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Scaling a SaaS Business to 11,000 Customers: Booker.com CEO Josh McCarter (Part 4)

Sramana Mitra: What happened after you raised the $15 million? How did the business move? What were the strategic moves that you made to get to the next level?

Josh McCarter: The major move that we made was, we started investing in sales and marketing. We started building out our team. We took on some larger contracts that, in hindsight, were not the best things for us to do over the long-term for the company. They were big contracts. They were big name companies that helped us gain credibility with our investors and with other people in different segments. They were all multi-million dollar, multi-year contracts.

Sramana Mitra: What was wrong with those contracts? Typically, multi-million multi-year contracts are good news. Why was it bad news? >>>

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

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. >>>

Scaling a SaaS Business to 11,000 Customers: Booker.com CEO Josh McCarter (Part 2)

Sramana Mitra: What year does this bring us up to?

Josh McCarter: Around 2001.

Sramana Mitra: What happened then?

Josh McCarter: The company’s IPO was successful. After six years, I was looking to do something new. I went and joined a company called Spafinder. It was a travel-based magazine and was call center-oriented. We were trying to turn it into an online travel content company. We ended up joining with that team and worked on that business for a couple of years.

I ended up on the Board and decided to look up a few other business models. I connected with some friends in business school at USC. One of them had >>>

Scaling a SaaS Business to 11,000 Customers: Booker.com CEO Josh McCarter (Part 1)

If you haven’t already, please study our Bootstrapping Course and Investor Introductions page.

In 2010, SaaS investors were less rigorous than they are today about unit economics. Josh managed to raise a $15 million Series A and acquired a significant runway to figure out the metrics of his SMB-focused SaaS business. Read more about his journey.

Sramana Mitra: Let’s go to the very beginning of your journey. Where are you from? Where were you born, raised, and in what kind of background?

Josh McCarter: I was born in Sacramento, California. I lived there till I was about 12. Then we moved down to San Diego. My mom’s family was an immigrant family from Greece and has a bunch of entrepreneurs. My grandfather and uncle on that side were very >>>

Building a Mobile Security Company in Silicon Valley: Domingo Guerra, Co-Founder and President of Appthority (Part 6)

Sramana Mitra: At what point did you make that switch from going indirect to direct?

Domingo Guerra: I think it was around 2013 when we were in front of a lot more customers. We started realizing that it is a new space that’s changing very quickly. It’s difficult to train a partner to sell something that’s changing very quickly, because you’re not getting a lot of the feedback as quickly as you wanted. It’s almost like the telephone game where the customer tells the partner and then the partner tries to interpret that and tell you.

There’s a lot of details that get lost along the way. We wanted to be closer to the customer to capture the feedback and also be able to move faster into the development and customer requirement. That took us into being more direct. It also allowed us to have better visibility into upcoming requirements and better pattern recognition across the different customers. >>>

Building a Mobile Security Company in Silicon Valley: Domingo Guerra, Co-Founder and President of Appthority (Part 5)

Sramana Mitra: By the time you got this term sheet, how many customers did you have?

Domingo Guerra: We had about six or seven beta customers, but they weren’t paying yet. A lot of times, it’s like a chicken-and-egg thing. They want to go with you but they want you to get funding because they’re afraid to invest and deploy your technology fully and not have you around. The VCs would like to see revenue to help them facilitate that investment.

Luckily, Ray and Steve are familiar with the space. They knew that if these large customers are using your product, they’re not going to waste their time with a small startup unless you’re solving a problem that they have difficulty finding a bigger technology provider to solve. That means you’re on to something. Even though they were beta customers and not paying customers, they saw that it had traction and validation. They were big enough brands, and it made a difference. >>>

Building a Mobile Security Company in Silicon Valley: Domingo Guerra, Co-Founder and President of Appthority (Part 4)

Sramana Mitra: Talk to us a little bit about your fundraising process? What proof points did you go to raise money with and whom did you raise money from? What was the rational for raising money and what were the circumstances in which you raised money?

Domingo Guerra: We were pretty naive about fundraising. We thought it was going to be very easy. My co-founders and I were all first-time entrepreneurs. In general, you only hear the good stories but no one knows how difficult it actually is. We started fundraising almost by accident. When we didn’t win the grant, we decided to bootstrap on our own savings.

We weren’t paying ourselves. We were just paying for everything with our credit cards and then just living off of our savings. Then in late 2011, we got a call from a VC that wanted to meet with us because they heard about what we >>>

Building a Mobile Security Company in Silicon Valley: Domingo Guerra, Co-Founder and President of Appthority (Part 3)

Sramana Mitra: Who was the first customer that adopted your solution?

Domingo Guerra: We had a lot of initial beta customers. Automotive companies were doing manual testing of apps, and we were helping them automate that. The first paying customer was one of the largest ad networks. When you play a game, for example, you might see a popup suggesting you to download another game. They wanted to make sure that those games didn’t have malware. It was before we had a user interface.

Now we serve the enterprise directly and we have a portal where they can go to. At that time, we only had our engines. It was very rudimentary. It was basically API access where we would grant the customer a way for them to upload or submit applications. Then our engines would review them and reply with a score >>>