Giles Palmer is the founder and CEO of Brandwatch, a leading social intelligence company. Formerly of BSkyB, Giles started Brandwatch, and since its launch in August 2007, it has grown to become one of the world’s leading social media analytics and listening companies.
Nathan Latka sat down with Giles to get his insights on the large BuzzSumo Acquisition, and how it can proper the company further in the future of the SaaS space. Key metrics include:
- 420 employees
- growing 30% YoY
- 50MM run rate
Nathan Latka (00:00):
Hello everybody, my guest today is Giles Palmer. He’s the founder and CEO of a company called Brandwatch, a leading social intelligence company. Formally of BSkyB, Giles started Brandwatch and since it’s launch in August 27, has grown to become one of the world’s leading social media analytics and listening companies. Giles are you ready to take us to the top?
Brandwatch CEO Giles Palmer (00:18):
Ready to go. Ready to hear it Nathan.
Nathan Latka (00:20):
All right. Good and correct me by the way, If I’m wrong, your name, is it a hard G on the front or is Giles right?
Brandwatch CEO Giles Palmer (00:25):
It’s a hard G, Giles, unusual name. Sorry about that. I didn’t choose it.
Nathan Latka (00:29):
Don’t apologize for your name. I just want to make sure I get it right. Giles. Okay good, Giles Palmer. So tell us about Brandwatch, what’s the company doing and how do you make money? What’s the revenue model?
Brandwatch CEO Giles Palmer (00:37):
It’s a subscription business, it’s a SaaS business and it’s basically a data business. So we crawl about 80 million websites and have feeds from the social networks. We aggregate all of that and we allow brands to check out what the world is saying about them, their competition, and so on. And it goes back five years. So it’s a research tool and real time insights kind of engine for brand managers primarily.
Nathan Latka (01:07):
So if you went in there and I plot McDonald’s against Wendy’s, can you actually see in your trends when Wendy’s hired that super witty social media marketer that just grills people on Twitter? Can you actually see the lift or the drop?
Brandwatch CEO Giles Palmer (01:22):
Possibly, you can certainly see any changes in the conversation of anybody mentioning Wendy’s online, and what they’re talking about. So the system will even tell you when unusual activity starts, and an unusual activity could be when a certain phrase gets mentioned close to a brand for the first time ever. So there’s this big kind of algorithmic engine behind the scenes watching for unusual activity. And then it tells you, “Oh look, this is a new thing that’s happened today, we haven’t seen this before.”
Nathan Latka (01:57):
Interesting. And-
Brandwatch CEO Giles Palmer (01:58):
I got a signal, we call them signals. I got a signal today of about one of the companies in our space having made an acquisition within six or seven minutes of it hit going online because the system was just watching for that kind of activity.
Nathan Latka (02:15):
Who was that?
Brandwatch CEO Giles Palmer (02:17):
Falcon Social, guys in Copenhagen-
Nathan Latka (02:19):
Who they acquire?
Brandwatch CEO Giles Palmer (02:21):
They acquired another local company. I can’t actually remember the name of it, because I hadn’t heard of it-
Nathan Latka (02:26):
I was going to say, do you know enough about the deal to know if it was a good buy or bad buy for them?
Brandwatch CEO Giles Palmer (02:30):
Look, it looks like a sensible buy. It’s a small buy, but it looks sensible to me.
Nathan Latka (02:36):
Interesting. So give me a general sense of customer size, are these folks paying 100 bucks per month or 1,000 or 10,000 per month? What’s general ACV?
Brandwatch CEO Giles Palmer (02:44):
Annual contra value is about $30,000.
Nathan Latka (02:49):
Okay so 2,500 a month on average.
Brandwatch CEO Giles Palmer (02:50):
Yeah. So it’s enterprise grade. It’s not cross enterprise. Those systems tend to be more and more expensive, but it’s a high end professional tool.
Nathan Latka (03:03):
It’s not Hootsuite.
Brandwatch CEO Giles Palmer (03:05):
No, it’s like it’s a BMW, not a whatever, Mini Metro or Mini Monster.
Nathan Latka (03:12):
Yeah, when did you launch the company? What was year one?
Brandwatch CEO Giles Palmer (03:14):
August 2007.
Nathan Latka (03:17):
So let me ask you a question. I would say the last big pop of any activity in this space was 2012, when you had Buddy Media going out, Vitro Wildfire, all these guys, you I’m sure-
Brandwatch CEO Giles Palmer (03:27):
Media was six.
Nathan Latka (03:27):
Yes, I’m sure you had offers. You chose not to sell, why?
Brandwatch CEO Giles Palmer (03:33):
We had a lot of approaches. We had one pseudo offer. We didn’t-
Nathan Latka (03:40):
Like an LOI or no?
Brandwatch CEO Giles Palmer (03:42):
Yeah exactly. We decided, I guess we thought we were in kind of a up into the right phase. And we didn’t think that the deal that was being offered to us was representing that strong enough. And also we were like, we didn’t do this to sell. We didn’t start it to just sell it. We started to build a company and we didn’t feel like our job had even been half done at that point. And actually, if you look at those acquisitions, none of them really have gone on to be meaningful businesses.
Nathan Latka (04:19):
Oh gosh no, they’re wildfire shut down. Who even knows where Buddy Media is. And that, in Salesforce who knows, Vitro who knows where they are, and Volver where are they? Mot of them got shut down.
Brandwatch CEO Giles Palmer (04:31):
Yeah. And that would indicate to me that they were brought prematurely. They weren’t mature businesses. They hadn’t figured out why they existed and what they were trying to solve for. And I don’t think we totally had at that point either. So if we’d sold it, would’ve been a kind of, “Oh look, somebody’s come along with a big amount of money, here it is.” And actually one of the reasons why we’re still around and we’re doing pretty well is because there’s an honesty in what we’re trying to do. We’re not trying to build and sell. We’re trying to build a great company. And I don’t think that we were ready to sell it at that point.
Nathan Latka (05:06):
So what have you scaled to today in terms of total customers using you?
Brandwatch CEO Giles Palmer (05:10):
Just under 1500, 1,500. This year we’ll do more than $60 million in revenue and there’s 420 staff in the business, and is profitable. So we’ve got it to a good spot.
Nathan Latka (05:23):
So where’s growth at? So you said over the past 12 months you did 60 million AR or that’s what you will do?
Brandwatch CEO Giles Palmer (05:30):
Last year’s recognized revenue is around 50. So this year it’ll be above, well above 60.
Nathan Latka (05:37):
Okay and take me, just so we can get a growth rate. Take me back 13 months ago, December 2016. What was your run rate then?
Brandwatch CEO Giles Palmer (05:44):
I can’t remember. But last year we grew healthily. It wasn’t 40, 50%, but it wasn’t 10, 15.
Nathan Latka (05:53):
It was like 30%ish, right?
Brandwatch CEO Giles Palmer (05:54):
Around there.
Nathan Latka (05:54):
Yeah. Yeah. So if you ended the year at a 50 mil, or you’re going to do, or you’re on a 60 million run rate today, right? You were somewhere caught in the 48, 49 million run rate, December 16?
Brandwatch CEO Giles Palmer (06:07):
Something like that. I haven’t got the data in front of me.
Nathan Latka (06:09):
That’s okay.
Brandwatch CEO Giles Palmer (06:10):
But it gives you sense of the scale.
Nathan Latka (06:12):
I’m going to really love you if you tell me you’re boots strapped, but I have a feeling you’re going to break my heart.
Brandwatch CEO Giles Palmer (06:16):
Yeah. I know. Sorry about that.
Nathan Latka (06:18):
How much have you raised?
Brandwatch CEO Giles Palmer (06:19):
We’ve raised 50 million bucks.
Nathan Latka (06:21):
Five Zero?
Brandwatch CEO Giles Palmer (06:23):
Yeah, not all of that’s gone into the company, but the majority of it has.
Nathan Latka (06:26):
How much of it went to secondary versus operating?
Brandwatch CEO Giles Palmer (06:30):
I mean four fifths of it went to operating, something like that.
Nathan Latka (06:33):
Oh good. Oh okay. That’s healthy.
Brandwatch CEO Giles Palmer (06:35):
Yeah. The reason why we’re not totally bootstrapped isn’t because we’ve scaled sales and all that kind of stuff and been super aggressive, it’s because we had to build the back end, way ahead of actually being able to monetize it. And that’s an expensive exercise. That’s hardware, software and data. We’ve got something like a thousand servers that sit behind the live application. We could put it on the cloud. Either way, it’s an expensive machine to run because it’s a massive data processing storage game that we’re in.
Nathan Latka (07:17):
Well, so now its mote for you now, now that you’re at scale, it’s hard to compete.
Brandwatch CEO Giles Palmer (07:20):
Exactly, it is. That’s true enough.
Nathan Latka (07:22):
Yeah, interesting. Okay. Tell me about churn. That’s obviously critical in this kind of business?
Brandwatch CEO Giles Palmer (07:28):
Churn is, yeah. And as the business gets bigger, it’s a absolutely killer thing that you just have to get under control. We are not one of those businesses, sadly, that signs on for a dollar’s worth of revenue and in five years that’s $2 sort of thing, on average taking account of churn and so on. I’m envious of companies like NetSuite and I guess Salesforce that just end up having this kind of viral effect across once they get it, once they get a customer. We have to work very hard for retention. We have to make our product incredibly sticky. We have to onboard our customers in a really smart way, such that they’re successful. We have to keep innovating like crazy to make sure that our products is something that they going to continue to choose. In some ways it makes us fitter as an organization, but it’s also a huge challenge to scale a business, because if you’ve got 1% per month churn-
Nathan Latka (08:32):
Is that what you’re at right now?
Brandwatch CEO Giles Palmer (08:34):
Yeah, not quite, but there, or thereabout.
Nathan Latka (08:36):
In terms of revenue or logos?
Brandwatch CEO Giles Palmer (08:39):
Either. It’s very similar. That’s a lot of revenue to replace. Now obviously we’ve got upsell, so that’s gross churn. So upsell and increasing your footprint within existing accounts, that’s going to reduce that on a net basis.
Nathan Latka (08:53):
What is your net?
Brandwatch CEO Giles Palmer (08:56):
It varies, we don’t disclose that.
Nathan Latka (08:58):
But are you over 100 in terms of net revenue retention annually?
Brandwatch CEO Giles Palmer (09:02):
There or thereabouts, it varies depending on the cycle. But my job is to think about how do we bring out new products that our existing customer base would like to use. Or like last year we acquired a company called BuzzSumo. And although it’s not really and aimed at the same sort of market space as our core product, that is something that our customers are actually taking as well. So there’s more-
Nathan Latka (09:29):
By the way that move by you really confused me. And what confused me even more now, when you tell me what your ARPU is, because I see BuzzSumo as a growth hacker, college student in their basement, trying to hack their way into some extra SEO value, not a major brand that’s paying your kind of money. What was the reason in your head behind that acquisition?
Brandwatch CEO Giles Palmer (09:50):
So BuzzSumo have 3,500 customers. They have a lot of blue chips using-
Nathan Latka (09:58):
Really?
Brandwatch CEO Giles Palmer (09:59):
Their software, but like on a credit card, individual-
Nathan Latka (10:02):
Like 100 bucks a month kind of thing?
Brandwatch CEO Giles Palmer (10:03):
Yeah, their average is about 130 bucks a month. So it’s the best product on the market for content analysis. So there isn’t a better one, even if you pay 10 times more. So they get a lot of people using it. But the reason why we bought by BuzzSumo there’s three or four reasons. Number one, it’s just a brilliant product and it’s very rare that brilliant products that have enormously loyal user bases come to market without being incredibly expensive and so brilliant product, amazing team. And then two other core reasons. Number one is that they’ve got a data set with the amount of the shared data, content shared data, that is almost unique. It’s just an extremely valuable aggregated data set. And we can use that within our existing product.
Nathan Latka (10:52):
Why has no one replicated it? Is there really hardcore tech?
Brandwatch CEO Giles Palmer (10:55):
Yeah, and it’s super hard to do at scale, getting billions of bits of content and getting the accurate share data on those bits of content up to date on an ongoing basis. You try doing it. There’s no feed, there’s no Twitter feed of shares, there’s no Facebook feed of shares that you can just tap into. You’ve got to figure out how to do it. It’s really interesting tech.
Nathan Latka (11:18):
Interesting.
Brandwatch CEO Giles Palmer (11:21):
And then I’ve always wanted to have a self-serve product or a suite of products that are self-serve. And because we’re high price, we have sales people talking to prospects and so on and so forth, and all of the engineering effort and the pro-development within Brandwatch goes to serving that those kinds of people. Because those are our customers and that’s what we’re focusing on. So there never came a point where I was like, “Okay, let’s let’s launch a self-service version of Brandwatch,” that just never happened and it wasn’t ever likely to happen. So I bought a company, we bought a company to go in at that low level. We’re going to keep that brand and we’re going to launch some other products that are basically self serve, which can maybe borrow off our infrastructure and leverage some of the stuff that we’ve built internally. So it’s a way of addressing a different market segment with a very efficient good at market model, great team, great product, great brand-
Nathan Latka (12:19):
Amazing mouse trap.
Brandwatch CEO Giles Palmer (12:21):
Exactly.
Nathan Latka (12:21):
Yeah. Much better mouse trap than anything else out there. So 3,000 folks when you bought it at 150 bucks a month, I mean what, they were doing 450 grand a month, something like that.
Brandwatch CEO Giles Palmer (12:30):
Yeah, about that.
Nathan Latka (12:31):
That’s way bigger by the way than I would’ve ever thought.
Brandwatch CEO Giles Palmer (12:33):
Yeah, and they’ve got 400,000 free me users, so they’ve got this huge database of free me users as well.
Nathan Latka (12:38):
It’s like a free list for you.
Brandwatch CEO Giles Palmer (12:40):
Amazing.
Nathan Latka (12:41):
It’s great. So I don’t know if it’s enough removed now where you can share more of the details here, but it’s valuable. How do you value a company like that? There’s obvious strategic regions, but I mean, do you pay a 4X multiple, 5X, 1X? How do you value it?
Brandwatch CEO Giles Palmer (12:54):
Well, it depends. Valuing companies is an art form in of itself, we didn’t disclose the price.
Nathan Latka (12:58):
Give me in your head though?
Brandwatch CEO Giles Palmer (13:00):
Anything, like if you’re paying 5X, 5X revenues for a company, its got to be a really, really good company. I think BuzzSumo is a really, really good company. Did we pay 5X. No, not quite, but its-
Nathan Latka (13:16):
You were north of 3X?
Giles Palmer (13:18):
I’m not saying, but the founders of BuzzSumo did great. It was a cash, almost exclusively cash deal. They’re in it for the long term as well. For them, it was like, well, why would they sell such a successful company? And the answer to that is, well, in order for them to get to the next level, then they would would need to build sales forces and build a structure and professionalize the whole organization. BuzzSumo didn’t even have an office.
Nathan Latka (13:44):
Let me this question differently. Did you lock up an LOI with Steve before you went out and said we want to raise 25 million?
Brandwatch CEO Giles Palmer (13:52):
Oh yeah, yeah. We didn’t raise, we paid it off balance sheet.
Nathan Latka (13:56):
Well, what I’m trying to get at is, was the majority of that fund raise specifically for the BuzzSumo acquisition?
Brandwatch CEO Giles Palmer (14:02):
Oh no, no, no. No, it wasn’t it.
Nathan Latka (14:03):
It wasn’t? Okay. So the LOI to Steve came after, it wasn’t like you lined up the LOI and the said, “We got to go raise the capital to do the acquisition?”
Brandwatch CEO Giles Palmer (14:11):
To be honest, that’s probably a smarter way around of doing it, but no, we didn’t do it that way around.
Nathan Latka (14:16):
Yeah. Well, no-
Brandwatch CEO Giles Palmer (14:17):
It’s quite hard to get all those ducks in a row, right?
Nathan Latka (14:19):
Yes, it definitely is. Yeah no, it is. It’s amazing. I didn’t realize it was that big, I mean, 450 a month times call it 10 or 12 months. You’re putting four, five, 6 million bucks in AR and if you do think they’re a best, best company and pay 5X, that’s a significant amount of your cash, 20, 30 million, at least, from the last raise out the door. Now you’re profitable today you said, right? And how much total have you raised? 50?
Brandwatch CEO Giles Palmer (14:45):
55, I think.
Nathan Latka (14:46):
- So how are you able to be, this is going to sound a little bit weird, but how can you raise that much capital and be profitable unless you just let all of it sit in the bank and do nothing?
Brandwatch CEO Giles Palmer (14:56):
So, that capital was raised over four different rounds. So the last round which we did in end of ’15, just over two years ago, we ended up not needing anywhere near as much of that round as we thought we would.
Nathan Latka (15:15):
Got it. So you had way longer runway than you thought?
Brandwatch CEO Giles Palmer (15:18):
Yeah. We were actually pretty close to profitability at that point, as it turns out we were going to be burning more, but our CFO’s a pretty prudent dude.
Nathan Latka (15:31):
Yeah, that’s a good thing.
Brandwatch CEO Giles Palmer (15:32):
So yeah, we were sensible with it.
Nathan Latka (15:34):
So that was two years ago-
Brandwatch CEO Giles Palmer (15:35):
It’s really interesting, a friend of mine said to me other day, that the first thing you should do when you raise a big round is make loads of cuts, I was like, “What? That doesn’t make any sense-“
Nathan Latka (15:42):
Sends the right signal.
Brandwatch CEO Giles Palmer (15:42):
But we were sensible with it.
Nathan Latka (15:45):
Yeah, that’s good. So that was two years ago. Right now you’re either raising additional capital or you’re in talks to be acquired. Which one is it?
Brandwatch CEO Giles Palmer (15:53):
It’s neither actually.
Nathan Latka (15:53):
Come On. I don’t believe you.
Brandwatch CEO Giles Palmer (15:55):
We’re not raising. There is an opportunity, and everybody knows it in our space to rationalize the market a little bit and have a bit of a consolidation in and around these kind of social tools.
Nathan Latka (16:13):
You saw a mini version of that in 2012.
Brandwatch CEO Giles Palmer (16:15):
Yeah, exactly. But it’s not clear which entities are going to be the ones to create this. Sprinkler have done it a little bit by making lots of small acquisitions, but there are some significant companies, a bit like us, some bigger, many smaller, who’ve got duplication of GNA, duplication of data storage, duplication of all sorts of stuff without giving too much benefit to the customer in general. So if you take six or seven of these competitors and turn them into one or two, then you’ve got one or two very, very valuable businesses.
Nathan Latka (16:53):
Even a company like Ryan at Holmes, at Hootsuite. If he’s looking to deploy capital in a smart way and his idea is how do we increase ARPU right across our current customer base, which they have a huge base, they bring on a tool like yours and add an upsell.
Brandwatch CEO Giles Palmer (17:05):
That kind of thing. Absolutely. They’re going enterprise, that’s for sure. But historically there’ve been more SMB.
Nathan Latka (17:14):
That’s right. Interesting stuff. Okay, cool. Last few economics questions before we wrap up with the famous five CAC, what are you spending right now to acquire new customers?
Brandwatch CEO Giles Palmer (17:23):
Tens of thousands, annoyingly. So our CAC payback, we want to get our CAC payback on a margin basis below 15 months and we’re there or thereabouts right now.
Nathan Latka (17:34):
When you say on a margin basis, you take ACV and then you multiply times 85% gross margin. So call it 30 grand times 0.85, that’s like 25 grand. And so you’re spending about 28, 29 grand to acquire them. And you get that back in 15 months.
Brandwatch CEO Giles Palmer (17:48):
Exactly.
Nathan Latka (17:49):
Interesting. And where are you spending that money typically? Is that mostly a sales team or is that paid ads?
Brandwatch CEO Giles Palmer (17:54):
We don’t do enough paid ads, I don’t think actually. I think that’s an opportunity. Marketing, we’ve got a big marketing team.
Nathan Latka (18:00):
How many of the 420.
Brandwatch CEO Giles Palmer (18:04):
30, 32.
Nathan Latka (18:05):
That’s pretty healthy.
Brandwatch CEO Giles Palmer (18:07):
That includes in-house design. We’ve got an in-house design team of seven or eight. So probably 25, 24 marketers and eight graphic, creative design guys. It’s how we’ve built the brand. We get 15,000 uniques to our website every day and over 100 demo requests, that’s because we’ve taken a long term view with our marketing and content strategy.
Nathan Latka (18:40):
And Giles, what do you assume on these folks? Lifetime value can really lie to you, especially if you just multiply, right? What do you assume a minimum LTV is? They’re definitely worth X amount.
Brandwatch CEO Giles Palmer (18:54):
It’s interesting. It’s like we would look at a five years as an average tenure, but it’s increasing because the company is growing. So hopefully we can get that to ten, five to ten years is the play over the next five years.
Nathan Latka (19:14):
Even at five years or 60 months, if I do the math on that, what is that? 30 grand a year. That’s assuming no expansion revenue year over year, which I’m sure you have, but 30 times six, that’s 180 grand minimum lifetime value.
Brandwatch CEO Giles Palmer (19:28):
Which isn’t bad.
Nathan Latka (19:29):
That’s good.
Brandwatch CEO Giles Palmer (19:30):
But as you scale a business, you want to keep pushing that out and then the growth rates don’t slow down.
Nathan Latka (19:37):
Yep. Interesting. All right. Let’s wrap up here with the famous five. Number one. What’s the last business book you read?
Brandwatch CEO Giles Palmer (19:43):
The last one, I thought was the favorite one. The last one is Nassim Taleb’s book, Antifragile.
Nathan Latka (19:50):
Antifragile. Number two, is there a CEO you’re following or studying currently?
Brandwatch CEO Giles Palmer (19:55):
Not really. I should do that. I admire CEOs. I don’t tend to study them. I don’t know how to-
Nathan Latka (20:00):
Who do you admire?
Brandwatch CEO Giles Palmer (20:04):
I think Larry Page has done an astonishing job at Google. You have to admire that all the CEOs of the super famous companies, but if I had to pick one, I’d pick him, just because I love that he’s more understated than the other guys. And I like that.
Nathan Latka (20:17):
Number three, besides your own, what’s your favorite online tool for building the business?
Brandwatch CEO Giles Palmer (20:28):
Google docs.
Nathan Latka (20:29):
And number four, how many hours of sleep are you getting every night?
Brandwatch CEO Giles Palmer (20:33):
I get about eight.
Nathan Latka (20:34):
Oh that’s good. And what’s your situation, married? Single? You have kids?
Brandwatch CEO Giles Palmer (20:38):
Have kids, divorced, but with a partner.
Nathan Latka (20:42):
Okay. So not married, but two kids-
Brandwatch CEO Giles Palmer (20:45):
Yeah.
Nathan Latka (20:45):
Two kids. And how old are you Giles?
Brandwatch CEO Giles Palmer (20:46):
I’m 48.
Nathan Latka (20:47):
- Last question. What do you wish your 20 year old self knew?
Brandwatch CEO Giles Palmer (20:51):
Move to San Francisco, that’s what I would tell.
Nathan Latka (20:54):
There you guys have it from Giles. I love first off, he resisted the urges in 2012 to sell. He founded the company 2007, really hard to stay disciplined in those early years when so much capital has to go onto just building the engine to even make this thing run, to get your first dollar in sales. Usually that presales playbook is a good one to start. It’s hard for him to do that, but he did it. Now 420 people full time, again, Brandwatch helping enterprise brands paying on average 30 grand in ACV, about 1500 of them right now, helping them monitor themselves and competitors in their market space across online sources, especially social. Growing about 30% year over year up from about 40 million run rate in December 2016 up to over 50 million today. 12% or less than 12% annual gross revenue churn, about 100% annual net revenue churn, obvious retention, sorry, that varies. 28 grand CAC, 150 grand minimum LTV pay back around 15 months.
Nathan Latka (21:45):
Giles thank you for taking us to the top.
