Software-With-a-Service Company Castos Hits 2,000 Podcast Hosting Customers (With 2.5% Monthly Churn)

Nathan Latka:

Hello, everyone. My guest today is Craig Hewitt. He’s the founder of Castos, a full remote team remaking how podcasters create great shows, grow their audiences and further their brands. Craig, are you ready to take us to the top?

Craig Hewitt:

Yep. I’m ready.

Nathan Latka:

So what came first for you? Are you technology guy that got into podcasting or podcasting guy that wanted to solve his own scratches on edge and learn the tech?

Craig Hewitt:

Yeah, definitely the second. Got into podcasting around about way and kind of the business side of it and yeah, it’s been just over three years since I’ve been running Castos and spent a lot of fun.

Nathan Latka:

Very cool. Okay. So for folks who have not heard of it, what does Casto’s do?

Craig Hewitt:

Yeah, so we’re a podcast hosting and analytics provider that also has a built in production service. So for shows like this, for folks who want to host their podcasts, distributed to places like Apple podcasts and Spotify, that’s what we do. Provide analytics around that and then have kind of a done for you service arm that takes care of all the editing and show notes and publishing. So we’re going to be built in podcast producer.

Nathan Latka:

So would you categorize this, I mean more as a it’s pure software running the show or is it really software plus human some professional services built in?

Craig Hewitt:

Yeah. We’re software with a service.

Nathan Latka:

Yep. Okay. Interesting. So just so we understand sort of the split and this will kind of guide my questioning. If you look at your total revenue over the past 12 months, what percent would you say is software recurring revenue versus setup fees, professional services?

Craig Hewitt:

Yeah. Like 70, 30.

Nathan Latka:

70 SaaS?

Craig Hewitt:

70 SaaS, yeah.

Nathan Latka:

Okay. So let’s focus on that for a second. Then we’ll circle back to professional services. If people pay you just for what you offer on a SaaS basis, what would they be getting?

Craig Hewitt:

So you get hosting and analytics. So we host your audio files, help you manage your RSS feed, which is kind of the thing that podcasts are. And then we give analytics about where folks are listening and how many downloads your shows get.

Nathan Latka:

So very similar to Libsyn or other players hosting platforms like this.

Craig Hewitt:

Yeah, yeah. At its core. We’ve done a lot. It’s kind of expands.

Nathan Latka:

Why do you hasn’t set up?

Craig Hewitt:

No, because I think that’s the easy analogy. But I think what we’ve done is expand the idea of that a lot. So we have things to kind of repurpose and extend the content that you create. So with things like automated transcriptions, we have automatic republishing of your content to YouTube. So for folks who aren’t recording video like this, they just want to do audio because they don’t want to get all pretty for their camera and stuff like that, we can give them a way to have a presence on YouTube where they don’t have to record native video content. So we’ve done a lot with the platform to do that, to be more than just a hosting platform, but really like a marketing platform for podcast.

Nathan Latka:

I see. I see. Okay. And what a podcasters pay on average to use this per month?

Craig Hewitt:

Yeah. So we’ve planned starting at $19 a month, all the way up to a hundred dollars a month. And we have annual plans for like 20% discount with that.

Nathan Latka:

What would you say the average is probably around the 19, 20 mark?

Craig Hewitt:

Yeah. Something like that. Yeah. Most folks are on the beginner plan. Because a lot of folks podcast is for a lot of people is not a revenue generating thing. So they have a hard time paying too much for it.

Nathan Latka:

What is the upgrade tactic you use to get folks from 20 bucks a month to a hundred bucks a month?

Craig Hewitt:

Yes. We feature gate a lot of what we do. So things like the YouTube republishing, automated transcriptions, an integration with a tool called Headliner to create audiograms and some advanced analytics. The last part really good stuff into that higher tier. I think analytics, as you probably know, is something that podcasts are hungry for more of. And we have some proprietary analytics that we provide folks in our approach here at a hundred dollar a month plan.

Nathan Latka:

When did you launch the company?

Craig Hewitt:

Yeah, right at three years ago we launched the company officially.

Nathan Latka:

Okay, put in 2017 and you’ve bootstrapped to date or you decided to go the equity or raise capital?

Craig Hewitt:

We took a small amount of investment and joined the TinySeed accelerator and about just over a year ago. So we were part of the first batch there. So we got a little bit of money there, but otherwise had been bootstrapped.

Nathan Latka:

We’ve just had Einar on who really broke down, how TinySeed operates and works and how it all works. And he’s surprised me with a statement, he said, he believes 80% of the fund returns will come from companies exiting, not dividends, which is, in my opinion, that’s the idea of what they’re building, which is you never have to sell. You can build a great profitable company, pay yourself dividends and oh, by the way, pay us our dividend cut as well. What are your thoughts on that as a founder on the other side?

Craig Hewitt:

Yeah. So I mean, being in the podcasting space, we’re not a CRM where we’re going to be around forever and we think we could be around for other… You know, there’s just a ton of kind of velocity in the podcasting space these days and so we expect something to happen with our business in the next five years say, and so that’s a lot of why we joined TinySeed and that’s kind of the path I expect us to take is something will happen. I don’t know what that is. We have a lot of options because you know, now we’re profitable, but I’m surprised to hear… That you’re surprised by that because I view like TinySeed getting their money back, being mostly in exits for founders, just because I think that’s the way a lot of businesses go. I think a lot of people would exit at some point.

Nathan Latka:

I think the DNA… I see. My thought though is, I mean when I interviewed Bootstrap founders, many of them have built extremely comfortable lives sitting on cash flow from the business. They are the exact opposite DNA of a founder that wants to scale big and sell for a bunch of money. It’s the exact opposite DNA. So the fact that, by the way, like when I listened to how Einar and the team sort of talk about Tiny, it feels very much to me. Like we are for the bootstrapper in Kentucky that’s happy with a $5 million IRR company and 2 million a year in profits that never wants to sell. So that’s why it surprised me. And Einar said, “No, we think 80% of our fund returns will come from companies exiting.”

Craig Hewitt:

Yeah. I would guess that the founders are maybe a little more ambitious than the person you described.

Nathan Latka:

Why do you equate an exit to ambition? I would argue that there are an extremely ambitious founders that have built great profitable companies and that’s actually sometimes harder to do than getting some big exit.

Craig Hewitt:

Yeah. I think that’s a fair point. I think that, if you look at really changing your life and putting you on a different trajectory. You know, selling a business for 20 million and taking home, whatever 10, changes your life versus a business that cash flows half a million dollars a year. That’s great, but you can’t just go F off and do whatever you want for the rest of your life. Like if you sold for a bunch of bunch of money and you could just put that into dividend funds and things like that, then you have complete control over your life. And there’s a different kind of risk, I guess, involved with your path from there.

Nathan Latka:

Sure, sure. No, that makes complete sense. When you come back on, on January 9th of 2019, you’d said you’ve passed a thousand customers at that point. What are you guys that today?

Craig Hewitt:

Yeah, we’re right at 2000 customers.

Nathan Latka:

Oh wow. Good timing on the show then. Exactly. Exactly doubled.

Craig Hewitt:

Yeah.

Nathan Latka:

Okay. Very cool. So 2000, and then have you done anything team related? So how many folks are on the team? I think you were four people last time we talked.

Craig Hewitt:

Yeah. So we’re seven full-time people. And with the services arm, we have some contractors that do audio editing, writing. We have some folks on the marketing team that help on a contract basis.

Nathan Latka:

Of those seven folks, how many are engineers?

Craig Hewitt:

Two.

Nathan Latka:

Two. Okay. I imagine you probably don’t have quota carrying sales folks for this price point, right?

Craig Hewitt:

That’s right. Yeah.

Nathan Latka:

Yeah, yeah, yeah. It’s more of a… So let’s go down that path for a second. How are people finding you? What’s the playbook here?

Craig Hewitt:

Yeah. We do a lot in content and SEO. That’s our main acquisition strategy these days. We also have a WordPress plugin that we own and maintain called Seriously Simple Podcasting. That is kind of DIY, a lot of folks find us is through a WordPress integration. So if you have a WordPress site-

Nathan Latka:

What it is called?

Craig Hewitt:

It’s called Seriously Simple Podcasting. So if you have a WordPress site, you want to kind of plugin a blog to it or a podcast of some sort, then you install our plugin. Lets you add a podcast area in your site, manage your RSS feed from there and then Castos as a hosting platform is an optional add-on that you can have there.

Nathan Latka:

Interesting. Was that intentional that I was going to be sort of your mouse trap, top funnel?

Craig Hewitt:

Yeah. That’s really how the business started as I acquired the plugin, it was a free plugin before and I acquired it from the guy that created it and we built the hosting platform around that. And for a while it was the only way that you could use the hosting platform is through WordPress, since then, we’ve opened it up to the other user. With WordPress or use it by itself, if you… You don’t want to have a full website or you’re done on WordPress or whatever, you can use Castos by itself, like you use Libsyn probably.

Nathan Latka:

Interesting. Okay, good. So that’s starting with your top of funnel and again, 2000 customers, 20 bucks a month. So you guys are like 40, 45,000 bucks a month right now in revenue?

Craig Hewitt:

Yeah. And so then when the services were right at 60,000 a month.

Nathan Latka:

Okay. So let’s dive into this, the services component. If I sign up to you today on the $20 a month plan, what will you recommend to me in terms of service that I should buy from you as well?

Craig Hewitt:

Yeah. So I mean, we have kind of opt-ins and kind of messages and new email and an onboarding within the app to say, “Hey, you don’t have to do this all by yourself. We have a team of professional audio engineers and people that know podcasting in and out. If you need help with starting your show and then ongoing editing and producing your show, we have teams that can help with that.”

Nathan Latka:

When you do a core analysis of your 2000 customers, the ones that have paid for some professional services and ones that have not, do you see the same trend that other founders tell me they see, which is the ones that you give services to the net retention rate is through the roof compared to ones you don’t touch at all.

Craig Hewitt:

Yep. That’s great. You know, you asked me what the split was. I wish it was higher to be honest, because services are not hard. You know, if you get the systems and the people in place and those things are working well and kind of optimize, they’re not hard to run. Our services arm requires less of my time than things like product on the software side.

Nathan Latka:

And you funded all this again. You said you took TinySeed, I think they usually do a hundred or 150, is that what you took?

Craig Hewitt:

120, yeah.

Nathan Latka:

120,000. Okay. Interesting. And what was that process like the onboarding process there?

Craig Hewitt:

For TinySeed?

Nathan Latka:

Yeah.

Craig Hewitt:

Yeah. I mean, they had kind of their standard deal. I’m sure Einar talked about that when he was on it and we didn’t have kind of too many questions there and we signed up there and they took a percentage of equity in return for that investment. And with that, we hired our first marketer and took one of our engineers full-time. That’s what we used a lot of the money for. I think the first cohort was a little different than the second and probably subsequent ones in that a lot of companies, diverse cohort, weren’t took profitability and didn’t have a good degree of product market fit. We did, I think. It was probably around the time I was on the show. Last is, we were paying my salary and everything. And so we were able to just take that money and invest it in growth, not in paying my salary and paying rent and things like that.

Nathan Latka:

Were you able to negotiate down the equity slug they take, I mean, I think typically they take 10%. So if they’re taking 10% for 120 K that’s valuing the company a million bucks, but you’re already at a quarter million in IRR at that point a year ago. And now at half a million bucks in IRR, I’d argue that’s undervaluing the company.

Craig Hewitt:

Yeah. Yeah. We negotiated a little bit. Yeah.

Nathan Latka:

Okay, good. So you had some leverage going in with your revenue.

Craig Hewitt:

Yep.

Nathan Latka:

Got it. And profitable today?

Craig Hewitt:

Yeah.

Nathan Latka:

Paying dividends or no?

Craig Hewitt:

No, no. When we plan to reinvest in the company, as long as I can, I guess. Yeah.

Nathan Latka:

Yeah. Very cool. All right. I mean, when you talk about obviously keeping customers professional services touch, et cetera, insurance is critical on a SaaS company. Last time I think you told me that you had about 72% annual retention on a revenue basis. Has that improved?

Craig Hewitt:

Yeah. I mean our monthly return is like two and a half percent.

Nathan Latka:

Okay. Got it. So about 20 to 24% annual return today. And why are most of those folks stopping or the ones that you stop?

Craig Hewitt:

Yeah. Most all of it is just… You know, I’m not podcasting anymore. I can’t do this. It’s too hard. I don’t have time to talk to people and editing and things like that. And yeah, I mean the professional services, when we get the right fit, it helps reduce that a lot. You know, I think you can probably attest that if you had to do all this yourself, you wouldn’t do it. So finding a good solution to that is really helpful.

Nathan Latka:

Last question here, before we wrap up with a famous five. When you’re acquiring new customers, obviously the Chrome plugins are critical aspect of that, but if you do try and back into a fully weighted customer acquisition cost for new $20 a month customer, what would you say your CAC is?

Craig Hewitt:

Oh, gracious. That’s a tough one. I don’t have a number for that, I guess. I mean, almost all that we don’t do any paid acquisition hardly at this point. So all of ours is organic content SEO. So I don’t have a number, but it’s very low. You know?

Nathan Latka:

How many new customers are you getting per month would you say?

Craig Hewitt:

We have about 800 new trials a month.

Nathan Latka:

And can you finish the funnel for me? How many of those typically convert?

Craig Hewitt:

150, 200.

Nathan Latka:

Okay. That’s pretty high. That’s I would say that’s pretty high.

Craig Hewitt:

Yeah.

Nathan Latka:

Okay. 150 to 200 convert, and then again, they stick on average about 98% every month.

Craig Hewitt:

Yep.

Nathan Latka:

That’s great. Okay. Very good. So not really a good… You must have paid strategy, they’re mostly a SEO and inbound. Good stuff. Craig, let’s wrap up here with the famous five. Number one, favorite business book?

Craig Hewitt:

Built to Sell.

Nathan Latka:

Built to Sell. Number two, is there a CEO you’re following or studying?

Craig Hewitt:

Yeah, it’s the same one I answered last time. Jordan Gal from CartHook. Just really respect him. He’s like one step ahead and just love listening to what he’s doing.

Nathan Latka:

Number three. What’s your favorite online tool for building a company?

Craig Hewitt:

Notion.

Nathan Latka:

Number four. How many [inaudible 00:13:31] breaking every night?

Craig Hewitt:

At least eight.

Nathan Latka:

Okay. Good and situation. Married, single kids?

Craig Hewitt:

Yes, all that. Married. Two kids.

Nathan Latka:

Married. Two kiddos. And how old are you, Craig?

Craig Hewitt:

I’m 40.

Nathan Latka:

40. The big four O, all right. Last question. What do you wish you knew when you were 20?

Craig Hewitt:

Well, I wish I would’ve started this before. Yeah. I mean, I spent about 15 years of my professional life in kind of the corporate world and I wish I would’ve started as an entrepreneur sooner. It’s a lot of fun and really invigorating.

Nathan Latka:

Guys, there you have it. Castos helping podcasts or get going, but I don’t want to get up and going also distribute their content. Once as I’ve managed the hosting production, et cetera. Now serving over 2000 customers each month that paid $20 per month, $480,000 in monthly recurring revenue. As Craig continues to scale the company, seven people, they work with TinySeed early on and raised 120 grand otherwise completely bootstrapped spending nothing on a CAC, mostly using a Chrome plugin strategy, a new top of funnel users along with an SEO and content strategy.

Nathan Latka:

Craig, thanks for taking us to a stop.

Craig Hewitt:

Thanks, Nathan.