Madwire is a SaaS platform providing both an all-in-one marketing platform geared toward SMBs and an optional marketing services add-on program that can empower SMBs with ad management, content marketing, social media marketing, and other services.
Madwire has been extremely capital efficient raising just $7m to generate $100m in revenue. Now, the company is looking to raise $100m+ with the right private equity partner to continue executing its SMB SaaS rollup strategy. Nathan Latka sat down with Madwire CEO JB Kellogg to get his insights as to the company’s growth, including:
- $1,800 ARPU – a combination of a $395 per month for the SaaS platform with optional marketing add-ons
- 572 employees, including 40 engineers and nearly 300 marketing staff
- Mostly bootstrapped company with $100m ARR across approximately 20,000 paying customers
Nathan Latka (00:00):
Hello everyone. My guest today is JB Kellogg with a company called Madwire. It’s a technology company that provides business management and marketing software and services for SMBs and franchises.
Nathan Latka (00:10):
Madwire was founded in 2009 with the mission of helping small businesses grow and their local communities grow. When JB came on the show last, they passed a 105 million bucks in AR. That was back in 2018. JB, you ready to take us to the top?
Madwire CEO JB Kellogg (00:23):
Sounds good. I’m ready.
Nathan Latka (00:24):
All right. So the world has changed since we last spoke. How’s COVID hit you guys and your SMB cohorts?
Madwire CEO JB Kellogg (00:30):
Well, yeah, it definitely affected us. Luckily we’re pretty diversified, which is part of our strategy. We work with a lot of different industries and types of businesses, which is good, but the verticals like fitness clubs, restaurants, definitely were impacted. So that affected us. A lot of those businesses essentially paused things temporarily. We actually told them to, just to try to help them out.
Madwire CEO JB Kellogg (00:53):
A lot of them are reactivating now, which is good, but there’s still areas like California and stuff. We have a lot of customers there that are pretty tight, but like I said, luckily we’re diversified. So some industries actually did better during this time period, such as eCommerce, so that was helpful. About 35 percent of our accounts are eCommerce. So there was some balancing there, but it definitely affected us for a couple months and we’re starting to ramp back up now.
Nathan Latka (01:17):
That’s good to hear. That’s good to hear. And so for people that missed your last interview we did together, just tease them real quick with the product. What do you guys help these gyms and these franchises do?
Madwire CEO JB Kellogg (01:26):
Yeah. So our number one product is Marketing 360, which is a small business marketing platform and business management solution. So essentially within a singular platform, you can do everything to manage and grow the business from a CRM to payments like invoicing, recurring billing, eCommerce, all the way into all the marketing-related pieces, like email marketing, social marketing, multichannel advertising, et cetera. So one platform, one login really allows you to do everything you need to do to manage and grow the business.
Nathan Latka (01:55):
When I hear that description without knowing it’s you and you’re the founder of Madwire, I think HubSpot. Are you playing very much in the HubSpot space?
Madwire CEO JB Kellogg (02:03):
Pretty similar to HubSpot. Yeah. But more geared towards small business. So our customer is generally one to 100 employees. That’s our wheelhouse. There’s about 30 million of them. So there’s a lot out there, but it’s truly the small business.
Madwire CEO JB Kellogg (02:16):
HubSpot is one level up from that, so a little bit larger of a business, generally speaking. And then our platform also does a little bit more, the types of things that a small business needs to do and is a little bit more comprehensive in that regard. But that being said, HubSpot can become more complex so you can customize it maybe a little bit more.
Madwire CEO JB Kellogg (02:38):
And then one thing that makes us different than really any company in the SaaS industry is we also have the talent component. So if you want to build essentially an outsourced marketing team through the platform with us, you can actually do that too. We don’t leverage third-party partners or anything. We actually provide those services and marketing modules to the customer.
Nathan Latka (02:58):
So actually there’s a portion of your team that is full-time dedicated to services to the customer?
Madwire CEO JB Kellogg (03:03):
It is, and we’ve built technology to automate a lot of that on the back end. But what we’re selling to the SMB feels like services because an SMB wants to buy services, but on the back end we’re using technology to increase scale and profitability. So you have a dedicated support person essentially when you add these marketing modules. When you’re a DIY customer, you’re using our shared support is how that works.
Nathan Latka (03:29):
So tell me more about the makeup of the team. You just teased support, but what’s the total team size today?
Madwire CEO JB Kellogg (03:34):
Team size? 500 people.
Nathan Latka (03:36):
500 folks. And how many of those are engineers?
Madwire CEO JB Kellogg (03:39):
Nathan Latka (03:40):
60, interesting. And I guess if you’re serving the SMB cohort, you have a high volume lower ARPU model. What is that typically? What are customers paying you per month on average?
Madwire CEO JB Kellogg (03:52):
Per month on average? Well, we have 20,000 customers. And so when you look at globally, it’s about $500 per month per customer, about 6,000 per year. That’s globally, but we do have different segments of customers.
Madwire CEO JB Kellogg (04:05):
So we have like the true DIYs, which are much smaller price points. And then we have customers that have all the marketing modules that are much higher price points. So those average prices are much different, but that’s how it is globally.
Nathan Latka (04:16):
That’s impressive. And can I take that 20,000 customers times 500, you guys had like 120 million run rate today?
Madwire CEO JB Kellogg (04:22):
Yep. That’s right.
Nathan Latka (04:23):
That’s great. So yeah, comparing that to where you were back in September of 2018, you said you had about 10,000 customers and so you’ve doubled your customer base. Your average ACB, then you told me was around 10,000. So that shrunk a little, which makes sense, because you have way more volume and you’re increased ARR from 100 million in ARR up to 20 million bucks in ARR. Are you happy with all those numbers?
Madwire CEO JB Kellogg (04:45):
Yeah. We’re pretty happy, and we have a lot of reactivation still with some of these industries to get back on board and put us back on track. But we have targets about this time next year to be in that 150 million range or so, we feel pretty good about, so that’s what we’re marching towards. And we’ve also really improved profitability over the last couple years, since we last talked, that’s been a big focus of ours.
Madwire CEO JB Kellogg (05:07):
So we’re trying to get that into that 15 to 20 percent range here over the next year, which we think is very doable, which would put us, we’re trying to align to that rule of 40 where our growth is going to be that 25 percent-plus area. And our EBITDA is right in that 15 to 20 percent area. So that’s our target.
Nathan Latka (05:27):
And where was it last year? What was profit last year?
Madwire CEO JB Kellogg (05:31):
Very small, like about one percent.
Nathan Latka (05:33):
One percent. So, how do you change and how do you try and add 10 percent or 14 percent to your profit margin this year, especially obviously during COVID?
Madwire CEO JB Kellogg (05:44):
Big piece of it’s through technology. So we launched our new platform, Marketing 360, a new version here about eight months ago. And it’s already really increased profitability because we’ve automated a lot of stuff that used to take a lot of manpower.
Madwire CEO JB Kellogg (05:58):
So for example, when we onboarded a new account, it was very labor intensive. And with the new platform, we have something called Smart Start, which is you click one button based on the vertical and it customizes the whole platform and automatically builds out the marketing journeys and everything for you. So now it takes no human effort. So right now our 500 people, it’s like 60 in tech. We have about 200 in sales and then we have-
Nathan Latka (06:25):
All off quota?
Madwire CEO JB Kellogg (06:27):
All off quota.
Nathan Latka (06:28):
Madwire CEO JB Kellogg (06:29):
We have 200 in sales. We have 100, which is acquisition sales and 100 which is retention sales. So they’re upselling, cross-selling. And then we have about 40 back office and the rest is support.
Madwire CEO JB Kellogg (06:40):
So when you think about 20,000 customers, our support team’s actually pretty small. Our account per person ratio now is about 50 accounts per person, which is better than HubSpot and Sprout Social.
Nathan Latka (06:51):
Per support person.
Madwire CEO JB Kellogg (06:53):
Well, per person as a whole, support person, even more. So all those things we’ve been really improving upon to increase profitability overall, and we’ve started offering more usage-based things like we’ve offered payments now.
Madwire CEO JB Kellogg (07:08):
So Shopify, I mean their success story really triggered off of when they added payments. So we have payments now where you can manage your invoicing, recurring billing, et cetera, in the platform. That’s additional revenue that we’re receiving every month on top, which really helps with the profitability piece.
Nathan Latka (07:25):
In July, how much GMB did you process through your payments?
Madwire CEO JB Kellogg (07:29):
Through our payments? Well, it depends. We have this legacy payments accounts, which are more of like an ISO model, because we acquired a company called SilverEdge two years ago. So with them it’s close to a billion, but if you exclude them-
Nathan Latka (07:43):
Madwire CEO JB Kellogg (07:45):
Yeah, annually. If you exclude them and look at just our new payments products, it’s very, very new. So it’s only been launched for about a month at this point.
Madwire CEO JB Kellogg (07:55):
And so what we’re seeing so far is 65 percent adoption rate. So users buying Marketing 360 right now, about 65 percent are activating payments. And the average ticket size so far has been pretty good. It’s actually been close to $1,000 because we have HVACs and those types of businesses that are using it.
Madwire CEO JB Kellogg (08:15):
So for example, if you have $1,000 invoice paid, we make about 30 bucks on that. So it adds up pretty fast and this is additional revenue that we didn’t capture before.
Nathan Latka (08:25):
Got it. So what is that? You’re taking .3% fee basically?
Madwire CEO JB Kellogg (08:28):
Nathan Latka (08:30):
2.9%. How do you make the margin on that work though? Because usually, I mean Visa’s taking 300 basis points and if you’re charging 300 basis points, where do you squeeze margin out there?
Madwire CEO JB Kellogg (08:38):
You recognize the gross. That’s how Shopify does it. We do it the same way. So you recognize the gross and you record the net. So the net improves with volume.
Madwire CEO JB Kellogg (08:49):
We’re using Stripe. So we’re using Stripe just like just like Shopify. So it’s exactly the same way Shopify does everything.
Nathan Latka (08:56):
Got it. So, what you’re saying is even if you don’t make any money on the payment thing right now, because the full three percent that you’re recognizing is being paid out to, oh sorry, are you taking six percent and three percent going to VISA and three percent is actually gross revenue on your profit and loss?
Madwire CEO JB Kellogg (09:13):
No, it’s about 2.9 percent total. And then you have all the card fees and everything. And so at the end of the day, you’re going to make a margin off of the 2.9, which improves over time, is how that works.
Nathan Latka (09:25):
I see. But what I’m saying is that margin’s going to be something like .05. It’s very, very small.
Madwire CEO JB Kellogg (09:31):
Yeah. It’s like five basis points kind of thing.
Nathan Latka (09:34):
But with volume, obviously it can get big.
Madwire CEO JB Kellogg (09:37):
Right. And really, we’re hoping to see most of the impact actually with stickiness and churn because customers using those types of products and features within the platform, they just generally never cancel. I mean, if they’re doing all their billing, especially if it’s recurring billing, it’s just so painful to move that we expect the churn to improve, really double the improvements of churn over the next 24 months, call it.
Nathan Latka (09:59):
When we first met, this was the biggest thing about your model that just shocked me. I’ve interviewed 1,000 CEOs. I had never heard metrics like this because what you told me was you were spending $3,000 to get a new $10,000 a year customer. Nothing wrong there, three-month payback period, super healthy.
Nathan Latka (10:15):
But you then told me that your percent, your gross revenue churn annually was about 90 percent. And I said, well, holy cow, that’s way too much. And you said, “Well, Nathan, our payback is so quick. And what happens is of a cohort of 100 that sign up last month, we know two years from now that even if only five of those customers stick, they’re going to have 10 X the price point. We’re going to upgrade them 10 times. There’re just going to be huge accounts, which makes up for that loss.”
Nathan Latka (10:39):
Is that all accurate and true? And if so, what does that look like today?
Madwire CEO JB Kellogg (10:43):
Today? Our logo churn on core customers, which a core customer is a customer that’s been with us 12 months or more is about 2.8 percent per month. And we expect that to improve to about 1.5 percent over the next 24 months with payments and some other business management tools that we’ve built into the platform.
Madwire CEO JB Kellogg (11:02):
Our new customer segment, which is zero months up to 11 months essentially, those are new customers. They churn at a higher rate. So it’s not 90 percent. It’s improved quite a bit from there. It’s more like 50 percent will make it to that 12-month mark.
Madwire CEO JB Kellogg (11:17):
But like you just said, the 50 percent that we lose, we’re making up for with growth out of the 50 percent that we keep. So with a small business, you’re just never going to have a great churn rate in the first 12 months because 80 percent of small businesses go out of business in general.
Madwire CEO JB Kellogg (11:32):
So you’re really defeating the market if you’re doing better than that, which we are. But the key is not necessarily keeping every single customer. It’s about growing the customers that find success. And so that’s what we’ve done pretty good at is when we find success with the customer, we’re able to grow the customer and then that makes up for the losses. So the MRR turn is better.
Nathan Latka (11:51):
So when you look at your full recognized revenue today, what is expansion in revenue percentage on historical cohorts?
Madwire CEO JB Kellogg (11:59):
Well, with how long of a cohort?
Nathan Latka (12:02):
So, of the revenue you had exactly one year ago in that customer base, obviously you lose a portion of those, but then you upsell as well. What percent are you upselling? 10, 20, 50, 100 percent upsell?
Madwire CEO JB Kellogg (12:14):
Over 100 percent of the loss, yeah, for the core customer segment. That’s all we track at that point. So it comes down a little bit into month 18, and then month 18 and beyond, it actually grows larger than it was in month 12.
Nathan Latka (12:29):
Just to be clear, if each month you’re turning 2.5 to three percent, so annually, that’s 36 percent revenue churn. What you’re saying is your expansion on that same cohort is more than 36 percent. So your net revenue retention is greater than 100 percent in the first 18 to 24 months.
Madwire CEO JB Kellogg (12:43):
Yeah. The 2.8 percent’s logo, so we’re losing 2.8 percent accounts.
Nathan Latka (12:48):
With the revenue churn.
Madwire CEO JB Kellogg (12:50):
After the 12-month period, the revenue churn is in the core customer, it drops for a little bit from month 12 to 18. And then at month 18, it climbs back up to the high point of month 12 and actually grows beyond it. So that’s where you get that 100 percent-plus retention on the revenue churn.
Nathan Latka (13:10):
What is revenue churn annually though? That’s what I’m trying to get at on a growth basis.
Madwire CEO JB Kellogg (13:17):
Well, that’s what I’m saying. For the core customer, it’s positive.
Nathan Latka (13:23):
The gross churn, I get that. But peel back that onion. There’s two components to revenue retention. One is gross churn, and then, there’s expansion revenue. When you add them together, what you’re saying, and I hear you is you have greater than 100 percent net retention. What I’m trying to understand though is before you add back expansion, what is just gross revenue turn on historical cohort?
Madwire CEO JB Kellogg (13:45):
I don’t have that number. I’d have to look because we have so many, we have 42-plus cohorts now.
Nathan Latka (13:50):
I can tell you do a lot of measuring because you’re very specific with how you answer these. You clearly do a lot of cohort tracking.
Madwire CEO JB Kellogg (13:56):
Right. So, you’d have to look, what does it look like for the cohort for month 14? That kind of thing. I don’t have the total aggregate off the top of my head.
Nathan Latka (14:05):
No worries. Are you still paying 3000 to get a new customer?
Madwire CEO JB Kellogg (14:10):
Yeah, it’s right. It’s between 3,000-and-4,000 depending on the month.
Nathan Latka (14:15):
Very cool man. And again, what’s most impressive to me about what you’ve built is you’ve done this with raising relatively a small amount. You had about 7.5 million raised last time we spoke. Have you raised any additional capital?
Madwire CEO JB Kellogg (14:24):
We have not.
Nathan Latka (14:25):
That’s great, really. Any plans to?
Madwire CEO JB Kellogg (14:28):
Right now, we’re thinking if we continue improving on our platform and our numbers and metrics and just our business in general, we think that we have a good opportunity at IPO in the next call it 12 to 18 months. That’s our target right now.
Nathan Latka (14:43):
And you think you’ll do traditional IPO or direct listing or look at a SPAC or something else?
Madwire CEO JB Kellogg (14:47):
We’ve looked at SPACs. That’s really interesting to us actually, but right now we’re focused on traditional.
Nathan Latka (14:54):
Interesting. Very cool. And why would you do that over just staying private and doing a rep share with your employees?
Madwire CEO JB Kellogg (15:01):
That’s an option too. And that’s the nice thing is we don’t have to do anything. We just feel like there’s an opportunity right now. The market’s pretty hot. Sprout Social was very successful. BigCommerce, we work with actually quite a bit as a partner, they were very successful just a week ago.
Madwire CEO JB Kellogg (15:17):
So we feel like it’s a good time in the SMB space with technology, which we feel like we’re the leader in for SMB. So why not go that route and be a transformational company is our thinking right now. But like you said, we don’t have to, so things could change.
Nathan Latka (15:32):
Profitable, a relatively little raised, team of 500 strong. It’s all good stuff. Let’s wrap up here, JB, with the Famous Five. Number one, favorite business book?
Madwire CEO JB Kellogg (15:40):
Good to Great.
Nathan Latka (15:41):
Number two, is there a CEO you’re following or studying?
Madwire CEO JB Kellogg (15:45):
Not right now.
Nathan Latka (15:47):
Number four, is there a favorite online tool you’ve got for building Madwire?
Madwire CEO JB Kellogg (15:51):
We use marketing through Six Sigma. So we use our own product.
Nathan Latka (15:54):
Oh no, come on. Besides your own.
Madwire CEO JB Kellogg (15:56):
We actually do, but I’d say right now, I mean Zoom. We moved to Zoom like literally a month before COVID so it was perfect timing. We have everything on Zoom, calls, everything. So it was awesome.
Nathan Latka (16:08):
How many hours sleep are you getting every night?
Madwire CEO JB Kellogg (16:10):
Oh, about seven.
Nathan Latka (16:12):
Okay, and situation? Married, single, kids?
Madwire CEO JB Kellogg (16:14):
Married, three kids. Four kids, four kids.
Nathan Latka (16:19):
Four kids. And how old are you?
Madwire CEO JB Kellogg (16:21):
I just turned 40.
Nathan Latka (16:22):
40. Last question, what do you wish you knew when you were 20?
Madwire CEO JB Kellogg (16:25):
What did I what?
Nathan Latka (16:26):
Wish you knew when you were 20?
Madwire CEO JB Kellogg (16:30):
I wish I knew everything I knew right now. If I could start over, I could go 10 times faster. I would say that.
Nathan Latka (16:36):
Madwire CEO JB Kellogg (16:38):
What is the specific thing I wish I knew? Let me think about this for a minute.
Nathan Latka (16:48):
Think about where you were when you were 20. What were you doing?
Madwire CEO JB Kellogg (16:52):
I’d say what I wish I knew when I was 20 was just to act faster because I actually knew the Madwire business model would work at that time, but I really didn’t put the gas pedal on it until I was 27, nearly 28. So there was eight years there where I could have really captured a lot of market share if I just jumped on it earlier, but I didn’t. So I’d say I would’ve acted faster.
Nathan Latka (17:15):
Guys, there you go. Madwire, a full suite for SMBs to handle all of their marketing. They’ve grown from $100 million run rate to $120 million run rate, over the past 12 to 24 months. They are profitable, hoping to grow profitability about 15 percent to the bottom line this year. It would not surprise folks.
Nathan Latka (17:30):
And they’re looking at potentially doing some sort of IPO next 12 to 24 months. But again, don’t have to do it because they are profitable and have raised relatively little capital, just 7.5 million raised serving 20,000 small business customers. JB, thanks for taking us to the top.
Madwire CEO JB Kellogg (17:43):
Yeah, thanks Nathan. I appreciate it.