Jonathan Pototschnik, founder of Service Autopilot, shares his experience of using content marketing to foster rapid growth in his software business, as well as the journey to eventually selling his company through an investment bank.
Securities offered through Vista Point Advisors, member FINRA/SIPC. This has been provided for informational purposes only and should not be considered as investment advice or a recommendation. It is not intended to address all circumstances that might arise. The views expressed herein may change at any time subsequent to the date of issue. Testimonials from past clients may not be representative of the experience of other clients and there is no guarantee of future performance or success. Clients are not compensated for their comments.
Jonathan Pototschnik, founder of Service Autopilot, shares his experience of using content marketing to foster rapid growth in his software business, as well as the journey to eventually selling his company through an investment bank.
Securities offered through Vista Point Advisors, member FINRA/SIPC. This has been provided for informational purposes only and should not be considered as investment advice or a recommendation. It is not intended to address all circumstances that might arise. The views expressed herein may change at any time subsequent to the date of issue. Testimonials from past clients may not be representative of the experience of other clients and there is no guarantee of future performance or success. Clients are not compensated for their comments.
Mike Lyon: Hello and welcome everyone. I'm Mike Lyon, founder at Vista Point Advisors, and this is the Path to Exit. This podcast is dedicated to helping founders of software and internet businesses understand what it takes to raise capital or sell their businesses, and how to do it well. My guest today is Jonathan Pototschnick, who's CEO and co-founder of Service Autopilot, which is a leading field services SaaS business focused on the lawn care industry.
Jonathan and the team built a fantastic business in a short period of time without raising any external funding. In this episode, we discussed the founding story behind Service Autopilot, the impact of their unique academy product on the SaaS business, how the buyer universe changed over time, and how we dealt with a buyer that tried to hijack our process by demanding exclusivity prematurely.
Please enjoy my discussion with Jonathan.
Jonathan, can you tell us about the circumstances that led you and your co-founder to start Service Autopilot? How did you come to understand the opportunity and how did you get started?
Jonathan Pototschnick: So my business partner, his name's John, not too long after I graduated college, maybe a couple years, we started a software product and the short version is after two years, we threw in the towel on that product we did not know what to do. So I just did programming consulting, and along the way I ended up in this service company partnering with these guys on this service company in the commercial cleaning space. Then I ended up starting a lawn care company.
And I ended up in services. Didn't wanna be in services. I wanted to be in technology, but John and I would talk and talk and we could never quite come up with another product in technology. I did not want to be in consulting. I was just doing that to make money. We just couldn't figure it out, so he's constantly bouncing ideas off of me.
While doing these two different services businesses, as these businesses were getting bigger and bigger and I'm using and looking at the technology in that space, I was thinking, how in the world am I ever gonna build big businesses using this technology that's on the market? And because John and I were so desperate to be back in product, in software, we thought, "Hey, there's a big opportunity in the home services space or in the trades."
So we started looking for of the trades, what would be the best one? What would be the best trade to start in? And then the other thing that we knew was an opportunity, a lot of the technology at the time was still desktop-based, there was some cloud stuff, but all the name systems were desktop-based. And so we thought there was an opportunity to a SaaS provider and be part of that transition away from desktop. So that's how it got started.
Mike Lyon: As you looked at those different trades, how did you evaluate those? What were the characteristics about the different trades you were thinking about as you, as you picked lawn care?
Jonathan Pototschnick: So coming from building different businesses over time in the services space, and then trying to get that software company off the ground, just doing lots of different things. I had started to really study and learn marketing. And so if you kind of think about from a marketing standpoint, if I applied some of the same concepts to trying to figure out who would be the buyer of technology, and that is: who has money? Start with who has lots of pain and who has money? If they don't have pain, then they're not gonna move. And if they don't have money, then they're the wrong audience. Pretty obvious stuff. So we thought the group that would have the money were plumbers, electricians, and HVAC companies.
So we thought we'd probably start in plumbing and HVAC, but what we weren't sure about was if they had enough pain when we were a small, young product. Meaning you're building out your feature set, how long is it gonna take to build enough functionality to get traction? Meaning that they'll buy the technology.
So we were wondering, does this group have a lot of pain when they're smaller because if you kind of imagine a plumber or electrician, they might do a couple jobs a day. They can keep a couple jobs a day on paper. They could keep it in a regular calendar. They don't have to have technology.
Well contrast that to say a lawn care company in the southern part of the United States, mowing these little cookie-cutter properties. A crew of three could knock out 30 jobs a day or a fertilization weed control truck could run 20 stops a day. So suddenly now you're doing 150 stops a day. That's much more difficult.
And then you multiply that by the number of crews, gets pretty difficult to manage all that in your head or on paper. There were other factors, but we felt that there was more pain early in the business of a lawn care company. And there were some other reasons, but we decided to start there, anyway of course, helped seal the deal that I had a tremendous amount of experience there so I could get some credibility because I had started a business in that space five years earlier.
Mike Lyon: I think it's one of the funny things about working with lots of founders is there's all a very similar story, right? You work in an area where you see some pain or an opportunity, and it's really that unique experience that you have that leads you to start the business as opposed to sitting down and coming up with an idea. It's not about that. It's about seeing the pain firsthand and understanding how to optimize that.
One of the things you guys did really well was leverage Service Autopilot Academy, which from the outside, I think was not an intuitive driver of the SaaS business, but it turns out that that was. Could you maybe talk a little bit about your philosophy around starting Service Autopilot Academy and how did that lead to some software sales for you down the road?
Jonathan Pototschnick: Yeah, so I had started a content channel on YouTube to try to figure out what functionality to first build into Service Autopilot. This is right as we're starting to write code on the product.
I'm just trying to figure out what matters most to companies and so I start this YouTube channel where I'll just answer your questions. And what happened is, even though the YouTube channel did not have a ton of viewership, John was writing code, I was the sales guy, the trainer, the support guy, I was everything.
It was just the two of us starting. And these companies would call in and we have an elementary product compared to what everybody else has. Cause we've literally just started writing code. And I talked to these companies for an hour and for 55 minutes we'd talk about their business because they found this YouTube channel and I was answering business questions.
And one thing I did find is nobody was asking what software they should buy. They were asking, how do I price, how do I do estimates, what kind of trucks should I buy? All this stuff. So anyway, I talked to these companies for 55 minutes and for the last five minutes we talked about the software and they're like, "Oh yeah, we'll buy."
I mean, they didn't ask any of the right questions. They did everything wrong. But they liked and trusted us because they thought we knew what we were talking about when it came to the industry. So, fast forward a little bit, I'd had that experience. That became a really big driver of new clients, new members. We never raised debt. We never had a line of credit. We never raised money.
And so, as we're building and trying to finance the growth of this company, I had this idea, I'm gonna do these things called round tables. So four companies at a time can come to Dallas, they can spend two days with me, I'll take 'them to two dinners, we'll work on their business and I'll charge them 3000 bucks each.
So I'd make 12,000 bucks for two days. I did a bunch of these, like eight or 10 of these things, just knocked them out, one every month. And got people to come to these things and fill 'em up. And so we made a little extra money to help pay for things.
Well, people love that stuff. They became our absolute best members in Service Autopilot. They were our advocates. They were our defenders. They trusted us. To this day, I'm actually friends with some of these people and I don't even own the company anymore. I'm not involved in the company. In fact, I'm having dinner with one of them on Friday night. I mean, I literally have kept these relationships where we're travel sometimes as friends. It just built such incredible relationships in every one of those early attendees to these things called round tables, stuck with us through everything as we built the technology. That gave me this idea for this thing called Academy.
Academy was this concept where, we're providing you the technology and the software to run your business, but we need to provide you all the knowledge to build that company. And to go faster and to build it right and understand your financials and marketing and hire people and recruit, all that kind of stuff.
And so Academy was a hit from the beginning. We had limited it to a hundred companies and we threw an event. 120-something people were in the room. We sold 60 or 70 people from that room into this thing called Academy. And then over the next month we sold out the rest of the a hundred.
Academy was never the main revenue driver in the business, but it was a couple things. One, it built the strongest relationships. Again, back to what I said, our best advocates, our best defenders when something went wrong. They were talking about us in the market. They would show up for any event we threw. They were just flat out our best clients.
And what we would see was a company would typically come in at about 350,000 in revenue, and within a few years they'd be in the millions of dollars in revenue. So they're just getting huge value out of academy and then out the technology. They were also our, our best software users. They bought everything we had to sell. It was also very profitable, one of the most profitable parts of the business.
The other big thing that we saw is when you go to sell the software in the marketplace, we became known as this company that had Academy and that we taught, we didn't just sell software, that we understood the business. And so from a positioning standpoint, our software gets another software company, even if you weren't gonna buy Academy or join academy now, it was a differentiator when you bought the technology and so it was a sales advantage for us.
Mike Lyon: I think it was a really clever and helpful idea, obviously for your clients. I know sometimes private equity firms, us as bankers, we get really focused on, you know, SAS is good and services are bad, right? The margins are lower, the retention's lower. But it's really interesting in this case, how that actually helped you drive the SaaS revenue, right?
And get a lot of those customers upfront. So I think it's always good to understand what's the ideal component of that business? And in some ways, that was almost more content than services, right? Content marketing in some ways.
Jonathan Pototschnick: That was content. Yep.
Mike Lyon: Yeah. That's awesome. That's, that's a great story and I know that was super successful for you.
One question I had for you, and it's always interesting the way these processes play out is, there's a group of buyers that are calling you early before you decide to do a deal. And that's usually mostly private equity firms, maybe some strategic buyers, and then sometimes there's a whole different set of buyers who actually show up and are aggressive in the process.
Can you talk about that a little bit? How much overlap was there between the folks who were calling you up front and then who really showed up in a serious way at the end of the process?
Jonathan Pototschnick: There was definitely some overlap. One challenge in answering the question is I ignored almost everybody for the longest time, and so I can't remember all the private equity companies that called. However, I do recall that there were two that had contacted us, that then became part of our process. And one of them, I know we're gonna talk about here in a little bit, you alluded to it in the intro about the one that threatened to walk.
So there were two that had definitely reached out from time to time. One that was very aggressive that would show up at trade shows and talk to us. But frankly, outside of that, if I remember correctly, in our process we had 27 formal offers.
Mike Lyon: I think that's right. Yeah.
Jonathan Pototschnick: That means that 25 of them never, to my recollection, showed up prior to running the process. We had not engaged with them. We had not talked to them.
Mike Lyon: You certainly didn't answer their email, it sounds like.
Jonathan Pototschnick: No. Yeah. So it was a major difference maker. And the one that we ultimately did the deal with, unless I'm forgetting something, we had never talked to them prior to the process.
Mike Lyon: I think that's right. Yeah. That's my memory as well. Well that's helpful. Just to kind of set some context.
One of the things we always harp on at Vista Point, and I know we talked about this a lot with you, is making the process competitive. From your perspective, how do you think about what makes the process really competitive and how does that lead to more leverage when you're negotiating during the process? And ultimately what you're trying to get is, better partner, better outcome. How do those things play off each other?
Jonathan Pototschnick: Couple ways we could answer this. I've talked to a lot of people over time since doing the transaction, they'll ask me if it's worth selling the business, should you do it, or should I use someone to help me sell the business?
And the example that comes to mind for me is, most of us have had some experience with real estate, so imagine that you put your house on the market. And it sits on the market for 30 days, and then you have someone show up and make an offer. You have no power in that transaction. And you also have a lower level of confidence. You don't know if you hold firm on this deal or say, "No, I'm not gonna do this," or "I need this price..." if that person might walk away and never come back to table. And now you could sit on the market for months longer.
Not only do you not have any leverage here where people are pushing that price up, you also lose some level, some amount of your confidence. Contrast that to you put the house on the market on the weekend and you have an open house and 50 people come through. You have 25 offers and we just went through something like this in the last couple years where now you have all these bids over market. Basically they're willing to give you more money than you are asking for the property.
And the reason that that happens is because of demand. And so the game is to create the demand and as much of the demand as you can possibly create as fast, and this is my take on it, as early in that process.
As someone who is trying to run the business, and make sure you hit all your numbers so that you can get the best outcome possible and not screw this thing up that you're running because you're distracted, my feeling was you need somebody doing most of the legwork for you. Bringing people to the table that you probably would've never met, creating as much demand as you can possibly create, and then managing all of those people that come to the table, and keeping them highly interested, highly motivated, anxious, and concerned they're gonna get left out, lose.
And that's what I believe you're trying to create. And that's part of what the process is doing. And I never felt that I was going to be able to, especially not having experience, do all of that and run the business and be the best at it because I'd never done it before. So I don't know if that quite answers the question, but that's how I thought about running the process.
One other thing I would say is when we were looking at different groups like Vista to help us, there were a bunch of impressive companies out there, and there were just a bunch of reasons why we went the direction we did, but some of them would talk about how good they are at negotiating and selling and you know, I hear that and that resonated. But the process, in my mind is what's going to create the demand. It's going to sort of handle part of the negotiating in that, if you only have one person at the table, there's only so much negotiating you do. But if you have 20 at the table, you can work the different groups against each other and again, the process is the key to everything. And so someone that runs a very structured process was, we came to conclude, was very, very important to us.
Mike Lyon: I agree with that. I mean, the negotiation with one buyer, particularly if it's a deal you kind of want to do is very different than having 20 or even four or five at the very end that have done all their diligence and ready to close. It's just a really different dynamic in terms of how aggressive you can be. So I appreciate that. I think the analogy you gave was great.
Jonathan Pototschnick: The other thing that I became very aware of, and I don't know if you had mentioned this to me when we had had a couple dinners and talked before we ended up going this direction, or if I just kind of figured it out as we went and that was that, ultimately, whomever you do the deal with is now your new partner. You're going to be working with them. So it's highly advantageous that post transaction, you have a very good relationship with this group, this buyer.
There aren't hard feelings. There's not animosity. And so I frankly feel very strongly that, I would like somebody else to be the bad guy, if there needs to be a bad guy in the transaction, have some of the harder conversations that do not in any way tarnish my relationship with whomever I'm ultimately gonna work with. I think that gets lost sometimes, but that's a really big deal.
So by having multiple parties at the table, that are essentially negotiating against each other, I think you're a little less of the bad guy. And then having someone like Mike and his team involved and handling a lot of the hard conversations, you're a little less of the bad guy when things get tense and they're paying more than they had intended to pay or they're not getting the exclusivity they wanted earlier in the process. Those types of things.
Mike Lyon: I think that's a really good point. And the other value I think you get to see as the founder, who, as you mentioned, you're gonna be partnering with these folks, is getting to see them negotiate under stress a little bit. So sometimes that changes your view on who you wanna work with, right? Depending on the things they try to do.
And we're gonna, we're gonna talk about example of that right now, I think. But seeing a buyer negotiate under a little bit of stress tells you a lot about what it might be like to work with them if things go well after the deal. And you know, sometimes things don't always go well. So how do you partner with them to get through that?
So one of the interesting things that happened during this process is about two-thirds of the way through our process, we had gotten first-round bids and we were starting to do really detailed diligence with buyers. A PE firm made a really aggressive play, and by the way, we kind of knew this PE firm would do it because they do it every time.
And basically saying they're no longer gonna participate in the non-exclusive process and we need to sign their term sheet by tomorrow, or they're gonna walk. And they were actually at a pretty high valuation relative to where we were. I think we assumed this firm would be about a 30% discount in the end, just based on lots of data and working with them.
And since we had plenty of buyers who would participate in this non-exclusive process, this really wasn't that big of a deal. We, I think we talked about it. They were, they were obviously a good partner. I think they had a good portfolio company, but we decided just to ignore that and tell them thank you, but we're going to continue on with our process.
How do you think the outcome might have been a little different? Let's say you just engaged with one buyer. If this was the buyer, you spent a month or so in diligence, and then they presented this with you. How do you think that would've been different if you didn't have these other buyers behind you in the confidence to just ignore this request?
Jonathan Pototschnick: Well, I think for one, we would've got less money, so that would've been a big negative. That would've absolutely been the case. There might have been a chance that the transaction actually never, we don't know what would've happened, but because they didn't have anybody else in this scenario that they'd be competing against at the table. They could have retraded us. They could have changed the terms on us. They could have pushed for say, we take a loan back on some of it, basically they're trying to drive down how much money they put into the deal.
There's a million different things they could have changed in terms of the variables of the deal to try to optimize the economics for them. And we would've maybe not, as I said earlier, had the confidence to push back. We might have accepted those terms or frankly, because John and I did have a number in our mind that we needed, maybe we would've walked away entirely from the deal. And so, the simple answer is the outcome would not have been what it was. We wouldn't have had strength from a negotiating standpoint, it just wouldn't have turned out like it did.
Mike Lyon: I think that's a good point. At the time their bid was not bad relative to the rest of the market. It's just we weren't at the end of the process, right? And if you create the leverage, right, you create this upward momentum on valuation.
Jonathan Pototschnick: Yeah.
Mike Lyon: So I agree with you. Just a challenge.
I see a lot of founders end up in that situation, particularly when they talk to just one buyer. That buyer asks for exclusivity early, and then at best it leads to a little bit of a retrade later on, right? Once they do all the diligence and understand the business, and if they have you in exclusivity for 45 days, they have a lot of leverage to retrade you at the end of that, because you're tired. And so keeping it non-exclusive kind of cuts through all that.
Jonathan Pototschnick: Without question. I liked this buyer personally. I had met with them a few times.
They'd been very aggressive. They'd come to Dallas with their whole team. I actually went up and saw them. Now that I think about it, I went and saw them at their office and then I went and saw another one of their acquisitions. So we invested quite a bit in this buyer, and this buyer has done some deals in our space.
I really personally like them, and I've got a couple points here on that, because we liked them, because we were inexperienced at going through a transaction. Mike, it was very much what you just said. There was this, guys, don't worry about this. Be calm. We know how this works. We know who the buyers are.
So behind the scenes, John and I still had conversations about this, like, ooh, you know, is there risk here? What do we think we do? Kind of like 'em, but we're not really, you know, we still have those conversations. And so I use this as an example that your team was able to bring calm to this situation.
Not that we were frantic or anything of that sort, but there's a lot of money involved here. You still want to think about this. And so your expertise made it way easier for us to make a decision. So that was very valuable. That's why I'm so thankful that we brought someone in to help represent us because there's that expertise and that calm and that clarity and decision-making that is brought to the table.
The other thing that was interesting, this group who, again, I like them, I had asked them about getting a investment bank, getting help. And they said, you know what? Completely unnecessary. These are very efficient markets. They work themselves out. What you get is gonna be very close to what anybody else would pay. It just never quite resonated with me.
And so I had met with all these private equity groups to see if I even wanted to do a transaction. I just wanted to learn whatever I could learn anyway, so I found it interesting. So I'd ask these different groups, these questions. I only remember one telling me, "Oh yes, you should get an investment bank." Only one.
But the question I learned to ask pretty quick is I said, "Whenever you do a deal, do you get investment banks?" And then also if you go research this, what a lot of these private equity companies do, they don't sell the companies on their own. They get somebody involved to run a process. And I thought that was all the information I needed to know. That was something, just a funny little side, but that this group had told me that, "No, no, you don't need one." But in reality, they use an investment bank to sell their deals as well.
Mike Lyon: That's the exact point we always made. Don't look at what they say, look at what they do. I think another interesting tip about this buyer, so this was a PE buyer, but had a portfolio company, and I think that's an area where founders can waste a lot of time with buyers. If you're a high-growth, sexy SaaS business like yours was, you're gonna trade at a higher multiple.
If the portfolio company they're looking at buying you with is not that, they're gonna really struggle to pay you that high valuation because if they invested at three or four times revenue in this platform business, there's no way they're gonna get nine or 10 times when they sell that business. And so they can't really afford to pay up.
They need to acquire other assets that look like them. And hopefully what they're trying to do is, the next deals they do, do them at lower multiples. So I think one of the things to think about when you get an approach from a private equity-backed strategic is how do you think that business was valued?
And they're probably not gonna tell you that, but if you get some key stats on the business, what's the retention rate, what's the growth rate? You'll get a sense for, is that a high multiple deal or not? And I see founders waste a lot of time with that. Only to get the end and basically hear the explanation, we can't pay up because of the thesis of this company.
So I think the important thing to look at if you get an approach, we kind of alluded this, but obviously you had lots of options. Ultimately you were choosing between a PE standalone deal, right? Where a PE firm puts money directly in you. And a PE-backed strategic, and I think you guys struggle with that decision.
I know you've liked several of the buyers at the end, particularly too. It was kind of back and forth until the very end. How did you kind of process that decision and what ultimately were the factors that led you to go in the direction you went you went in.
Jonathan Pototschnick: Yeah, that was a tough one. There was specifically another PE company that to this day we'll always wonder, what might it have been like with them? We really like them.
What led us to make this decision was we felt, right or wrong, we felt that with the strategic, even though it was a PE and strategic deal, we felt with the strategic being that there was a planned longer hold time. That had changed post-deal, but at the time there was a planned longer hold time that the product might be, and the member base, might be invested in, in a different way than, say, a private equity company that might be out of the transaction in three years or five years or whatever the number is.
We felt that there would be potentially more investment in the product, just, it would be handled a little bit differently. We also felt that in an environment where we were going into a PE deal, we gained some optionality, strategic versus PE, in that, in the PE deal, we felt pretty strongly that we'd be, especially me, would be in a position where you're gonna be sticking around for quite some time. Whereas in a strategic deal, we felt that we had a bit of optionality in that if we were to wanna move on earlier than expected from that organization, it would be much, much easier to do it. And so there was just a variety of things of that sort that we felt the strategic gave us over say PE and that's why we went that direction.
Mike Lyon: That's great, and I think it's good to have those multiple options at the end. The thing I always tell founders is, we can't give you perfect precision on what all the deals and parties are going to look like right at the end of the process. And only when you get to the end, does that decision become obvious.
And frankly, sometimes it's still not that obvious at the end, right? There's two or three really good options, and you have to make a call and move on with it. I think that that's really good advice.
Jonathan Pototschnick: To your point there, I mean, right after we did the deal, COVID happened. So no matter what you discussed, pre-transaction with any group could have all been out the window.
Even post-transaction, you have no idea what might happen in the economy and the market. You have no idea. And so you're trying to optimize for the partner you like and trust the most and you can work with and you feel like you can have hard conversations with and you'll enjoy spending time with them. You're just making your best guesses. My takeaway away from having been through the experience.
Mike Lyon: Absolutely. Absolutely. What are a few things you learned while growing Service Autopilot that you would do differently next time if there is a next time, when you build a business?
Jonathan Pototschnick: Yeah, next time. Okay. Oh, I mean, there is one that stands out above all others in such an obvious way. So we had not initially intended to sell the business so soon. We wanted to build the business to at least double the revenue that we had at the time of exit, but for a variety of reasons, what we were seeing in the market, we just thought there was an opportunity. And then we got motivated like, "Hey, it may be cool to go do something different life."
And so we ended up doing it. Had we known that we were going to exit the business, and I would guess that most know, maybe you're building in that direction or when you finally make that decision, you've got a good amount of time until that happens. Maybe you're doing some prep. The number one thing hands down that I would do different is, here's how I put it. And don't get caught up in my numbers. Imagine your CAC's $1,500 to acquire a client. And imagine that that client's worth say $7,000 a year. And this is a big multiple, but just for the sake of simple math, let's say you could get a 10 times revenue. And I know that's not gonna, the market's changed, I understand all that. But that client, that revenue is potentially worth $70,000 at the exit to you, if that makes sense.
Okay. Well, in my world, we had millions of dollars in the bank. We had never raised capital. We had never used a line of credit. We were conservative, but we could have kept pumping. I could have gone to $3,500 on CAC per client. I should have gone faster and I should have spent every dollar we had, frankly, you know, in savings.
Because the example is I'd be trading $3,500 of spend to acquire a client that is worth, in my rough math here just to make a point, $70,000 at exit. And so you could cut that math in half, you could change the multiple, maybe you get a three or a five times gross revenue, whatever, but think about that. There's no place you can park money and get a better return on money than that kind of math I just gave you.
And so we would've spent more of our money and pushed harder. Even if our CAC went up, it would've been really well worth it to us. Now, we would've also been very cognizant, like we were, of making sure that we are staying within certain metrics and hitting certain numbers, because there are, you know, there are numbers and there's data that the buyer is looking at that absolutely impacts your valuation. Well, one of that very critical data is speed of growth. And so what I just described also generally helps speed of growth. That's the single biggest thing.
Oh, I'll add one more. Most likely they're all gonna raise the price.
Well, had we taken the price increase before the transaction and had a little time for trailing revenue, trailing earnings, I think that would've netted us another 10 million at least. If not more.
Mike Lyon: Yeah, the pricing thing is really interesting because over our career we found that. Almost without exception, the price is too low of founder-led businesses for what they're charging for the product. And I think a lot of it has to do with when you're bootstrapped, you really don't wanna lose that sale overprice.
But if you think about it in the context of the broader business, you should lose a few sales overprice, right? That should, that should happen from time to time to make sure you're optimizing it. So I think we see that a lot. I think there's a lot of founders out there that are jealous of you that, you know, you had that much profitability at that scale and could have spent a lot more, some of them are trying to figure out, should I do the next VC round and give up another 20%?
Jonathan Pototschnick: I understand what I'm saying. But was just an incredibly valuable- and I think about that with any other business though. When you've got something that is producing revenue and you can acquire more clients by just simply spending more, what's that trade that you may or may not be making? You know, should you decide that if you're trying to build max value?
Mike Lyon: Absolutely. All right. Our traditional last question here. What's your best piece of advice for founders who are looking to build a world-class SaaS business? Or you might have already given it? I don't know with that that last answer.
Jonathan Pototschnick: I gotta think about that for a moment. If you're building to hold for the long term or building your horizon of exit's way out there, I really like building a phenomenal product with a really strong marketing-oriented focus.
So I'll give you two things that come to mind here. I am very thankful that we started as a marketing-driven organization and not a sales-driven organization. This is very much a personal opinion. When we went through our process, I felt that because we had built this business so successfully from a marketing-driven approach, that was very much respected and valued. And it wanted to be protected after we did the deal because the majority of the PE companies have experienced building sales-driven organizations and bringing in sales teams, and so that was very attractive.
The cost of acquisition on a marketing-driven, from my experience, I can't speak to everyone, is the economics are vastly better on a marketing-driven organization than they are in a sales-driven organization if you only pick one channel.
But the reason most companies don't build a marketing-driven organization is because it's a longer investment cycle. It's just different and it's easier to immediately juice up the sales by bringing in the sales team. And so my opinion is if you're building something great that you want to have for a long period of time, you want to build that marketing side. It's very durable and it's very valuable and it allows you to grow, it's frankly probably what made it possible for us to grow without raising a bunch of capital. Because the sell side's just so much more expensive. And then as we did, we moved to the sell side in time. I really liked that strategy. It's how I would do it again.
The other one I would say, and this is not for everyone, is if I could do it all over again, a hundred percent I would do the Academy approach, but this time I would bring the Academy approach to every single client in the technology. So I wouldn't just teach a group, I would teach everyone that's a user of the technology, how to build their company, and that would be built into the technology. It would be part of the technology. So those are two things, big things that I think of that would've just made for an even better business.
Mike Lyon: I think those are great pieces of advice on the marketing-driven side. I think every once in a while we'll see a SaaS business that is so good at sales, they're so good at closing out leads, it actually hurts the retention a lot. Because they sign up customers that probably shouldn't be customers and then that has some negative impacts and externalities down the road. And as you know, if the retention gets too low, that totally changes the valuation paradigm. So I think that's great advice and insight.
Well, Jonathan thanks so much for joining us on the Path to Exit. Appreciate all your insights and it was good to get together again.
Jonathan Pototschnick: Oh, happy to do it. Good seeing you.