Sramana Mitra: Did the pricing change when you made this switch to providing these insights?
Jeff Wilkins: Somewhat. We’ve always underpriced our services and probably devalued some of the things that we do. We definitely left some money on the table. Over time, we’ve been trying to rationalize that more. Maybe if we can help them spend the money better, we don’t have to be cheaper at all. Maybe you don’t need three S’s; maybe you just need one S. At the moment, we’re still offering those three components.
Sramana Mitra: What about customer acquisition? Was it inbound or outbound? Was there an inflection point where it switched from outbound to inbound? What was the customer acquisition strategy that has worked for you?
Jeff Wilkins: Starting out, it was all outbound. The Motili target customers of large property owners and managers are only about 15,000 in the US. If you think about entities that would be purchasing, it’s a relatively modest number.
Particularly given the size of the customer spend with us, it lends itself towards a direct sales model. When we were starting out, we had to do a lot of engagement in education on the outbound side.
More recently and particularly with the superb support of new marketing leadership at Motili, we’ve been able to have much more of a content approach. As we become better known, we’re starting to get some inbound.
Starting out was very much like trying to fly a kite with no wind. We got to run like hell and the minute we stop, the kite comes to the ground. Now we do have a nice wind blowing. We’re benefiting from those first activities that we did on the outbound side.
Sramana Mitra: Where are you now revenue-wise?
Jeff Wilkins: We’re at $80 million a year net. That net number is net a lot of the COGS component. Growth has been pretty dramatic. We had 250% revenue growth last year.
Sramana Mitra: I do want to get a little bit of the details. You built this for five years.
Jeff Wilkins: A little over four.
Sramana Mitra: What is the business model and COGS component of this?
Jeff Wilkins: What we’re selling is an integrated solution; it’s the equipment and parts, and the labor to either repair or replace an HVAC system or certain plumbing products like water heaters. That’s what we sell today.
There would be an equipment component with an equipment COGS and a labor rate that we’ve negotiated across the country. Motili doesn’t have any HVAC technicians on staff. We’ve onboarded a nationwide network of licensed technicians that are willing to do the labor portion of our jobs.
We’re going to supply the equipment and sell that to the customer. We do that on pre-agreed hourly rates. We hire a local contractor to do the labor.
Sramana Mitra: Are those contracts on your P&L, and are the subcontractors getting their payments off that?
Jeff Wilkins: Correct. We are actually the general contractor if you think of it. Motili invoices the large property owners. We’re paying our labor suppliers, who are the local contractors, and our manufacturer for the equipment.
Sramana Mitra: What is the margin after the labor contractors and the equipment that you resell?
Jeff Wilkins: That is proprietary, but it’s between 25% and 35%.
Sramana Mitra: In a sense, that is really the revenue. It’s a bit misleading to say that in four years, you’ve built a company that does $80 million.
Jeff Wilkins: Is it? How would Amazon count revenue? They would certainly count it in that way. Any retailer does.
Sramana Mitra: You’re right.
Jeff Wilkins. One thing is different. To fast forward, we were acquired by a manufacturer in July of 2017. We’ve been part of a bigger company for two years now. They recognize the full margin. There’s some transfer pricing to us from them, but they are realizing the full margin that they would get.
Sramana Mitra: Great. Thank you for your time.