Editor’s Note: Two months after this interview, Matt Straz was fired from Namely following an investigation into actions “inconsistent with that which is expected of Namely leadership.”
All-in-one HR, payroll and benefits platform Namely has more than 1,000 customers each paying an average of $40,000 per year.
The company, which launched in 2012, was founded by Matt Straz during a “career mid-life crisis.” Latka interviewed Straz in 2018.
Straz had worked in advertising in New York for nearly 20 years, and he’d reached the point where he could continue and make a comfortable living or try something new and exciting with less of a safety net. He chose the latter.
Before Namely, Straz started a company that he sold to WPP and another that was acquired by AOL. He started Namely with zero HR experience, but managed to instill confidence in 13 angel investors who collectively invested $1 million to start Namely. At the time of this interview, the company had raised more than $157 million.
“It [raising capital] was a lot of door-to-door, a lot of networking, calling in favors, asking people to take a meeting with the product that was at best, very nascent,” Straz says. “It was essentially a database of employees and an org chart. And it wasn’t much more than that. And I didn’t come from HR … But then of course in more recent years, we’ve hired people with a ton of HR experience.”
At the time of this interview, his team had more than 400 employees nationally, with a few dozen at its newest office in Austin. The company does between $40 million and $50 million in ARR, up from $25 million in December 2016.
Source: https://getlatka.com/companies/namely
Namely is retaining more than 80% of its gross revenue annually, and the company (at the time of this interview) has a revenue churn of around 20% per year.
A significant lever for driving expansion? Namely grows as its customers grow, too.
“We thought that upsells would be a big driver of that and there’s some element to that. But it’s actually people just adding more seats to the product,” Straz says. “I think we’ve kind of curated the first thousand customers that we wanted on the platform and we focused on ones that are companies like ours that are growing. So they’re adding a lot of seats to the product, which is helpful.”
Get to Know Matt Straz, Founder of Namely
Name: Matt Straz, age 50, married with two teenagers.
Where to find him: LinkedIn
Company: Namely
Noteworthy: He wishes his 20-year-old self knew that “success is a never-ending pursuit. There’s no finish line to it, as much as you accomplish, if you’re driven, you’re still going to want to accomplish more, and you’re never done.”
Favorite business book: “Crossing the Chasm”
CEO he respects: Katrina Lake
Favorite online tool for building the business: Notes app in his iPhone
Average # of hours of sleep/night: 7-8
Transcript Excerpts
Advice for pricing your product
“I think the number one advice I can give is don’t let your founder set your pricing! We tend to be terrible at pricing because we always are hypercritical of our own product and aren’t always aware of how bad the competitor’s products can be, or at least that they all have issues. So I brought in a VP of sales, Michael Manne, who joined us from Ultimate Software, which is also a payroll company. And he immediately increased our pricing and got it to a much better place.”
Why he’s resisted the temptation to go after bigger contracts
“I think it’s probably the last remaining white space left in the HR, payroll, benefits space. We started focusing on that part of the market six years ago, (and) now there’s other companies getting religion around that. But the fact is we’ve always been focused there. At the end of every year, I asked myself and our team, ‘Do we want to go up market or do we want to sell more things to the same customer?’ and we always decided on the latter because we’re just so passionate about mid-sized companies. They’re fun, they’re challenging, they’re dynamic, they need a lot from us, we can make a difference in their lives. And I think that’s why we continue to focus on the mid-market.”
Focusing on basic metrics when first starting out
“Well, I’m definitely a convert. Being a former fine artist, I wasn’t particularly quantitative driven to begin with in the early days of this business. But I’ve got a board that’s definitely helped me become more quantitative. But I kind of go back to basic metrics of public companies, revenue growth, churn, lifetime value. There’s a lot of those basic metrics. Churn ultimately tells you where you’re at, so you can do all the customer data you want and you can find out sentiment and all that, but ultimately, at the end of the day, churn tells you how you’re doing. It’s kind of like a one-loss record, if you’re a sports team. So I kind of like those big metrics and looking at public companies. Gross margins is another one that we look at really carefully.”
Why gross margins are lower for SaaS companies in the HR sector
“Because there’s a service component to HR, payroll, benefits business. The hard part of the business is not necessarily doing any one of these things, it’s doing all three of these things well together in a coordinated way — with a level of touch that may not be like enterprise software. But you definitely have to support your customers and a lot of them are small HR departments with maybe just one HR person, so there’s a fair amount of support that you’ve got to provide them, it’s not just about the product in this.”
Full Transcript Nathan Latka: Hello everyone, my guest today is Matt Straz. He’s the founder and CEO of a company called Namely, the all-in-one HR, payroll and benefits platform built for today’s workplace. They’re headquartered in New York City, we’re going to dive in today. Matt, are you ready to take us to the top? Matt Straz: I’m ready, Nathan. Nathan Latka: We were just kind of chatting before this, you just opened an office in Austin, huh? Matt Straz: We did, about 18 months ago we opened an office there for our central region and it’s been a great decision for us. Nathan Latka: You said a lot of the folks that you have up in New York are actually relocating to Austin. How many folks are in your team now today? Matt Straz: The team nationally is over 400 employees. And I think we’ve got a few dozen employees in Austin and that office is one of our fastest growing. Nathan Latka: That’s great. So, okay, let’s back into the story here. Tell us more about Namely, what it does and what’s your business model? How do you make money? Matt Straz: Sure. So we’re a SAS company and we provide HR, payroll and benefits software and services to mid-size companies. So we focus on companies with anywhere from a couple dozen to a couple thousand employees. And then I founded the company six years ago after working in building two startups in the advertising space. Nathan Latka: This would have been, so 2011? Matt Straz: Yeah, we officially launched January, 2012. Nathan Latka: And where was your … I want to understand kind of emotionally where you were at that moment in your life. So did you just have a big exit and you’re like, “I’m going to go risk it all in the HR space.” Or are you’re going, “I better make this HR thing work, otherwise I’m going to be broken on the street.” Matt Straz: I had a pretty good exit and I was having a career midlife crisis. I had worked in advertising and in New York for about 20 years and I realized I could have a comfortable rest of my life, kind of play out the string and make a good salary in advertising. Or I can get into a new industry, which would be a lot more exciting for me. And it was definitely the more risky path. And I was also super passionate to help New York create a software industry, in addition to having an advertising, media, fashion, finance industry. Nathan Latka: Yep. The starting days, did you kind of bootstrap this or did you raise capital right on the onset? Matt Straz: I went door to door raising capital from, I think … it ended up being about 13 angels and they helped me fund the first million dollars of the company. Nathan Latka: Literally door … okay, so tell me about this because there’s a lot of people listening right now that want to do that exact same thing right now. I mean, how did you find these contacts? And when you say door to door, do you mean like cold email to cold email? What did it actually look like? Matt Straz: So I had worked in the city for about over a decade and I had got to know a number of people, I had founded another ad tech startup that was somewhat successful [crosstalk 00:02:40]- Nathan Latka: Bootstrap there or raised? Matt Straz: It was a little bit of VC, but a lot of sweat equity for the most part. And I had this network of people that I’d built over a 10, 15 year period and I cashed in a lot of chips, and I went to them and raised $25,000, $50,000 increments to ultimately get to a million dollars raised in the angel round. Nathan Latka: Was that priced or [inaudible 00:03:08]? Matt Straz: I priced it myself, I priced it at a $4 million pre. Nathan Latka: Oh, like real equity, not a cap. Matt Straz: Yeah, I wasn’t sophisticated to know how to do a note. I was really a caveman trying to learn this on my own for the first time. So I figured, “Well, let’s price.” [inaudible 00:03:31] seemed like a reasonable price, depending on how you looked at it. So we started from there. Nathan Latka: That’s pretty cool and then update us today on funding, how much total have you raised? Matt Straz: We’ve raised over $157 million today. Nathan Latka: Yep. So take us back, we’ve had a few folks in the HR space on the show, the guys at Gusto and there’s many other kinds of people in the space. How do you see this? Like, first off, it’s clear there’s many winners, if you say a winner is anyone over a hundred million in AR, there are many winners in this space. Why do you think that is? And secondly, what niche would you say you’re kind of carving out for yourself? Why are people choosing you over the other ones? Matt Straz: Sure. So, every founder, when they go to pitch their business says, “The market is enormous, the TAM is incredible.” But this is one of those industries where that part’s actually true, it’s many tens of billions of dollar industry. Which is why virtually every company that’s been able to go public in the payroll and benefits space has been successful to some degree or another. And multi-billion dollar companies tend to be created in the core payroll and benefits space because those are the number one and two things that businesses spend money on. We started out focused really, really early on in the mid market, I had worked with a lot of mid-sized companies when I was working at WPP, they’re a large ad agency holding company. And I just [crosstalk 00:04:51]- Nathan Latka: Is that who you sold your first company to, and you were like on earn-out or something? Matt Straz: Yes. Yep, exactly, exactly. And then my second company was acquired by AOL. So I knew that there was a lot of midsize companies out there without good HR, payroll and benefits software. So that was the major insight and then of course I had no HR, payroll or benefits experience at all, I was a fine arts major in college. But I kind of went on intuition that it seemed like there were hundreds, if not thousands of companies across the US that could use a modern, easy to use system that was as powerful as enterprise software, but as was less expensive and a whole lot easier to manage and maintain. Nathan Latka: So right before you came on, Brian Halligan actually was the last interview and he talked about how he has different pricing axes at HubSpot to drive expansion revenue. Tell us how you price your product, how do you sell it? And then what kinds of economics are you using to drive ARPU expansion year over year? Matt Straz: Sure. So I think the number one advice I can give is, don’t let your founder set your pricing. We tend to be terrible at pricing because we always are hypercritical of our own product and aren’t always aware of how bad the competitor’s products can be or at least that they all have issues. So I brought in a VP of sales, Michael Manny, who joined us from ultimate software, which is also a payroll company. And he immediately increased our pricing and got it to a much better place. Nathan Latka: What are you at now? Like the average first year, would you say. Matt Straz: It ranges. Our average ACV at this point is around $40,000 a year, which is a good place to be. It allows salespeople to hit their OTEs- Nathan Latka: What an OTE? Matt Straz: On target earnings. Nathan Latka: How many seats is that typically? What’s the average size of that first? Matt Straz: Yeah, so that’s what makes us a little bit different than some of the other HR systems that emerged that were focused on the smaller end of the market. Our average customer size is around 200 employees and I think a big realization is that we decided to get in our swim lane, our mid-market swim lane really early on and just focus there. And I think you have to do that. In this space, the product needs are very different for small, medium and large business so you’ve got to decide really early on, what swim lane you’re going to be in. Nathan Latka: I mean, you’ve raised a lot of money, I imagine board meetings sometimes could sound like, “Matt, you need to go more enterprise.” Like bigger contracts, more efficient, less support, higher margins. But you’ve stayed kind of in that core 200 employees, how have you resisted that temptation? And why are you so bullish on the space kind of you’re currently targeting? Matt Straz: Well, I think it’s probably the last remaining white space left in the HR, payroll, benefits space. We started focused on that part of the market six years ago, now there’s other companies getting religion around that. But the fact is we’ve always been focused there. At the end of every year, I asked myself and our team, “Do we want to go up market or do we want to sell more things to the same customer?” And we always decided on the latter because we’re just so passionate about mid-sized companies. They’re fun, they’re challenging, they’re dynamic, they need a lot from us, we can make a difference in their lives. And I think that’s why we continue to focus on the mid-market. Nathan Latka: And can you share what have you scaled to over the past six years? So how many customers or businesses today are using you? Matt Straz: Oh yeah. Well, yeah, we started off with virtually none in the beginning, just a handful in year one with virtually no revenue. Nathan Latka: How low was it? Give us actual number. Matt Straz: God, I think if we ended our year one with a few tens of thousands of dollars of ARR, that would have been a lot. If I go back and look now … I went back and looked recently at our business plans and even our [inaudible 00:08:35] pitch deck and it was so embarrassing to look at, I don’t know how we raised money. God bless true ventures. Matt Straz: But today we have a thousand customers and based on the deal size that I shared, you could probably figure out where we’re at in terms of AR. Nathan Latka: Do you typically share that or you like to kind of keep that close to the vest? Matt Straz: I think companies that are well-funded are not technically public, but we need to provide a lot of transparency and frankly, everyone seems to know everything anyhow. Nathan Latka: Amway. Matt Straz: Yeah. So I’ve become less protective at this point, I’m pretty open with our own employees and the general public. Nathan Latka: Well, I certainly appreciate that because it makes my audience kind of learn faster. So we’ll get to the number, at a thousand customers paying on average that ACV, you’re making about $3.3 million a month and about $40 million in ARR or you’re above that at this point. Matt Straz: Yeah, it’s above that. It’s above that. Nathan Latka: Yeah, that’s great. Matt Straz: We’re about halfway to the big next goal- Nathan Latka: Which is hundred, right? Matt Straz: Which is a hundred, yep. Nathan Latka: That’s good, that’s good. That’s kind of the mark where you start going, “Okay, this is kind of getting, if I want to go public range, I’ll do it.” But you’re a lit guy, so I’m going to assume you have a great ego and you actually don’t maybe care about going public. Matt Straz: Actually, I do, but it’s for a couple of different reasons. One is because in the payroll space, we’re competing against companies that have been around for 50 years and most of them are public [crosstalk 00:09:58]- Nathan Latka: Can you name a few of those, Matt, just to put a face on them? Matt Straz: Oh yeah, ADP, Paychecks, newer ones like Paycom and Paylocity. They’re all multi-billion dollar companies and they obviously are public companies, so there’s a lot of transparency in their business. And I think we’re today processing $7 billion of payroll, when people hand you one of their- Nathan Latka: Annually. Matt Straz: Yes. When they hand you over one of their largest expenses and they want the certitude that you’re going to be around for a long time. So that’s one of the reasons why we raised a lot of capital and it’s one of the reasons why a midterm business goal, our realistic midterm business goal would eventually to be a public company. Nathan Latka: Makes a lot of sense. Can you give us a sense of growth? So do you remember a year ago in December, 2016, kind of what your run rate was? Matt Straz: Yeah, we basically doubled our ARR this year. Nathan Latka: Wow, so you’re like 20, 25 million about 12 months ago. Matt Straz: Yeah. Nathan Latka: Congratulations, that’s great. Okay, take us back, we’ve kind of teased the bigger part of your business, but take me back to those first few years. I mean, how did you get your first 10 customers? Matt Straz: Again, it was a lot of door to door, a lot of networking, calling in favors, asking people to take a meeting with the product that was at best, very nascent. It was essentially a database of employees and an org chart. And it wasn’t much more than that. And I didn’t come from HR, so I didn’t even know in the year one, what I was actually selling. It wasn’t until I was in a meeting with a prospect and he said, “So you built an HRIS.” And I said, “Yes, I did.” And then after the meeting I had to Google, “What is an HRIS?” And I found out it was an HR information system and that was- Nathan Latka: Fake it til you make it, right? Matt Straz: Yep, exactly. But then of course in more recent years, we’ve hired people with a ton of HR experience. Nathan Latka: Okay, so that’s helpful to understand. Coming for kind of today, when you look at your unit economics, what are you at now today in terms of churn? Whether you want to talk about logo or revenue, whatever you focus on more. Matt Straz: Yeah. I think industry-wide for our segment, churn tends to be around 20% a year- Nathan Latka: Logo? Matt Straz: ARR. Nathan Latka: Okay, revenue churn. Yeah. Matt Straz: Yeah, revenue churn, which is what I feel most comfortable speaking to. And I think that we’re certainly much, much better than that. So, we’re at least … yeah [crosstalk 00:12:24]- Nathan Latka: Can I phrase that in a one sentence and say, “Namely is retaining significantly more than 80% of their revenue each year?” Matt Straz: Yes, easily. And in fact, we have negative net churn. So our expansion is growing faster than people coming off the system. Nathan Latka: I was just going to ask that. Is your number one lever for driving that expansion, just additional seats, or are you adding up and upselling products or features or usage? What is it? Matt Straz: Seats. Actually, we thought that upsells would be a big driver of that and there’s some element to that. But it’s actually people just adding more seats to the product, I think we’ve kind of curated the first thousand customers that we wanted on the platform and we focused on ones that are companies like ours that are growing. So they’re adding a lot of seats to the product, which is helpful. Nathan Latka: And to get these folks on in the first place, what are you paying right now for CAC? Or what are you willing to pay? Matt Straz: I’d have to look at the exact numbers, I don’t have that. I’m not avoiding the question, I just don’t want to give you an answer that’s wrong. Nathan Latka: No, that’s okay. I just want to get in your head about the initial economics. Like, what do you care most about? Is it like the CAC to LTV ratio? Is that payback period? How fast you get your cash back? What are you really focused on the most? Matt Straz: Well, I’m definitely a convert. Being a former fine artist, I wasn’t particularly quantitative driven to begin with in the early days of this business. But I’ve got a board that’s definitely helped me become more quantitative. But I kind of go back to basic metrics of public companies, revenue growth, churn, lifetime value. There’s a lot of those basic metrics. Churn ultimately tells you where you’re at, so you can do all the customer data you want and you can find out sentiment and all that. But ultimately at the end of the day, churn tells you how you’re doing. It’s kind of like a one loss record, if you’re a sports team. So I kind of liked those big metrics and looking at public companies. Gross margins is another one that we look at really carefully. Nathan Latka: You guys are probably in this … I imagine you don’t have any weird above the line expenses, you guys are in the 85 to 90% range, like most SAS companies. Matt Straz: No, no. Because actually, if you look at companies in our sector, ADP has gross margins in the forties. Nathan Latka: Oh, wait why is it … so most SAS companies I talked to, they’re 85, 90%. Why is it so low? Matt Straz: Because there’s a service component to HR, payroll, benefits business. The hard part of the business is not necessarily doing any one of these things, it’s doing all three of these things well together in a coordinated way. With a level of touch that may not be like enterprise software, like that kind of level of touch. But you definitely have to support your customers and a lot of them are small HR departments with maybe just one HR person. So there’s a fair amount of support that you’ve got to provide them, it’s not just about the product in this [crosstalk 00:15:19]- Nathan Latka: Are you a pure play, or is at least the 40, 50 million we talked about earlier, is that pure SAS? Or is there professional services [crosstalk 00:15:28]- Matt Straz: Yes. Yeah, that’s all pure SAS. Nathan Latka: Okay, got it. Okay, good. And then in terms of like, you’ve raised so much money, do you have less of a focus on getting your cash back quickly since you have a war chest? Matt Straz: No. I mean, we run it like a real business. We’re driving to profitability. We- Nathan Latka: What do you like hit payback period wise? A year or more? Matt Straz: One to two years is fine. Nathan Latka: Okay. Matt Straz: Because of the stickiness and the how long people are on a payroll product. Nobody who goes through a payroll implementation wants to do it again anytime soon, if they can help it. Nathan Latka: So with that in mind, your payback between one and two years, and that first year ASP around 40 grand. It’s fair to say you’re totally comfortable spending between 40 and 80 grand getting the customer in the first place. Matt Straz: Yeah. Again, I don’t have the numbers right in front of me, but I think … yeah, I mean, I think we’re thoughtful about how we drive leads into the top of the funnel. We measure everything, including our television and our out-of-home. And we look at everything that we do, and we’re very, very rigorous about making sure that that cost doesn’t get out of whack. Nathan Latka: All right, Matt, let’s wrap up here with the famous five. Number one, what’s your favorite business book? Matt Straz: This is going to be cliche, but I read this book almost every single year and I love Crossing the Chasm, especially as you know at my core, I’m a marketer. So marketing tech products and the lessons that are taught in that book, even though the book is decades old now, that the lessons are still the same. Getting a beachhead then going after adjacent markets and especially creating the whole product. And I think one of the number one things that people sometimes forget in SAS is it’s not just about the product, it’s about everything that’s wrapped around that. Nathan Latka: Well, Geoffrey Moore, the author is thanking you. But from a coming from a lit guy, I’m expecting like some book on stoicism and how it applies to business. And you give me Crossing the Chasm, Matt, okay. Matt Straz: I can give you fun books, [inaudible 00:17:26] of survival, which I think are some of the best business advice out there. But for me, if you push me on a business book, I’d go with that one. Nathan Latka: All right, number two, is there a CEO you’re following or studying right now? Matt Straz: Yeah, that’s a great question. I was thinking about this one and I will say, I think just in the last couple of months, when Stitch Fix went public and Katrina Lake as founder, CEO, and the way she actually incorporated her son in that. And just the joy around that, that’s somebody that I’m just fascinated by it and I want to find out more about how she founded that company and what her journey was like. I’m sure it was not easy, like most founders, but especially for her, I would imagine. Nathan Latka: We will get her actually on the show coming out of the lockout and kind of silence period, so we’ll keep that up to date. Matt Straz: Great. Nathan Latka: Yep. Number three here, besides your own, what’s your favorite online tool? Matt Straz: This is going to be probably the weirdest, most boring answer. I’m a huge note taker, idea taker, I have ideas all the time about our business, other people’s businesses, creative ideas. So this is probably the silliest answer, but I love the notes app in my iPhone, I just use it absolutely constantly. I like the fact that it backs up to my other Macs and I can go back in and just take quick notes constantly. Nathan Latka: Number four, how many hours of sleep are you getting every night? Matt Straz: Not as much as I would like, it varies. A little bit more on weekends. I think as a founder, no matter how far you get along, we are all prone to having the 4:00 AM scaries, when you wake up at 4:00 AM and worry about something about your business and can’t go back to sleep. Nathan Latka: What do you average, would you say? Matt Straz: I would average probably seven or eight. Nathan Latka: Okay. Matt Straz: Once or twice a month, you have that sheer moment of panic [inaudible 00:19:16] how do you take the business to the next level and double sales again the next year? Nathan Latka: Yep. And what’s your situation? Married? Single? You have kids? Matt Straz: Married, two teenagers, one who’s getting ready for college. Nathan Latka: That’s exciting. And how old are you, Matt? Matt Straz: I’m 50 years old. Nathan Latka: Last question, take us back 30 years, what do you wish your 20 year old self knew? Matt Straz: That success is a never ending pursuit. There’s like literally no finish line to it, as much as you accomplish, if you’re driven, you’re still going to want to accomplish more and you’re never done. Nathan Latka: Success is a never ending pursuit, you guys got to hear from Matt. Founded Namely after leaving the ad tech space many years ago, back in 2011. Had 10, 20, 30 grand in first year revenue, really learning what the terms of the industry meant after he made the sale. And the customers are going, “Do you have this acronym?” And he’s Googling and building it as he goes. Now 400 people spread across costs their different offices, they’re helping over a thousand businesses, right at their core 200-ish employees is a good size for them. They’re doing about $40 million, $50 million in ARR, growing quickly up from $25 million in December, 2016. They raised about $157 million in capital, super healthy economics, retaining well over 80% of their gross revenue annually. And they’re obviously net negative revenue churn as well. Matt, thank you so much for taking us to the top. Matt Straz: Thank you so much, Nathan.