Business can’t operate without communication — SaaS company Smartling capitalized on that fact and has since raised $63 million over four rounds since its start in 2009.
To help companies translate their digital content into more than 150 languages, co-founder and CEO Jack Welde says Smartling’s software captures content and organizes it, routes it to translators around the world, then deploys it “back where it belongs” to their customers faster.
“Companies have websites and email and support content and other marketing materials that, if they want to reach customers around the world, they need to translate into multiple languages,” Welde told Latka in an interview.
That’s what nearly 500 enterprise customers trust the SaaS to do — and based on their needs, customers pay from $10,000 to almost $2 million per year to have their content translated by both AI and human translators.
For many years, Smartling maintained a 100% year over year growth rate; but as any company grows, doubling business becomes more difficult. However, the company earned more than $800,000 in MRR at the time of this interview, even with a growth rate on the lower end of previous years.
Welde accepts that he can’t keep every single customer, so “of our existing customer base,” he says, “we hope that we will retain 90% to 92% of that revenue every year.”
But rather than think of turnover in terms of logo churn, Welde and his team focus on annual revenue churn, targeting a range of 8% to 12%. Smartling optimizes payback period for between 18 and 24 months, and the time in between is spent centering growth, including selling more customers to add to the company’s base of revenue.
Source: GetLatka
When it first raised Series A funding, Smartling had seven to 10 customers paying up to $100,000 annually. At the time of this interview, the company was worth more than $250 million and now has 10,000 contracted translators around the world as well as 200 full-time employees.
Despite having been on the fast-track to success, Welde still aims for more.
“We’re starting to think about where are the new products and services we might build that are ancillary to the products and services we have right now that we can cross-sell customers to make sure we’re growing in an appropriate way.”
What is Smartling’s monthly revenue?
In 2017, Smartling generated more than $800,000 in MRR.
Who is the CEO of Smartling?
Jack Welde, age 48, is the CEO and one co-founder of Smartling.
What is Smartling’s valuation?
Smartling is valued at $250 million.
Transcript Excerpts
From bootstrapped to successfully raising venture capital
“We raised four rounds of capital; we’ve raised $63 million over this entire period. We started bootstrapped. And if you remember 2009, that was a really challenging financial time, so we definitely bootstrapped. I put money in and my own experience as a software developer and we started building a team of other developers, started building the platform.”
To accommodate its business model, Smartling thinks annually
“We think about it both in terms of logo churn and we think about it in terms of revenue churn. And realistically, because we have a spread of customers that might be paying us $10,000 a year all the way up to $1 million+, what’s really more important to us is revenue churn. What we’re trying to do there is make sure we can retain as much revenue as possible from here. We’re always targeting something in sort of the exemplary SaaS range of about eight to 12%, something in that sort of range as a really great place to be.”
A CAC that fluctuates for varying contract sizes
“Unfortunately, we’ve got some fluctuation between what our deal sizes are so it’s not always that cut and dry. I’d hate to spend $130,000 to bring in a $10,000 customer, but if I can bring in the right kind of customer with a revenue churn of, let’s call it around 10%, what that really means is I’ve got a customer that’s going to stay with me for four, five, six years. So, if I can bring in a customer for $130,000 that pays $100,000 a year, that’s a $600,000 lifetime value customer. And that’s really what we’re going for.”
Shifting growth targets of a burgeoning SaaS company
“We doubled the business for every year for quite some time and we’re no longer doing that, but we were just recognized … Our growth rates are still really in [the] respectable territory. I’d always love for them to be bigger. Every company is looking for more growth, and we’re starting to think about, frankly, where are the new products and services we might build that are ancillary to the products and services we have right now that we can cross-sell customers to make sure we’re growing in an appropriate way.”
Full Transcript Nathan: Hello everybody. My guest this morning is Jack Welde. He is the co-founder and CEO of a company called Smartling. He’s a technology early adopter, serial entrepreneur, software patent holder, product evangelist and combat decorated Air Force pilot. Before founding Smartling, he served as an SVP of product at eMusic and COO and CTO at SheSpeaks and RunTime Technologies. Jack, are you ready to take us to the top? Jack Welde: I am. It’s a long bio. Thank you, Nathan. Nathan: Hey, of course. We’re glad to have you. You go from the Air Force to translation services. How the hell does that happen? Jack Welde: I’m not sure. Actually, that’s a great question. I think there’s probably a pretty good explanation of that. For one thing, in the Air Force, I grew up in the Air Force as a military dependent. My dad was Air Force and then I was in the Air Force myself and traveled all over the world. I lived probably lived and worked probably 25% of my life outside of the US. And so I think at some point the correlation between language and culture and how important those things are became very, very clear. And it became very obvious that, hey, there’s a big wide world out there of people who are buying products and services and translation is important to that. Nathan: Well, thank you for your service, Jack. Now tell us about Smartling. You hinted about what it does, but what are you doing? What’s your business model? How do you make money? Jack Welde: Yeah, so Smartling is a software company. We’re a software company and we provide a SaaS platform or software as a service platform that helps companies to translate their digital content more effectively and more efficiently. And so what does that mean? It means companies have websites and email and support content and other marketing materials that if they want to reach customers around the world, they need to translate into multiple languages. And if you’re doing that at any kind of scale, it’s just too hard to email things back and forth between an agency and then try to figure out where to put these in your content management systems, in your marketing platforms. And with software, we can take care of all of that for you. The moment you create content that needs to be in 50 languages, we can capture that content, we can organize it, we can route it to the right translators around the world and then we can deploy it right back where it belongs and put it in the hands of your customers faster. That’s what we do. Nathan: And give me a sense of kind of customer sizes you like to work with. What’s the average customer paying you per month or per year? Jack Welde: Yeah, so our customers pay us anywhere from $10,000 a year, all the way up to a couple million dollars a year, a million million dollar plus a year. And so it really depends on their particular needs. If you are a company that’s producing a ton of content across 50 different languages and you’re doing this a lot around a dozen different channels, then you’re going to need more software. If you’re a smaller company, you’re a two person mobile app that’s just starting out and you’ve got something that could potentially be a hit in the future and you’re really just getting started with smaller content, a smaller number of languages, it doesn’t cost quite as much. It really depends on what your particular needs are. Nathan: And how does the tech actually work? Are there humans involved? Or is it all kind of AI and natural language processing? Jack Welde: Yeah, so it’s a little bit both. There’s definitely humans involved. And while AI and machine translation, computer generated translation, something like Google translate has undergone some really incredible advances in the last year or so, translation is still one of those things that really requires humans. Particularly when you’re talking about marketing content and high impact content that’s mission critical to your operation. But that said, there are certainly things that we do to help to facilitate faster and better translation. And we do that through a combination of software and people. We have thousands and thousands of translators positioned around the world who understand. Nathan: Are those all full-time? What’s your full-time team size? Jack Welde: We’ve got 200 people full-time. Nathan: Okay. And the rest are contractors. Jack Welde: Yeah, 10,000 contracted translators around the world. Nathan: Wow. Jack Welde: Yeah, so the full-time people are largely around software and sales and customer service, but when you’re translating into French, you probably want somebody who’s working out of his or her home in Paris. If you’re translating into Chinese, you want somebody who’s working out of his or her home in say Beijing. And so it just makes more sense to be working with contractors who are working out of their home and wake up in the morning and say, “Hey, I’ve got eight customers, eight clients that I’m working with. I understand their brands. I see the content that’s coming in and now I’m ready to translate for that particular company.” Nathan: And when did you launch the company? Jack Welde: Eight years ago. Eight years ago, we started the company. Nathan: 2009. Jack Welde: Nathan: And what have you done? Have you bootstrapped the company or raised capital? Jack Welde: We raised capital. We raised four rounds of capital. We’ve raised $63 million over this entire period. We started bootstrapped. And if you remember 2009, that was a really challenging financial time so we definitely bootstrapped, I put money in and my own experience as a software developer and we started building a team of other developers, started building the platform. And as we added more and more customers, we said, “I know you like numbers here in this.” Nathan: Yeah, talk sexy to me, Jack. Jack Welde: Yeah, we started out and said, “Boy look, I think if we could build a prototype and if we could get three customers, three customers to use it and try it out and say, ‘Hey, this is actually been really, really helpful to us. It’s helped us to grow our business internationally.’ Then we could use that to be able to go raise our first series A.” That’s exactly what we set out to do and we didn’t know how much to charge so we sort of tried to look at things like, well, how much costs are we avoiding for that particular company? How much time are people spending managing this process by hand in a manual way that’s just not very conducive to the kind of fast moving Bay area startup companies that we would typically work with? How much time we’d be saving them and how can we turn that into dollars? And we got three customers. Then we went out to the marketplace and were able to raise $4 million. And then from there we said, “Okay, now let’s do it.” Nathan: What valuation with those three customers that many years ago? Jack Welde: Well, I think by the time we finished it up, by the time we started the round, I think were in and we had by then about seven to 10 customers paying us. Tens of thousands of dollars on an annual basis up to a $100,000. Then we were sort of in a six to $10 million sort of value, in that range. Nathan: Pretty healthy. That was a note or an equity round? Jack Welde: It was an equity round. It was an equity round. And so we’ve just continued to grow from there. And at every step in the process, we’ve looked at what is the next thing we need to do? And first it was about getting a prototype that worked and solved people’s problems. Then it was about really perfecting that product and making the product better. Then it was about taking that product and making sure we could build a repeatable sales process. And now we’re at the stage where we’re really trying to perfect things like every SaaS business is a subscription business. You’re asking people to pay you on a monthly or annual basis and the commitment we’re making is we’re going to continue to add new product features and capabilities to make our customers happy and the commitment we went back from our customers is keep paying us. Nathan: By the way, Jack, what are you at today now in terms of total customers? Jack Welde: Yeah. We’re at, let’s call it rapidly approaching about 500 enterprise customers at this point. Nathan: Great. Up from seven to 10 in years one and two, that’s pretty good. Jack Welde: Not bad. Nathan: It’s great. Jack Welde: But every year we churn some customers, some customers leave for any number of reasons. They churn because they are going out of business or because they’re having other troubles internally. Nathan: Jack, are you talking 5% logo churn annually or 10, 20? What is it? Jack Welde: Yeah. That’s a great question. We think about it both in terms of logo churn and we think about it in terms of revenue churn. And realistically, because we have a spread of customers that might be paying us $10,000 a year, all the way up to a million dollars plus, what’s really more important to us is revenue churn. And so what we’re trying to do there is make sure that we can retain as much revenue as possible from here. And so look, we’re always targeting something in sort of the exemplary sash range of about eight to 12%, something in that sort of range as a really great place to be. By the way, we haven’t always been there. Nathan: You’re talking gross revenue churn? Jack Welde: Yeah, I’m talking about that I accept that we will not be able to keep every single customer. Nathan: Yeah, but Jack, are you giving me the reason I’m asking this is because you can drive expansion revenue so you can actually get to net negative revenue expansion if you’re giving me a revenue churn right now. Are you giving me customer logo churn or revenue churn? Jack Welde: Yeah. I’m actually giving you revenue churn. But what I’m actually saying is we expect that of our existing customer base, we hope that we will retain 90% to 92% of that revenue every year. In addition to that, we will be selling more customers. We will be selling more customers and we’ll be adding them to our base of revenue. I know you love numbers here so the idea is that think of it like a bucket. And if in that bucket, I am pouring more customers into the top of the bucket, but I’ve got customers and customer revenue dripping out of the bottom of that bucket, I want to make sure that the volume of water inside that bucket is always increasing. Nathan: You haven’t spoken to yet, and which I believe you probably have maybe not, expansion revenue. Not revenue from new customers, but how are you growing current accounts in a given year? Is that predictable growth? Jack Welde: It is predictable growth. And because like every SaaS company, we offer a product that you will pay more if you need advanced capabilities, if you need additional capacities, if you need different infrastructure. Nathan: What are those actual metrics? Is it number of languages? Number of countries? Number of seats? What are the utility metrics you’ve price on? Jack Welde: Yeah. There’s two products we have. And so to answer that question, there’s really two products that we have. One is a product that we call our translation management system. It is a workflow management system to help companies to translate content more efficiently. The metric there is how much content are you pushing through the system? If you’re putting a little bit of content through a couple of different languages, very small. If you’re putting hundreds of millions of words, of translation across hundreds of languages, that’s on the big end. That’s one product. Jack Welde: The other product we have acts like a content delivery network. In other words, what we’re doing is when somebody has a web site and they say, “I’ve got a website in English and we figured out that it’s going to take us. I don’t know, 12 to 18 months to be able to recode the application to be able to support multiple languages. It’s a massive project.” Instead of that, what they do is they call us up and we use a product we call our global delivery network. And essentially the company, all they have to do is, let’s say their site was mysite.com. They can create fr.mysite.com for French or demysite.com. Nathan: Subdomain management. Jack Welde: Subdomain management. And then what we will do is we will deliver then as traffic, as a request is made by an end user to the site on the French version, we will take that English version of their site and very rapidly, we will parse all that content, rip out the English, look inside of the database for the professional human expert translated content, put the whole page back together in French or German or Chinese, whatever, deliver that back to them. And so the advantage of that product is you can get to market very, very quickly across five, 10, 50 languages with minimal engineering help and the capacity that we charge for there is how much traffic are you pushing? Nathan: Got it. This is this additional product and the traffic related to that is your number one kind of driver of expansion revenue. Jack Welde: Absolutely. That’s right. If you’re pushing a ton of content through this and a ton of people are showing up at all of your multi-lingual sites and we’re helping you sell more than you probably should pay more. Nathan: And now we’re starting kind of at the end of the customer journey, but let’s go back to the beginning. What are you paying to acquire one of these bad boys? And what do you like to optimize payback period for? Jack Welde: Well, it’s a good question. Look, we’re an enterprise company and so while most of our accounts are somewhere in the range of sort of say, let’s say, in sort of the $80,000 plus range, 80,000 to $200,000 range. We are an enterprise company that requires enterprise sales and marketing. And so that means we have an incredible marketing team and we’re running real marketing programs where we’re spending millions of dollars a year on events. Nathan: More or less than five million? Jack Welde: Let’s call it right about in that range. Nathan: Okay, so about five million. And that includes Google Ads, Facebook ads, conferences, all that stuff. Jack Welde: All of that stuff. Yeah. All of that stuff. And we’re smart about how we run things. We’re smart about where we invest our money, but we use the very typical channels that enterprise customers use. We use LinkedIn, we use Facebook, we use Google, we use events, we use seminars, we use webinars. Nathan: When you add all this up, Jack, what’s your fully weighted CAC? Jack Welde: I don’t actually know the answer to that, but the way I think about it is I think about it in terms of payback periods. And so, I think great SaaS companies, great, great SaaS companies are paying something back inside of a year. Acceptable SaaS companies are paying something back inside of between two to three years. Look, we fluctuate like many companies and we operate sometimes in sort of the 18 month range and sometimes in about the 24 month range. As long as I’m somewhere in that range, I’m generally happy with it. Nathan: At an ACV of kind of between 80 and 200 and an 18 month payback period, you’re happy somewhere between call it 130 up to 300 grand in terms of spending that on CAC, depending on which cohort you’re closing. Jack Welde: Yeah. I think that’s a good way to think about it. Unfortunately, we’ve got some fluctuation between what our deal sizes are so it’s not always that cut and dry. I’d hate to spend a $130,000 to bring in a $10,000 customer. But if I can bring in the right kind of customer and with a revenue churn of let’s call it around 10%, something like that, what that really means is I’ve got a customer that’s going to stay with me for four, five, six years. And so if I can bring in a customer for a $130,000 that pays a $100,000 a year, that’s a $600,000 lifetime value customer. And that’s really what we’re going for. Nathan: Makes a lot of sense. Jack Welde: We’re buying customers and bring them in, keeping them customers for life. Nathan: That’s good, Jack. Now as we wrap up here, we’re running out of time. I just want to go back a second year. You mentioned 500 customers, again 10 grand a year minimum. If I divide that by 12 that’s about what is that? 830 bucks a month times 500 puts you somewhere around what? 410 grand a month in revenue. Is that generally accurate? Jack Welde: No, I think that’s a little bit off, but I’m not going to share that number with you. Nathan: That’s okay. Am I not giving you enough credit or giving you too much? Are you above that or below that? Jack Welde: We’re above that. Nathan: You’re above. Jack Welde: If I did the math right on this. Yeah. Yeah. Nathan: When do you break the magical kind of $10 million AR mark, do you think that’s next year or 2019, 2020? Jack Welde: We’ve already broken that. We’re way above that. Nathan: Oh, then you’re doing well about 416 grand a month. Jack Welde: Yeah. I think in terms of annual now. We’re not thinking about it on a monthly basis because our contracts are annual and our customers generally commit to this on an annual basis so I think about it annually. Let’s not talk about any more revenue, Nathan, I’ve given you a lot of information that folks can probably start to think about this, but my competitors would love to know what those numbers are. Nathan: Hey Jack, just so you know, that’s the purpose of the show, is for people to think. That’s why I ask, but just to be clear, I want to still give you credit. You’re double what I said. You’re not at 400 a year, almost at 800. There’s a lot of credit here. You should study what Jack has shared in the show, apply it to your own companies in your own industries and learn from him. Jack, I appreciate that. Now, before we wrap up with the famous five, obviously you’ve raised capital, what are your growth targets year over year? Are you breaking 50% year over year growth? Or higher or lower? Jack Welde: Well, the bigger we get, the harder it is to double the business every year. And so, we doubled the business for every year for quite some time and we’re no longer doing that, but we were just recognized. Deloitte has their annual fastest growing 500 companies and this is the, we did it three years ago when we were in their top 500. We actually forgot to do it two years ago. And we did it again this year and still in their top 500. Our growth rates are still really in respectable territory. I’d always love for them to be bigger. Every company is looking for more growth and we’re starting to think about, frankly, where are the new products and services that we might build that are ancillary to the products and services we have right now that we can cross sell customers to make sure that we’re growing in an appropriate way. Nathan: Law of large numbers, obviously 100% year over year gets really tough, but can we say you’re doing more, so between 50 and a 100% year over year? Is that fair? Jack Welde: We’re on the lower end of that. Nathan: Okay good. Again, people understand that it’s tough. It’s easy to go from $1 to $2, much tougher to go from a 100 million to 200 million. Jack Welde: That’s right. Nathan: All right. Very good. Let’s jump in here, Jack, and finish up with the famous five. Number one, what’s your favorite business book? Jack Welde: Famous business book. I love the book that’s called Thinking Fast and Slow, that identifies and I probably should have prepared for this part of the conversation because I know this is something that you do. Thinking Fast and Slow is a terrific book that talks about our brains that are thinking brains and our brains that are leftover sort of lizard brains and the kinds of parts of where we are evaluating opportunities and circumstances and who we should elect and who we should marry and all those kinds of things. And the fact that sometimes we make decisions based on very thoughtful, careful analysis, but an awful lot of times we’re making decisions based on sort of that snap judgment of what happens as we’re making quick decisions on things. And sometimes those don’t always happen. It’s a terrific book. It’s honestly one of the most profound books I’ve ever read. Nathan: And number two, is there a CEO you’re following or studying right now? Jack Welde: Look, I actually really think that Tim Cook is doing a really pretty incredible job at Apple. I think he had some big shoes to fill and I think that he recognizes that the iPhone still has a lot of life left into it from a growth perspective, but is also starting to think about what’s next. Maybe that’s self driving cars, maybe that’s some sort of augmented reality. I think that the transformation that Apple has gone under and under Tim Cook’s leadership where you are leasing phones. Phones now are not really, many people are not buying them outright. They’re actually leasing them and that is becoming Apple’s own sort of SaaS service offering. I think that’s a really pretty tremendous transformation that Tim Cook is leading. Nathan: And number three, what’s your favorite online tool? Jack Welde: Favorite online tool? That’s a really good question. Nathan: Jack, quick. Just because we ran out of time. Quick answer. Jack Welde: Google Docs. Google Docs. Nathan: Google Docs. Jack Welde: I think Google Docs is terrific. Nathan: All right good. And what’s your situation? Married? Single? You have kiddos? Jack Welde: Married with kids. Nathan: How many? Jack Welde: Four kids. Nathan: Four kids. All right. And Jack, how old are you? Jack Welde: I am 48. Nathan: Jack Welde: About a 4.8. Nathan: That’s very specific. Last question, take us back 28 years. What do you wish your 20 year old self knew? Jack Welde: I’ve had a pretty good life. I was a military pilot, as we talked about earlier for 10 years, I’ve been an entrepreneur, I’m running my own business here. I’ve lived all around the world. Nathan: It’s not a regret though. Just something you wish you knew. Jack Welde: Yeah, something I wish I knew. I probably wish I knew, I probably should’ve spent a little bit more time earlier on in my career really understanding how to sell. Really understanding sales. Sales drives business. Nathan: Yep. There you guys have it from Jack, he would have spent a little more time earlier on in his career understanding sales. Contributed, was in the again Air Force for 10 years, as he mentioned, then got out. He used that discipline to found Smartling in 2009. They’ve since grown, helping many, many brands, over 500 large brands scale their content online, across as many languages really, as they want. They were doing about a 100% year over year growth, now obviously closer to 50% year over year as they grow. Doing kind of on the 800 grand-ish per month range churn, payback period, all that stuff, super healthy. He optimizes payback period for between 18 and 24 months. They’ve raised $63 million to continue growing the business with their team of 200 folks based in New York and throughout the United States. Jack, thank you for taking us to the top. Jack Welde: Thanks Nathan, this is great.