. The numbers were not favorable. Looking at purely based on the numbers, we should kill it, which we did. The narrative was- was the response I was getting from our head of sales and directly from our sales floor was these opportunities, these demos are good. They are real.
They're just more top of funnel. It's going to take these leads longer to close, but we have no reason to think they're not going to close. So we, after about three months, we killed it. We went back and looked about three months later and lo and behold, there was a home run. That cohort had started converting into paid customers. That's right.
So what we learned was, okay, as long as the math still works, yes, they're going to spend a little bit longer time in the incubation phase, if you will, but the math still holds. The CAC is still favorable. So we have subsequently turned it back on again, and it's working well. And how many customers are you serving now today? We have approximately 3,000 customers. 3,000. That's amazing.
And are you shifting the kind of customer you're going after? Or do you feel like the pool that you're currently kind of mining or swimming in is large enough where you can expand that 3,000 pretty rapidly? So we have gotten laser focused on sort of the classic product market fit questions, right? What problem are you solving? For who? How many of them are there? Why will they buy?
And why will they buy from us? And we have learned that we do really well with companies that are between approximately 25 to 500 employees. If we get above that, the kind of the enterprise recruiting solution, that's been solved by some really good, you know, really good companies. I mean, there's Taleo, there's Isims, there's others that do really well at enterprise.
At the same time on the sub 25 market called the very small businesses, if you will, there are players that do that very well. We stick to our knitting. If we stay focused on where we win, our numbers stay great, our customers are happy, and so we're staying focused in that market. There are literally millions of companies in that size in the United States.
So we got 3,000, we got a long way to go before we begin to get any kind of market saturation. And most exciting, or the thing that gives us really encouragement about our continued acceleration is that in the market, in that market. 90% of that market has no recruiting solution in place other than word docs and spreadsheets and email inbox management.
And, and yet they all will say, they'll all talk about when, when we chat with them and our market research, how important recruiting is to them. So if we can offer a very affordable power, powerful, easy to use solution, we think we've got great room to grow. Yep. Now you told me 3000 customers, $200 RPO on average, it's fair to say you guys are doing around 600 grand in monthly revenue. Yes.
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Chapter 5: How has JazzHR scaled to 3,000 paying customers?
Are you tripling year over year? What do you want to hit by December 2017 in terms of ARR run rate? Yeah. So, um, uh, we have a lofty goal of getting to 25,000 paid customers by the, uh, end of 2020. We're at 3000 now. Oh, that's interesting. And, and so our focus here, well, revenue of course matters and bottom line matters. Of course, um, our primary focus is let's bring customers on board.
Let's let the way to build enterprise value is we want to have a large number of small businesses that uh that are paying jazz hr um to help them address their recruiting needs and if we've got 25 000 paid customers um again it's not that revenue doesn't matter of course it does but that's going to create material enterprise value and that's our primary
Can you give me though, Pete, a sense of growth? So if you're at around 600 this month, what were you like December of 2016? So we were, again, I'm going to be a little bit cagey on numbers, but right now our net new MRR is growing. In Q2, it grew north of 600%. In Q3, we're growing at probably about 500%, maybe a little under that.
Do you think you'll pass by December this year, maybe like 700, 750 grand in MRR? Yes. You think so? Awesome. Awesome. Very cool. Last question here. What's your team size? Uh, we have about 60 employees, 60 employees. And where are y'all based? We are, are, are, we have two offices where Pittsburgh and Waltham, Massachusetts, which is just outside of Boston.
We've got a product engineering support, um, finance, um, and some GNA in Pittsburgh. And the Massachusetts office is almost, almost entirely go to market. So sales marketing and biz dev. That's very cool. Pete, let's wrap up here with the famous five. Number one, what's your favorite business book? So I'm going to give you two.
I've actually just finished The Founder's Mentality by Chris Zook and James Allen, which is an enterprise-focused book, but it really applies to small businesses as well. And it's really about staying laser-focused on solving customer needs and problems and not losing sight of that customer mentality, customer-first mentality.
My favorite, probably my go-to is The Five Dysfunctions of a Team by Patrick Lencioni, which is really about how the team is more important than individuals. Number two, is there a CEO you're following or studying right now? Hard to pick one. As we all sort of self-reflect and think about how we can be better, that's a number I look at.
I'll give you two of the sort of well-known would be, one would be Andy Grove, who's You know, his laser focus on execution as a differentiator, I think is critical. It's, you know, while strategy matters, it does. Execution is critical to growing any business. And I really respect Jeff Weiner for his kind of humanness and openness within the LinkedIn customer base.
More locally, there's two that I have had the good fortune of learning from. One is a gentleman by the name of Jeff Bennett. at Name Media, and he spent time at Lycos. And another is a guy by the name of Rick Libby, who I worked with at a company we sold to Monster years ago.
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