From $150M SaaS exit to building again: Larry Kim on growth and acquisition

0:01With the benefit of hindsight, it could have been done with even less than 18 million. Okay, so like I think what happens is when you raise money, it allows you to make bets that you might not have otherwise made had you been operating on the edge of a knife. Welcome to the SaaS Revolution Show, a podcast by SaaS.com. Here we interview SaaS founders from around the world who've been there and done that. They share the ins and outs of how they built their businesses, their operations, their path for securing investment and more. Our mission with the podcast is to help you, the founder, learn how to scale your SaaS, maintain your well-being, and navigate the complexities of this ever-changing industry.

0:41I'm your host, Alex Deema, and together we'll explore the good, the bad, and the ugly in the journey to SaaS success. All right, welcome back everyone to the SaaS Revolution Show podcast. I am your host, Alex Deema, CEO, founder at SaaSDark, and also general partner of Back future ventures. And today I am delighted to be joined by Larry Kim, who is the CEO at customers.ai. Welcome, Larry. Awesome. Thanks, Alexander. Great to be here. Good to have you. Whereabouts are you at the moment, Larry? I'm in Boston, Massachusetts in the United States. Are you Boston born and bred? Has Boston always been home?

1:20From Canada. I studied engineering in camp okay uh and um i think like like i mentioned larry look i think this this is well certainly is our first conversation uh but i i felt like i knew the name i knew the face you know when i looked on linkedin uh and there was a reason for that right and i think you you've been like pretty active online i mean not only is this let's say your your second sas business but uh i I think like across the social platforms, across sort of blogging, it seems that you're a pretty active guy within the space. Sure. So it was just lead generation. So my last business, which is related to this, we got to a point where the product was pretty good.

2:08And sort of the constraint on, you know, what was, you know, how do you 10x the business or whatever? How do you grow the river? It was just GTM. And so we went really hard into content marketing, like just publishing a ton of articles on tips and tricks on how to do various growth marketing tips. It was quite a publishing empire. We were, you know, I was like the top, I still am, like top six or seven publishers on Medium. There was like a syndication of content into like dozens of these news magazines and like CNBC or Inc. magazine. It was just like a content empire, and it was driving something like 3 to 5 million visitors to a website that sold online advertising tools.

3:02uh so you know the the you probably saw me sometime over the last decade because we we were just publishing a ton of um you know how to and tips and strategies and guides on various uh channels uh for for marketing like social media marketing paid organic uh facebook ads google ads um that that mostly uh online advertising and so we we will talk about that that first business word stream which you exited and i think it was 150 million um uh on the exit right and you're going uh again uh with with customer.ai um and you're also like you said have been very heavily active like online content marketing outside of that larry like who is larry kim outside of like i build sas companies and i do content marketing online uh that's it's it's a big part of it i mean i do have two boys um they're uh six and ten it's a great grade one and grade five i think um uh it's it's it's a that's that's pretty uh time consuming if you've ever i've got two girls eight and ten yeah that seems similar uh and and uh you know one of them has autism so it's it's it's uh same here you know a lot of activities and that kind of stuff no uh it makes it like, I mean, like for me, I don't know if people, well, ask who I am, but in terms of like, what do I do?

4:31And what does like a week look like? You know, I work Monday to Friday, I try and get some time in, you know, for the family, you know, after work, and the weekends, I'm exhausted. I don't really want to do anything. But obviously, I do make time, you know, for the family, the kids are also at a certain age now, like certainly like that, you know, well, but maybe both eight and 10, where they actually want to hang out with their friends on, you know, and a saturday and sunday and not dad so much um so it often does give me a little bit of space to uh chill out and rest up and get ready again for uh for the week ahead but in terms of uh do i have any active hobbies and sailing and so on and so forth uh i'm ashamed to say well maybe not ashamed but afraid to say i don't so very much consumed by work and family i have a compound on Cape Cod it's like a it's kind of like a the area that people go to uh it's uh quite nice and that's that's that's where I go uh on weekends chill out unwind refresh reflect very nice very nice uh and so um Larry you're you're on your second sass business let's talk about your first one a little bit first right so um uh this was a business i i believe you bootstrapped but then took some venture uh and then and perhaps you can share the time scale then then you exited it and i uh i think as i i sort of read for about 150 million um share a little bit about that um uh you know i'd love to get some of these these learnings and like maybe even talking about why did you start the business why did you bootstrap initially why did you take venture uh you know why did you sell the business when you you sold the business and you know perhaps how uh within that you know some of the the the key inflection points of you know uh going through growing that business i started out of college uh in my 20s uh time frame was around 2008 uh and uh the uh initially it was just doing online advertising consulting work uh and uh uh that that was a great business like still is but like uh even more so then because like i think a lot of those new channels like scpvc were a little more mysterious i think they're pretty well documented at this point in time um but uh that's amazing like you could charge you know 5 10k retainers for you know 10 10 clients and that's that's a lot of money for a like a person they're like early 20s or whatever uh and the uh the the evolution was simply that uh one of scale uh so the you know around the time i kind of maxed out on capacity like there's only you're a solopreneur there's only so much work you can do uh and um i started building uh software automation tools to uh uh kind of automate stupid repetitive work involved with keyword researching or just the tasks involved in managing these campaigns.

7:34And it's worth noting that my background is in electrical engineering from Waterloo, Canada. And so that wasn't that hard. But then the light bulb went off. I saw other companies raising hundreds of millions of dollars or tens of millions of dollars to enter those solution spaces of automation of these campaign management for keywords and ad campaigns and stuff like this and I just thought what the heck this is my big opportunity why not just sell the stupid automation tools that I was just using in-house rather than doing a straight services company and so that was the genesis of that and it is very helpful because you have revenue coming in so you can stuff up your team and marketers salespeople engineers it's from the consulting business um and uh all the while you have like a test bed of clients that you can actually you know make sure that this is is having the intended effect it was it was this is a very uh kind of a nice you know consulting to sass uh kind of conversion and then towards uh late in in 2008 i i pitched a bunch of um uh early in 2008 i started pitching all these uh venture companies it was kind of comical um you know uh i would say that it wasn't as easy as it is to do now uh back then because it didn't have all the sas communities or the venture communities established so it was just like emailing the front door like it was like hello at venturecompany.com or something like this.

9:23And, you know, I got about 100 meetings. Sorry, 100 pitches, seven meetings, two offers, like long story short. And I did a$4 million Series A in 2008, September. So that was, you know, I actually thought we made it. But, you know, it wasn't that way. It was like, you know, the churn was too high. The market was like too low, too down market. twists and turns and eventually it grew to over the next decade to be a 55 million dollar revenue uh in by 12 so from 2008 to 2020 18 to 2018 uh it grew to be about uh 55 million in revenues 60 million in EBITDA and it was acquired uh for uh 150 million dollars by Gannett that's the parent company at ush day and and um so that's like um not bad like we raised we raised 18 million okay so that's i'd take it larry that's it that's like i own a lot of that and and like all all the team members exacts they they did good like uh my investors they made you know depending on when investments.

10:44Plus, that$150 million was closer to$200 million because there's escrows, earnouts, escrows, and there was$25 million of cash on hand. That gets distributed to the shareholders before the acquisition goes through. So it was pretty spectacular. um and um uh the i think well i'll just stop here like what what what do you think i i i guess uh so look i mean classic uh we hear a lot like you know consulting services business to sass and um makes a lot of sense um you had that uh customer revenue coming in from consultants and consultancy business that you could then uh you know sell into for the automation tools kind of give you this, I don't know if I call it a head start, you've created this, right?

11:37But you mentioned there that a couple of things. I guess kind of like, first of all, given that you probably, you had this income coming in from the consultancy services business, why take the venture route? Like, first of all, any regrets with that at all? I mean, like, obviously the outcome has been very good. Any regrets? Do you think that you could have just funded it and been bootstrapped because i do know uh um uh you know people that are doing this model like as you as you've said and you know they bootstrapped to 10 million uh shall we say um you know no plans to take venture is that something you ever kind of like reflect on all the time um at the time um i think there was a fear of uh missing out like fomo uh that there were other competitors that were uh sort of raising money with like big name vcs and um i just felt that uh it was now or never kind of like you know this is not something that i can revisit a year from now like there was there was a window uh so so that was kind of what i was feeling at the time and with the benefit of hindsight um it could have been done with less even less than 18 million okay so like i think what happens is when you you uh you raise money it it allows you to make bets that you um might not have otherwise made had you been operating on the edge of a knife there's pluses and minuses like you know scaling up the business before you know like the the it had all the perfect uh uh kind of retention metrics and all this stuff like Like, so it's kind of, the plus is it allows you to find those errors faster.

13:26Like, you'll smash into things quicker. But it's a little less efficient because you're kind of bumping into things along the journey. So overall, very happy. A lot of learnings. I could tell you one thing about this experience. it said i certainly don't believe that you need to raise like these enormous amounts uh like uh you know like some for my current uh business like we did a series a uh customers ai it was only five million like there's people who are doing like 25 million dollar series a's and stuff like this like like i think that's you know i wonder if you could be more efficient is sort of worry.

14:09Okay. And then a couple of things just on the WordStream side then. So you mentioned that churn was really high in the beginning. Churn was too high and ACV was quite low. So how did you fix these issues? And then maybe that sort of leads on like, how did you get it to 55 million in revenue? Maybe what were some of the big bets that because you'd taken this venture that you you placed that paid off when there's some kind of issue with product market fit you either have to change the market or change the product um and we had the benefit of um you know because because i i'm just capable in marketing uh we had the benefit of this like enormous amount of inbound leads that were flowing through the front door um and and so um you know when we we we could either make the product more sophisticated and upmarket, or we could change the target market to be bigger companies, or align the product with the leads that were coming in the front door.

15:20And we chose the latter because we just thought, holy moly, towards the end, we were getting like, I don't know, 50 ,000 signups for, for various things like every month. Okay. Um, you know, but, but this was like, of which, you know, 2 ,500 are spending more than, uh, than$2 ,000 on ads or something like this. Uh, but, but the point was, we just, we dumbed down the product. We, we just made it substantially less, uh, less, less complicated and just made it more like a idiot proof and um uh and then kind of move the solution space to be less about like keyword research and stuff like more kind of project oriented tasks to more like you know add campaign management which is viewed as more of a kind of a ongoing task where you know you hire agencies to do this work and it's ongoing and those were the two kind of changes that we did there um you know i thought it was a big deal at the time but now i think of it it's like like that's that's of course what you have to do on on the uh if you look at the period that you're going through the mna um first of all like how how did they how did you get connected with you said gannett right um like did they reach out to you did you get an email one day and then And they're like, okay, you know, we want to acquire you.

16:47So I'd love to know that. And then how long did the process take? Was it a, I think often, maybe it's an obvious thing that, you know, going through M &As is a distraction. So how do you keep the business performing? Maybe we'll just start with that. So the year before we were acquired, we were running a business that was insanely, you know, cash flow positive. of like it was like the year that we exited i think i said it was 55 million 60 million ebitda okay so um we we were you know the board uh had to make a decision on like what do we do with a company with this profile of like 55 million in revenue or yes some large amount of revenues and a high ebitda do we um you know invest in new markets and then like you know try to triple the product lines and then, you know, get more share of wallet?

17:42Do we acquire businesses with this humongous pile of cash? Like, and, you know, the idea was like, well, what, you know, why don't we try to get some optionality and test the market to see, you know, what the market might value, you know, like an asset like this. And, you know, we hired an investment banking firm, was Houlihan and Loki. And they ran a process. They, you know, inquired about, you know, the private equity companies first. And, of course, we got a couple, you know, term sheets. Like, they'll buy anything, these guys.

18:24And then we used those kind of phony baloney term sheets from the private equity folks to kind of create some urgency around some strategic partners and buyers. And so, you know, that was, it's, look, if you're going to be selling your SaaS, like, I assure you, like, the people who run these processes will, you know, will run you through something similar like this. And ultimately, there was a couple of firm offers towards the end of it. And we went with Gannett. I know a few, but not many, who have gone through the process without hiring a broker or a banker to do that. You chose a banker to run this process.

19:21Would you have changed that in any way? or would you like certainly from your experiences recommend that you you have um that support no so i would change it but not the way that you're describing um the you know i feel like the the look this was a spectacular outcome like like 18 million to close to 200 million if you if you count like earnouts and cash on hand um 18 million invested so that's it's plus it's like almost 10x whatever uh so uh that said like the acquisition price was like three times revenues uh you know 15 times ebitda or something something like that okay um so we're i think some of my friends have made out like bandits um in their like my other founder friends uh they uh i would say that it has to do with uh strategic multiples okay and um my one observation to share here would be if you run the process the way that i described um it's i feel like it's less likely that you'll get a strategic multiple um an alternative way i think you suggested like wanting to run the process yourself sure you could save like two percent on broker commissions or something like this but like an even more strategic way of doing this would be to build out like strategic partnerships like during the the decade that you're running the the um the uh you know building building the the asset uh and and then have like and never run a process at all have make it like so it's obvious so that they come to you and then you can be like kind of the reluctant um you know uh, acquiree, uh, to, to kind of, um, you know, grudgingly accept some kind of, uh, strategic, uh, multiple, like, uh, and, and, um, you know, there's like within my space, uh, marketing, uh, sales tech, that kind of stuff, like the most strategic valuations I see are like, you know, 10, 15, 20, you know, the times, uh, times revenue even like, uh, so, um, you know, not complaining like it was everyone everyone's happy uh you know in the back of my head wondering like had i forged more uh strategic like even more like we were partners with google facebook obviously but like you know could we have done things with i don't know like salesforce or like you know etc etc like and and um and become like more essential to those other ecosystems and created a more strategic outcome.

22:12Like, who knows? It's actually one of the reasons why I started a new business, is just to test some of these theories. Okay. Good segue then into starting this new business. So, like, was there a gap before you decided to, like, go again? Like, have you taken some time out for yourself? Have you gone straight back into it? I left WordStream in 2017, like, the year before, because I didn't want to be part of the two more year. It's like when you start talking about an acquisition process, they assume that the team that's going to be the go-forward team is the team that's at the table there, or usually.

22:53So now I just bowed out towards the very end there. I was ready for something new, though. and uh uh i think the question is uh time off so no i went through something else maybe i should have been more strategic with that um but the uh the new company is called customers ai uh we do visitor identity kind of resolution which is uh seems quite magical like we can just marketers are trying to get people to fill up forms on their website and um uh typically the form fill rate is like one, two, three. It's like low single digits and percentages. And the idea between of website visitor identification is that it can actually get substantially more of these identities without having to have people fill the forms.

23:46And we're just using different signals and trying to figure out who the heck this is browsing your website. I think the reason why I was so interested in this space is just from the decade working with these over 10 ,000 customers at Wall Street and agencies. And the issue was that, holy crap, not all of them, but most of these ad campaigns, especially towards the end of that run, were not profitable. Like they were loss leaders. They were just doing this as a kind of a FOMO or table stakes rather than like a money making machine. It's even deteriorated more, you know, six, seven years later. Like this is a it just gets harder every every quarter.

24:33and it just struck me as, you know, there could be a, oh, the one campaigns that was always working was remarketing. Like the people who visited your sites and if you write campaigns against those people, it wasn't just a little bit better. It was like, you know, 10 times better. And so if you think about like customers' AI, it's kind of a website remarketing capability. It's revealing identities of the folks who are in market for your products and who have heard of you as evidenced by the fact that they're on your website. And that's kind of like the low-hanging fruit of where you should be focusing your GCM efforts, like emails, ads, postcards, like whatever.

25:15It should be to the squeezing more from the, you know, all the roads lead to your website. And, you know, instead of capturing 3%, capture 10, 20%. And that was kind of the idea there. And in terms of your GTM playbook, then are you taking some of what you were doing with WordStream and, you know, the content marketing, which was bringing in, you know, 50 ,000 leads or inquiries, you know, a month? Like, how have you approached for this product? Sure. So I think one of the things like its founders believe is that they know how to solve something because of how they solved it in the past. And I just think that the the GTM playbook is just completely out the window.

26:06Like it's just changed so much because like I started that, you know, content marketing playbook like back in this is this is like 2008. Okay, so this is almost, you know, more than it is 17 years ago, okay? So there, like, I was building a website that had like, you know, 6 million links pointed in 22. You could do that. And so now this thing ranks for everything, okay? It's not possible to do that as a new business starting out in 2024, 2025. Like, it's just not possible. So those channels have their kind of winners and losers.

26:49So I think your question is like, are we just solving it the same way? And the answer is absolutely not. It's completely different. It's flipped on its head. I think it's more about, I don't know, it's much more about an account-based focus rather than a broader SEO, PPC strategy. It's much more intentional to go after a very specific. And with that, do I then assume that ACV is higher if you're doing a kind of account-based focus? uh yeah so we have like the the the range of the my last company's uh kind of mrr was like one uh 199 to the most we ever sold was was 999 here here it's more like closer to 500 minimum and and but we have like you know a company that that's doing like 10k like it's like multiple like in the so that's 100 over 100k acv so um uh so it's just yeah it's definitely a market and then i i guess on the the account-based side like maybe you can just go a little bit deeper on that and share maybe some of the things that you're doing if you say okay we're uh we we have a list of however many companies that would be a great fit for our products and if we take one of those in isolation how do you approach uh that product and then you know get uh sorry that company to then get them to hopefully eventually become a customer um well it's it's it's hard uh you you email the heck out of them you target ads like you know specifically to those people um and then you you try calling them you try you're randomly bumping into them at conferences you uh you try to get intros like it it's just a different um different sales motion and do you like in in understand it's different is there uh and assuming it's a lengthier uh sales motion uh as well like what what would be the typical like okay we just started like emailing and retargeting them to you know closing uh a customer down it's variable so the some respond pretty quick others can take 18 months uh but what i can tell you is that from the point that we we do kind of book a meeting and make contact um the the sales cycle is very short it's uh maybe two two or three weeks um the the reason is um the this this product customers ai it is a killer in terms of roi like it uh like if you just like one of the most profitable email flows like sequences in a e-commerce business is the cart abandonment sequence like like as much as five to ten percent of a revenue from a business could be from one stupid email autoresponder okay uh and it's like it's like alex you you left this in your cart here's a coupon buy the damn thing um but that is only being fired for like you know a very small percentage of people who are like logged in you know you know where the cookies didn't expire like all like all these things have to happen in order for that to fire and like we can usually like two three four x that just just don't change the email just we'll we'll send it to to more people and and and that's usually like extremely roi uh positive uh so um you know when they see that it's it's it's uh it creates a sense of urgency which i think is stronger than some of these products where it's based off of like time savings or productivity gains or you know this is a this is like revenue like there's a straight path to revenue uh and and it's it's it's quite exciting and maybe just two final questions uh here larry so um as with word stream uh with customers ai you've raised a series a or you you've raised a raise around right i um but you didn't raise the series bc uh i think with uh uh with wordstream are you planning on similarly i'm just raising you know uh this round and then not looking to raise the next how are you thinking about that um uh last year we we focused a lot on efficiencies so like we we've like more or less eliminated uh like a six-figure monthly burn um and um you know like maybe maybe it kind of goes a little bit positive or negative or we're effectively at a break even here um so so we have options um my hope would be to um now at this juncture to um really uh get get more credit uh before considering uh another round right because like i think what they want to see is like you know uh like 150 growth it's something ridiculous like that like Like, and we just have to kind of grow into that so that we can get the credit, you know, for having executed, you know, that's all.

32:11So yes, but it's just a matter of there's certain growth goals that we are looking to achieve first. And in times of this being the second time around, is there like anything that's been like unexpected in being the CEO, you know, for the second time in, I guess, kind of like this era or with this business or something, you know, something that's like change that's harder? I think it's the last business was more of an operational thing. So, you know, like we're just implementing APIs. So Google and Facebook have to have these APIs for manipulating ads and we just create an interface. And the company who wins, there's not a lot of like splitting the atom like from a technical perspective.

33:08It's just implementing APIs in a competent way. And so whoever won the industry, and we destroyed all the competitors, was kind of the company that was the strongest operationally. So like, you know, marketing, CS, and sales, GTMotions, who had the strongest operational efficiencies. And we had an amazing operating partner, Ralph Foles, who, you know, I give them all the credit for that. This new business is what we're finding is this is much more of a kind of like a engineering, you know, hard science type of thing. Like we kind of have to figure out, you know, who the heck these people are. And that's not as easy as it sounds.

33:58There are a lot of companies in the space who are kind of doing this. There's like dozens of them, But they suck donkey balls, I'm telling you. Like, they're just – their accuracy of those products, you know, it's hard to see because you're just getting all these IDs and you don't really know, like, did Johnny really visit my website or not? Like, what I'm telling you is, like, those other products are ridiculous. They have, you know, 5 % accuracy, you know, 30 % accuracy. They're not telling you that because it's hard to see, but we can kind of figure it out by testing, you know, who did they suggest it was versus who actually purchased.

34:37And then you can kind of line them up and see if they match. So we're, you know, we're not perfect, but we're like, we could do like 70, 80 percent, correct? Which is substantially more than like 5, 10 percent, 20 percent, correct? but each percentage that we're we're trying to fix like on on the id graph and all this stuff like this is is is very hard from an engineering perspective and like when i look at my competitors in space like they're like you know high school dropouts and you know people who are selling like uh you know what are those toxic derivatives like they're sales people like they're they're um so i think you're saying what's different it's like this is much more of a uh you know harder problem to solve from an engineering perspective whereas the other one is more of more of a operational grounding well larry we come to the end of the show thank you for sharing uh this one and obviously congrats on uh i think as you said like the spectacular uh kind of outcome with uh with word stream and uh it sounds very exciting in terms of what you're building now with customers AI.

35:41If people want to reach out to you, where's the best place to find you online? If they have any questions from what they've listened to on the podcast. Yeah, LinkedIn or Twitter, you can find me there. Larry Kim. Yeah. Good stuff. Larry, thanks so much for being a great guest on the SaaS Revolution Show. Really appreciate your time today. Awesome. Thanks.

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