778: SaaS: With $80M Raised, He Left Salesforce to Bring Finance Departments to The Cloud

Dave Kellogg. Dave has more than 20 years of experience in high growth companies. Dave has been CEO of MarkLogic, CMO of Business Objects and member of Aster Data board of directors. Dave steered MarkLogic to $80 million in revenues. Business Objects witnessed equally impressive growth as it reached a revenue of billion dollars under his able guidance. Tune in and listen to Dave as he discusses various financial metrics of Hostanalytics. Targeting small businesses and enterprise level businesses, this company has grown 4x over the past 3 years. Read on and find out what makes this SAAS business tick.

Famous Five:

• Favorite Book? – Chaos Monkeys
• What CEO do you follow? – Marc Benioff
• Favorite online tool? — WordPress
• How many hours of sleep do you get?— 8 hours
• If you could let your 20-year old self, know one thing, what would it be? – Go read Power: Why Some People Have It and Some Don't by Geoffrey Pfeffer

Time Stamped Show Notes:

• 02:14 – Nathan introduces Dave to the show
• 03:19 – Host Analytics is a SAAS company that is disrupting the space for enterprise performance management
• 03:58 – Not dabbling in premise products at all
• 04:28 – Corporate finance does not scale up with growing company size; number of users for such a software is dependent on the centralization philosophy
• 04:42 – A big company might be heavily centralized with only a sprinkling of users, whereas a little company might have hundreds of users
• 04:52 – Pricing model is a combination of a fixed based fee and a user fee
• 05:00 – Fixed fee varies from 25k to 50k—both fixed fee and user fee are recurring
• 05:25 – User fee depends on the user type and to which extent the software features are being used
• 05:45 – Fixed fee per user per month may vary from a couple of hundred dollars to a thousand dollars
• 06:10 – Re-entered the startup world once he quit Salesforce and joined Hostanalytics
• 06:24 – Passed on the reigns at Mark Logic to Gary Bloom—Mark Logic is still doing very well
• 07:05 – Best strategy to exit a startup is to exercise 83B options
• 08:00 – Exercising all options results in FMP (Fair Market Value) equaling strike price
• 08:07 – You lose the optionality—shares might not increase in value at a later date
• 09:00 – Met VC's, entrepreneurs and angels while looking for a new opportunity after quitting MarkLogic
• 09:16 – Dave's buddies coaxed him to join Salesforce as CMO
• 09:39 – Learnt a lot about SAAS at Salesforce. However, he found out that he was more comfortable running smaller companies
• 09:58 – Dave met the founders of Host Analytics through a common friend who was on their board
• 10:31 – HostAnalytics was clocking revenues of $10 million when Dave joined them in 2014; a great board and a proven SAAS model are the other factors which compelled Dave to join the firm
• 11:20 – Revenues have grown 4x since 2014
• 11:42 – Founded in 2001, HostAnalytics grew via bootstrapping for seven years. They finally secured VC funding in 2008
• 12:01 – Raised $85 million to date
• 12:32 – Used 75 cent "I love EBITA" stickers and funnily enough, won customers due to that
• 13:47 – Servicing 700 customers, as of today
• 13:50 – Pareto's 80/20 principle is not applicable to them; they are bimodal with a dual focus on smaller businesses as well as enterprise businesses
• 14:20 – Both of them are run as different cohorts by different salesforces; revenues are split equally between small business and enterprise
• 14:50 – Each client is aggregating revenues of $70,000 per annum
• 15:13 – Payment terms are a tricky issue in SAAS
• 15:18 – While other SAAS players go for monthly and quarterly payments, HostAnalytics opts for annual payment
• 15:34 – If you are giving a discount smaller than your churn rate, then everybody wins
• 16:15 – Customer churn and revenue churn are surprisingly equal
• 16:25 – Spending on an average $1.5 to $ 2 for a dollar of AR to acquire a customer
• 17:16 – A team of 300 people out of which 100 are located in India, entire sales force of 60 is located in the US
• 17:23 – Company co-founded in US and India
• 18:10 – Average lifetime value of a client varies from 6x to 7x or half a million dollars
• 19:39 – Cloud penetration of this market is just 5%
• 19:57 – Finance department is 10 to 15 years behind sales in adoption of cloud
• 20:17 – 9.5 out of 10 people would say "Not now"
• 20:56 – Blended Gross Margin is lower since they have a slightly bigger services business than most SAAS companies
• 21:10 – ERP is a heart transplant. EPM is a knee transplant
• 21:20 – Services business helps reduce churn and create cash flow
• 22:57 – The Famous Five

3 Key Points:

1. A big company might be heavily centralized with few SAAS users, whereas a small company might have hundreds of SAAS users.
2. Focusing on services reduces churn and creates cash flow; however, gross margins are less compared to other SAAS companies due to this.
3. Focusing on small businesses as well as enterprise businesses is important—at HostAnalytics, revenue is split equally between these two models.

Resources Mentioned:

• Simplero – The easiest way to launch your own membership course like the big influencers do but at 1/10th the cost.
• The Top Inbox – The site Nathan uses to schedule emails to be sent later, set reminders in inbox, track opens, and follow-up with email sequences
• GetLatka - Database of all B2B SaaS companies who have been on my show including their revenue, CAC, churn, ARPU and more
• Klipfolio – Track your business performance across all departments for FREE
• Hotjar – Nathan uses Hotjar to track what you're doing on this site. He gets a video of each user visit like where they clicked and scrolled to make the site a better experience
• Acuity Scheduling – Nathan uses Acuity to schedule his podcast interviews and appointments
• Host Gator– The site Nathan uses to buy his domain names and hosting for the cheapest price possible
• Audible– Nathan uses Audible when he's driving from Austin to San Antonio (1.5-hour drive) to listen to audio books

Show Notes provided by Mallard Creatives