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Scaling a SaaS Business to 11,000 Customers: CEO Josh McCarter (Part 3)

Posted on Wednesday, Oct 5th 2016

Sramana Mitra: What did you have in place when you went to raise capital?

Josh McCarter: We had a functioning framework of the software. We had about 700 customers and a team of about 30 people. It was, at least, beyond a prototype and proof of concept. The business was doing under $1 million in revenue. We had a good reputation and had some big marquee contracts with Hilton and some other hospitality brands.

We leveraged that saying, “This is real. There are transactions happening through the system. We want to extend it to other feature sets to help these businesses run.” Salons started signing up. We thought we could make a dedicated product for salons so we started pushing out in that direction. We ended up building out the business from there.

Sramana Mitra: I need a much more granular storytelling of how you built the business. The reason I asked you the question about what you had in place before you went to raise money was to understand what kind of proof point you were going out to raise money with. I’m going to double-click down a bit more on that. You said you had 700 customers and these were spas that were paying for your SaaS booking engine.

Josh McCarter: That’s correct.

Sramana Mitra: How much were they paying?

Josh McCarter: For the properties that were using it at that point, they are generally the larger hospitality properties. They were paying about $250 to $400. That was the range for those type of businesses.

Sramana Mitra: In your business plan that you pitched to Revolution, what was the total available market that you were forecasting off this spa booking product?

Josh McCarter: Just in the US alone, there’s about 25,000 locations. When you expand that into health and wellness, that number gets closer to two million. That was the headline of the TAM that we were focusing on. We’ve successfully done it in hospitality spas, so we went out to SMB spas. We already had a lot of folks in adjacent markets such as salons and other beauty-type bars.

The market opportunity in health, wellness, and beauty is a $2 million business in the US. If you take that globally, there’s much more. About 60% of the US GDP is made up of service-based businesses. That includes medical and legal, which we don’t think that we would serve. We certainly do think that, over time, there’s a variety of other categories in that 60% that we could be applicable to.

Sramana Mitra: When I look at businesses like this, the first question I ask is, what is the customer acquisition strategy and what are the unit economics of customer acquisition? What did you learn when you went out to raise that first round of financing? Having acquired 700 customers, what did you know at that fundraising juncture that you could convincingly lay out to investors to say that you can acquire customers profitably?

Josh McCarter: It’s a good question, but the SaaS models have evolved so massively since 2010. At that time, people were not focusing on unit economics. In 2010, that wasn’t part of the Series A jargon. It may have been for the more advanced Series C and pre-IPO companies. It wasn’t part of the pitch at that point. At Series A, folks were looking for product–market fit, if you have customers using it, and if there is a big enough category of merchants to go after. I don’t even recall having a conversation at that point about what our customer acquisition was.

Sramana Mitra: Fair enough. That’s probably an accurate representation of what was happening in 2010. How much did you raise in Series A?

Josh McCarter: We raised $15 million. It was a consortium of investors from DC.

This segment is part 3 in the series : Scaling a SaaS Business to 11,000 Customers: CEO Josh McCarter
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