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The 5-Step Process To Build & Sell A $100M Business | ft. Jason Lemkin

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Jason LemkinguestSam Parrhost

Apr 10, 202444mWatch on YouTube

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50 min read · 9,696 words

0:00 – 4:19
Jason Lemkin’s first million
1. JLJason Lemkin
  If you want to reverse engineer things, you have to have a model with economies of scale that gets you to 3 to $400,000 per employee or your model is not real. It is not scalable.
2. SPSam Parr
  [upbeat music] What's going on, man? How are you?
3. JLJason Lemkin
  I'm so excited to be here, uh, and talk about all my first millions, um, talk about the millions I lost, a few learnings on scaling, and whatever you want, Sam. It's great to be here.
4. SPSam Parr
  I love you for many th- reasons. One of them is, like, you're so catchy and you're so good at summarizing important things but in explaining it in a very simple way, in simple to understand ways. But before we get into that, I need to, like, talk about background because we have, to, to the OG software guys, you are the guy. So, like, if we talk to, like, the founders of HubSpot or, uh, I mean, like, guys who run multi or tens of billions of dollars companies, they say, "If you want to learn about software, Jason's the guy." But we have a bunch of, like, sometimes 20-year-old, uh, kids listening to this and I want to, like-
5. JLJason Lemkin
  Yep
6. SPSam Parr
  ... give a little background. And so we don't, I don't want to spend too much time on this, but basically what I know about you is you started a few software companies including EchoSign, which you sold-
7. JLJason Lemkin
  Yes
8. SPSam Parr
  ... for nine figures. I don't know the exact amount, but you've said nine figures. Then you've been investing in s- in startups as a VC for, like, since 2013, which you said, I think you said you 10X'd your fund or-
9. JLJason Lemkin
  Yes
10. SPSam Parr
  ... something like that. Is that right?
11. JLJason Lemkin
  That is about, that is about right.
12. SPSam Parr
  Um, and then what else did you do besides EchoSign before that?
13. JLJason Lemkin
  Um, before that I had a, a startup where I made my first million. Um, uh, between when the internet died for a while, I actually founded a startup making implantable batteries from nano materials, which I knew nothing about, which is interesting, and we sold it for 50 million after 12 and a half months. It is-
14. SPSam Parr
  Nice shot
15. JLJason Lemkin
  ... kind of a, an MFM story and I learned a lot from it.
16. SPSam Parr
  What was that company called?
17. JLJason Lemkin
  It was called Nanogram Devices, and we did something that was thought to be impossible. Um, and we got bought by our competitor. It was a classic buyout after 12 and a half months when we took away one of their largest customers.
18. SPSam Parr
  Did you raise funding?
19. JLJason Lemkin
  We did, and it was hard. It was, I'm dating myself, this was one of the crummiest points. We raised 9 million in our seed round and sold 70% of the company in our first round.
20. SPSam Parr
  [laughs]
21. JLJason Lemkin
  And that was the deal. That was the deal. That, there was no choice. There was no negotiation. It was a different time.
22. SPSam Parr
  And that meant, that meant what, what you and the founder, you and your other partners, I don't know how many you had, had 15 million left over to share after the 50, the $50 million exit.
23. JLJason Lemkin
  I'd say it was more like about 10 million or maybe even 8 million to share. So it was enough. I- interestingly for the first million, it was just enough to not work for the man. I have worked harder. I worked even harder on the next startup, on EchoSign, which Adobe bought.
24. SPSam Parr
  So EchoSign, was that basically, like, um, what DocuSign is now, you guys just sold earlier?
25. JLJason Lemkin
  Yeah, a lot of learnings. Yeah, we actually, DocuSign believe- I mean, I'm really dating myself. DocuSign was basically a printer driver company when we started. We were the first web solution. I wrote it all myself in PowerPoint and crappy wireframes, and we built it. Um, and we got to a million dollars a month burning 4 million. So we got to 12 million ARR, uh, growing 100% with 110% revenue retention and cash flow positive. So if we... And we sold it in 2011, and 2011 was a long time ago, uh, in internet time and in real time. It was just before we understood the metrics around recurring revenue businesses. And so even my board, my investors didn't, like, they weren't sure we had a good business. If I said to you today, "Sam, I've got a business doing a million bucks a month growing 100% with 110% revenue retention and profitable," you would say, "That's the, that's the ticket. That's the ticket." Now, DocuSign was bigger. Um, we had about 36% market share. Um, but we were cashflow positive and growing 100%. Um, so, you know, we only raised 4 million, so when you sell your company to make your second millions, sometimes the second one is, is, um, there's a certain logic in it, and the logic actually in its own way can be stressful, right? It can, it can be stressful. It's a comp- That, that was a very complicated decision because it made sense on paper given th- the team wanted to do it, ins- part of the team wanted to do it, and given how little we'd raised, right? But, uh, in my gut, I knew it was, uh, emotionally I knew it was the wrong thing to do.
4:19 – 5:32
Reverse engineering a 9-figure exit
1. SPSam Parr
  Scott Galloway came out a while ago, and, and I didn't get to talk to him about this, but he had this awesome presentation. You and Scott are similar in that you're, you're just, you have beautiful language. That's what I, that's what I describe these types of people. I'm like, they pick their words beautifully. Scott has this thing. So Scott sold L2, I don't know how much, I think 1 to 200 million. I forget the exact amount, but nice, nice exit. And he was like, "Well, I wanted to have a 9-figure exit, and I wanted to do it in this data business 'cause that's what I knew. And so I worked backwards and I sort of revens- reverse engineer it." And he said something like he was like, "I u- I was like I knew I needed to have an international presence. I needed to, I, I knew I needed to charge at least fi- uh, 50,000 a year for s- a service." And then like he lists-
2. JLJason Lemkin
  Yep
3. SPSam Parr
  ... all these things, and then he spent eight years or however long building it. And I love that 'cause I love reverse engineering. It's what I tell a lot of people. I'm like, they want to create this amazing stuff, and I'm like, "Yeah, that's cool, and sometimes that works. But you can actually kind of reverse engineer a bunch of stuff to figure out what's the rules of the game that I need to play, and then you optimize for the rules." And I wanted to have you on to basically, like, reverse engineer what it takes to get like either 100 million in revenue or, or even 100 million in outcome because I actually think those rules are actually the same. I was like, "Jason, I want to talk about this like reverse engineering thing," and you like banged out this like five or eight-point thing. You said that
5:32 – 7:58
Rule 1: New minimum is $400K per employee
1. SPSam Parr
  a lot of startups right now, because they raised money in a zero interest environment, they're, it's like 100 grand in revenue per employee. And you said, "No, the mi- new minimum needs to be 300 to 400,000." Is that right?
2. JLJason Lemkin
  It is. If you, if you're trying to reverse engineer whether your business model makes sense, like this is one thing to reverse engineer. Certain business models have economies of scale and some don't, and if you want to go really big, you want a business with economies of scale. And if you step back in the old days of software, the old Adobes, Microsofts, Intuits made a million dollars in revenue per employee. A million dollars, okay? You'd have a bunch of engineers. They'd go, they'd go off in their offices. Everyone used to have a private office to code. You'd spend two years building a piece of software, a small team. You'd put it on a DVD-ROM that, or CD-ROM that cost 50 cents, and then you'd package it up. That cost 50 cents, for a dollar. And then someone would sell it for you between $50 and $400. This was a really good business. [laughs] There were 90% margins, and the classic Adobe, Microsoft into it, 50 cents of every dollar went straight to cash flow. 50 cents. We don't see this anymore in bus- in pub- companies that go public. It was so profitable. So that was a million, and then things just, the zirp or whatever you wanna call it, it got crazy, and we reached a low in 2021 of 100,000 in revenue per employee for all these unicorns, 100,000. So we got on- we only were 10% as efficient as we used to be. Now the pendulum swung back, so we were, historically we're at a million per employee. The low point was 100,000 per employee. Um, when employees in the Bay Area probably cost you $250,000 fully burdened with insurance, benefits, this and that, so you're losing 150,000 per employee. Now, every public company, at least public SaaS software company, is at 300 to 400,000. HubSpot's at 310, which we talked about. Cloudflare's at 400. That's where you have to be, and so-
3. SPSam Parr
  But when? When do you have to be there?
4. JLJason Lemkin
  So one way to think of, if you're lucky enough or unlucky enough, depending on how you look at it, to raise capital, angel money, venture capital, whatever, it, it bridges the gap. It bridges the gap to get you to 3 to $400,000 per employee, but you're gonna have to get there. And if your product isn't profitable enough, if your gross margins are too low, if it doesn't make sense, make some changes, right? You have to have a, a model. If you wanna reverse engineer things, you have to have a model with economies of scale that gets you to 3 to $400,000 per employee, or your model is not real. It is not scalable.
7:58 – 9:40
Rule 2: Go multi-product
1. SPSam Parr
  And then you have another point here. You say, um, going multi-product.
2. JLJason Lemkin
  Yes.
3. SPSam Parr
  And you say it's a huge issue of how, when, and where to p- figure out when to go to multi-product. But did you say at, like, 10 million or, in revenue you wanna go... What, what did you say for going multi-product?
4. JLJason Lemkin
  By the time you get to 10,000 customers, you better have a second product that, and this is, this is the ob- non-obvious thing, that can be bigger than the first. This one took me a while to figure out, to be bigger than the first. For HubSpot, CRM in two years will be bigger than marketing automation, and HubSpot for years was a marketing company. In two years, CRM, its sales product will be bigger than its marketing product. It has to be. And you, you wanna be there by 10,000 customers.
5. SPSam Parr
  This is the same for e-com businesses too. Like, they sell a, a handful of SKUs, and then they reach, like, uh, some type of critical mass and then like, "All right. We need to create more stuff." So like, we made-
6. JLJason Lemkin
  Yeah
7. SPSam Parr
  ... deodorant. Now we need to make toothpaste or shampoo or something like that. Um...
8. JLJason Lemkin
  But the second one has to be bigger. This is the one to think, this is the mistake founders make. If the second, it, what's easiest, Sam, is to add a product extension. Okay, we sell shampoo in e-commerce. Okay, let's sell shampoo and conditioner. That's the easiest thing because our customers already know us. If they bought shampoo, they'll buy shampoo and conditioner. But the problem is, if you, if you, if, if the second product isn't bigger than the first and the first one's still growing, you never catch up. It's never enough, right? If you're selling 100, 50 million of shampoo and you're growing 20% a year, you're adding 10 million a year, right? And you launch shampoo and conditioner and it does a million its first year, it's great, but it'll never get there. The second one has to be bigger than the first, and this is, it's too, it, we all default to the easy second product, and you actually have to do the harder one.
9. SPSam Parr
  That's,
9:40 – 11:05
Rule 3: Your second product must be bigger than your first product
1. SPSam Parr
  uh, interesting. So at The Hustle, so we had, I don't remember, a million and a half subscribers. I think we were doing a million a month in revenue, and like, a media company is basically you build an audience, and then you launch multiple businesses to that audience. So whether it's advertising, conferences, software, whatever, that's kinda typically how... Uh, media companies are weird. It's usually a collection of small businesses and, or, or different businesses. And, um, I think we were at a million a month. I forget. I think about that, and I wanted to create a s- uh, a, a subscription service called Trends, and it was like we like... And dude, I fucked it up so bad 'cause I charged $300, uh, a year, uh, which is so stupid. It should've been $30,000 a year. It should've been way more expensive. I think in the first month we did, I don't remember exactly, but in the first month we did almost a million in sales, and then it was a pain in the ass to cont- uh, but by the end, I think when we sold, I think we were at five m- like, uh, maybe 10 months later, we were at 5 million a year in sales with it. But it only had like four or five people running it, which, so it was profitable. But the mistake I made was the thing of not making it bigger than the first thing, and I so, like, intimately know that mistake. And it's really hard because I'm like, "Well, this is, like, a clear extension. Just do this then this." But it, it just... Because it, it's also, like, a, a psychological thing of like, why pay attention to this thing? Just put money back
11:05 – 13:48
Cheat code: Double your prices
1. SPSam Parr
  into the main thing.
2. JLJason Lemkin
  This is an advantage to hiring a VP of sales, for example. Founders underprice their products usually. They underprice them. We're so w- because we know what's more imp- is it more important to get the product off the ground and get 100 customers than to optimize pricing? As founders, we're always going medium or long, right? So we almost always leave money on the table so that we can make people happy and get them going.
3. SPSam Parr
  Dude, I've underpriced e- everything I've done, I've underpriced.
4. JLJason Lemkin
  Yeah. And, and so have I, and so have 80% of founders. Not all, but it, it's a, I hate this term, but it's a feature, not a bug. Because as painful as it is, you can fix pricing later, at least for new customers. It's harder to fix it for grandfathered customers, right? But for new customers, then just double it to 600 and 1,200 and 1,800. Like, it is, it's hard.
5. SPSam Parr
  I, I think it's, like, rooted in, like, imposter syndrome of like, "I don't know if this is good enough." And but then you talk to, if you talk to a good salesperson, you're like, "Dude, like, I could, like, just put a zero behind that. I'll sell it." You know what I mean? Like, if you talk to, a good salesperson can, can get it done.
6. JLJason Lemkin
  A good one will not rip people off, but a good one will, will get the full value for your product in a way as a founder you almost never can. You al- you almost never can, right? That's why a lot of the earl- classic Saastr content's about hiring a VP of sales because that's why in a, in the first quarter, the first nine days, you should see a lift from a good VP of sales at least 'cause they can run this playbook with the same leads, the same customers, the same dynamics for Trends or something else. Someone with the confidence to ask 30,000 for Trends knowing it's cheap compared to Gartner or Forrester or whatever, uh, they'll take that off your plate if they're good and you'll see a 30 to 100% revenue lift from someone that's great, right?
7. SPSam Parr
  Yeah.
8. JLJason Lemkin
  Someone that's mediocre will rip your customers off and never understand your product and misspell Trends and never read it and not know what it is. A mediocre one will actually see a revenue decline from founder-led sales, [laughs] but a good one will, will solve, will, will solve that piece, right? So, um, I think the other thing, you know, you just didn't give it enough time either.
9. SPSam Parr
  I sold the company at four and a half years. Um-
10. JLJason Lemkin
  Yeah
11. SPSam Parr
  ... but that was like, I was okay. I don't regret that at all because I wanted to get some financial freedom, um, and I was broke. [laughs] I s- I think I paid myself, the first two years my salary was 20 grand. The third year maybe 100, and then the fourth year I think I paid myself a few hundred thousand dollars. But I was like, I was fucking poor. And, uh, and so I, I was impatient, and what you talk about all the time, the worst thing is a tired CEO, and I was a tired, I was, I was tired of being poor, uh, basically and that was a-
12. JLJason Lemkin
  It gets you
13. SPSam Parr
  ... huge mistake, by the way. Uh, pay yourself way more if you can, uh, is what I've learned.
14. JLJason Lemkin
  As soon as you can afford it, pay yourself market is the learning.
15. SPSam Parr
  Yes.
16. JLJason Lemkin
  Is the learning always. As soon as you can afford it.
17. SPSam Parr
  And
13:48 – 15:43
Rule 4: 30% of your revenue is international
1. SPSam Parr
  you had this other thing on here. You talked about, um, you want 30% of your revenue to be outside of-
2. JLJason Lemkin
  Yes
3. SPSam Parr
  ... North America. That's very intimidating. That's probably the most intimidating thing here is going global. Um, at, at least in my opinion. I think it's a very intimidating thing.
4. JLJason Lemkin
  Obviously some businesses this doesn't really work, right? If you're highly regulated it can take a long time, for example, right? If you're very specific. Um, but at scale, at scale, the average public software leader gets about a third of their revenue outside of the US. HubSpot's now a majority. The majority of HubSpot's customers, small businesses, are outside of North America, the majority. Um, and so if you, so let's step back in terms of reverse engineering, right? If you, there's a couple things if you don't lean into them, you're gonna have less revenue than you otherwise would. Um, international and partners are two of them. If you try to only sell direct is an issue too. Um, and so how do you do this? How do you learn how to sell in France, right? In Germany, in Milan, in London? Um, it's not as complicated as it sounds. Um, what you do is build your business, build your brand, right? Um, be- find a niche where you're one of the top two or three folks. You don't have to be, you don't have to beat HubSpot everywhere, but find a little segment where you're better or a little area, and watch who wants to buy you. And if you're in software, what will happen is Australia, New Zealand, UK, some parts of France and others are very used to buying from US companies. They will find you if you are the best vendor. They will find you. You don't actually have to find them. Um, now traditional industries won't find you, right? It's gonna be tech-focused folks. It's gonna be early adopters. It's gonna be cool kids. But they will find you, and as soon as you cross 5% of your revenue in, in an area, then invest in it. Just invest in it. As soon as you see a cluster in England or New Zealand or somewhere you didn't expect, Chile or Brazil, like support it.
15:43 – 19:05
Rule 5: Localize your product
1. JLJason Lemkin
  Um, and then the cheat code, th- this so- sounds obvious, okay? The one one is just support it, like make your product open, right? This, the, the, the, the one that takes work is also, um, localize your product earlier. Um, and most of your engineers don't wanna do this. They don't wanna localize the product into Spanish-
2. SPSam Parr
  What's that mean?
3. JLJason Lemkin
  ... and Portuguese. Turn it, turn it into 30 languages. Not super complicated engineering task, but 95% of engineers just don't wanna do it for a variety of reasons. So, you know, you can, you can get going in the English-ish countries and even in Europe, right? But you're not gonna penetrate, uh, uh, certain areas if you don't actually localize your product. But that, that's the second cheat code. The first one is just be, be welcome to it. You don't have to go hunt customers in Japan if you have zero. Like you don't have time as founders.
4. SPSam Parr
  Going to Japan is like the worst place ever to go because the culture is so different.
5. JLJason Lemkin
  Yes.
6. SPSam Parr
  And there's been so many failures of Japanese companies wanting to come to America and America to Japanese because the culture is like wildly different. 'Cause I actually looked at, uh, b- uh, one of the ways that I researched cool company ideas is I like to look at Japanese publicly traded companies. There's this one called, uh, Userbase. Have you heard of Userbase? So Userbase is, uh, it's a media company in Japan. They own three products. One of them was sort of like CB Insights and it was doing 30 or 50 million in revenue. The second one was a news app called NewsPicks. That was doing another 30 million. And then I think they had one more thing. And I remember going and trying to download their app and it was all in Japanese and I couldn't really figure it out. But I eventually like translated it and I was like, "I'm gonna make this app in America, and I'm gonna do it at The Hustle." And so I built out this like whole thing and I was gonna launch it and everything, and the culture of what they, what they were trying to do r- it required users to leave feedback and opinions on news, which is like not so common here. And I remember like, "Fuck, why is this Japanese idea not working?" And then I realized, I was just like reading Wikipedia or whatever, and there's this whole term to describe the failure of American companies trying to break into Japan-
7. JLJason Lemkin
  Yeah
8. SPSam Parr
  ... because the culture is so different. And it scared me like hell to like do anything involving, uh, Asian cultures because our cultures are so different. I'm like, "I can't never crack that." Whereas Germany, France, it's like mostly similar. But, uh, yeah, the whole Japanese thing freaks me out.
9. JLJason Lemkin
  I'll give you two examples, but like Salesforce got, g- had 10% of their revenue in Japan in the early days. 10%. Now, they didn't-- If you, you can, you can Google it and you can wa- see what Marc Benioff said. They didn't plan it. They got dragged into Japan, and some of it was through partnerships and others. But my point is, that wasn't on their day zero plan, okay? But it took off there. I was just talking with Howard Lerman, who, um, he's got a new company called Roam, but he founded Yext and took it up to a billion. Um, and they were huge in Japan. And we were talking about how he's gonna do Japan the next time. But they got dragged into Japan for small businesses. They got dragged in. So my point is, don't, don't show up to Japan with no traction. [laughs] Asking, asking for a tour of the city. But if you, if somehow in your first 100 customers, first 500, you've got five in Japan, don't, don't, don't dismiss them. Don't be snarky like some folks are. Don't say it doesn't matter. In fact, say, "Oh my God, h- we got five customers for Japan and our product's not even in Japanese. We've got something good here." Like, let's take a pause and let's figure out what the heck is going on, like Salesforce did, and get 10% of our
19:05 – 22:42
Cheat code: Remove friction
1. JLJason Lemkin
  revenue from Japan. That's how you do it.
2. SPSam Parr
  Is there a sweet spot for how much you charge? I think with a lot of people starting out, like what I did, um, like, well, m-my business was, uh, two-prong in that we had users and then we had advertisers. Our advertisers-
3. JLJason Lemkin
  Yeah
4. SPSam Parr
  ... were spending six figures a year, but I had to acquire fucking four million subscribers in order to, like, make it work, and it was really hard.
5. JLJason Lemkin
  Massive acquisition.
6. SPSam Parr
  Um, yeah. And, and so is there, like, a price point where you're like, you want your average customer to be paying 50,000 a year?
7. JLJason Lemkin
  I think that pricing is over-discussed, and I'll tell you why. There are-- We have all now bought 200, at least most businesses have bought over 200 SaaS apps, okay? It's too many, 200 pieces of business software. And we all kinda know what stuff should cost. Like, we know what Notion should cost, we know what HubSpot should cost. We're on Riverside. I don't know what Riverside is. What do you guys pay, 300 bucks a month? Okay. Like, okay, let's say you pay 300 bucks, 400 bucks a month. Now, if someone else has a better version of Riverside and they want 50,000, you're gonna, like, a month, you're gonna kinda balk, right? But what if someone had something that was better than Riverside, it was $30 a month? It would seem too cheap, right? It would seem too cheap. So my point is, there are organic price points, and what you wanna do is anchor around them. Go figure out the couple of products out there that are most similar to yours and charge the exact same way, and either charge the same pricing or, if you're nervous, charge a smidge lower, 10% lower, 20% lower. Um, if you charge too much lower, you're telling the market you're not as valuable as Riverside, right? Or you're not as valuable as HubSpot, and you can actually, customers will bounce off you if you're too cheap. If you're too cheap, they will be, get confused. Um, so anchor around the comps. If you're truly 10 times more valuable than Riverside, okay, and Riverside's very good, we're using it to record this session. If you're 10 times more valuable, maybe charge twice as much because you're telling the market, "We're 10 times more valuable than the leader," right? "We're 10 times more valuable." But whatever you do, founders that say, "There's no one like us, there's no comp," try harder. Try harder. It doesn't have to be the same as you, just it feels the same. It feels a similar amount of value, a similar type of utilization. Do I use it eight hours a day? Do I use it once a month? Um, do I use it as an API? Is it metered? Is it per seat? Just there's hundreds of apps like you, and if you price similar to similar value apps, you remove friction. You remove friction from the sales process, and that's what you wanna do. Until you're really big, you-- And this is why we also underprice as founders, because you wanna remove friction. We want every deal to close in the early days, don't we? We want every deal to close. And so your job as a founder, if you wanna scale, if you wanna reverse engineer things, your job, 'cause no one else in your company will do this, your job is every day to relentlessly remove friction from your customer acquisition process. Remove friction. And people add it at scale. The classic one is contact me. You know, you go to a website, you're all excited to buy on your own, but I gotta talk to a rep? [laughs]
8. SPSam Parr
  Yeah, I hate that.
9. JLJason Lemkin
  Well, they-- Yeah, there's a couple reasons. One reason is they've gotten to hundreds of millions in revenue, and they actually wanna add friction to the sales process, right? But you don't wanna do that until you're at tens of millions of revenue. You wanna every day come into work, and if you can't do anything else on your company, remove friction. How can I make sign-up easier? How can I add single sign-on? How can I make it easier to check out from my e-commerce thing? How can I make the bundle easier? How can I make support better? Remove friction. Having support that happens automatically in seconds rather than waiting five minutes on the dumb bubble, that removes friction, doesn't it? Whatever it takes, remove friction.
22:42 – 29:01
Rule 6: 100% net revenue retention
1. SPSam Parr
  The last point you have is, uh, the, the most challenging. It's, uh, getting to net, net revenue retention of 100%.
2. JLJason Lemkin
  Yes.
3. SPSam Parr
  And we've-- Y- you're, I don't know how you would describe yourself. I think of you as, you're a s-, you're a CEO founder type, but I think that you have an edge on sales and operations. The churn part, I think, and this is maybe, may be naive, I think that's mostly product. Maybe it's, it relates to who you sell to and how you position it, but it's, like, product. And it's the hardest part is, like, figuring out how do I make something that integrates in someone's workflow, or how do I make something that's so essential to someone's life that they, not only do they not wanna get rid of it, they're gonna tell their coworkers, and their coworkers are also gonna have to start using it. It's so freaking hard, and I think it's part art, part science. But you said that you have to have 100% net revenue retention. The good news is, is that a lot of the big boys sucked at first. I think Brian Halligan, I think he told me that they were churning out something like at one point, like five to 10%, or maybe even more, per month, and he was like, "It was horrible, and it took us four or five years to figure it out." But what do you have to say about churn and retention? How do you, how do you make it good?
4. JLJason Lemkin
  If you wanna reverse engineer things, to your point, you need to really honestly have a path from, at a product level so that you can eventually get to that 100%, right? And you can stage it. So I don't know if HubSpot's, if HubSpot really was churning 5% or more in the early days. Let's say its revenue retention was more like 50% in the beginning, okay?
5. SPSam Parr
  I think he told me there was, like, a quarter or two where it was like, uh, existential crisis bad, where it was like, you know, it, it was something like that. I think they were, like, year four, where it was like This is not gonna work if we don't figure this out
6. JLJason Lemkin
  Yeah. Well, I know from when I talked to him, it was 75% from M&R- like 30 million in revenue, which is kind of late. It's-- They still hadn't totally figured out until they went multi-product and a bit into the mid-size of, of SMB. But the point is, like, on the one hand, yeah, their VCs were critical, blah, blah, blah, blah, but they did have a plan to get there. They had a plan to get there. They were going a little bit upmarket, a little bit upmarket, not a lot, just a little bit into bigger small businesses, and to have more than one product to add value. And in fact, it's interesting, HubSpot nominally has raised prices, but the pro- the average customer today pays 11,000, the average customer, uh, two years ago paid 11,000, the average customer four years ago paid 10,000. Okay? So what HubSpot has done, which a lot of folks don't do, they get it wrong, and this is why HubSpot is one of the reasons it's so successful, is they're adding more value for the same dollar. They're adding more value each year for the same dollar. That's-- Software is supposed to be a service, SaaS, software as a service. We forgot about it. In 2023 and late 2022, it became sa- SaaS became software as a rip-off. Everyone got massive price increases for no benefit, right? Some folks will grumble about HubSpot. It has raised prices. But overall, the prices haven't gone up much, and now they have five times the amount of software that's 50 times more powerful, right? It's like 250 times better than when Brian started, and that's what you've got to aspire to as a founder. The flip side is, here's the-- Like, if you have a high churn business, and HubSpot started there. A lot of folks start in high churn business. Be honest. Build a spreadsheet. I know you and I talked a little bit about this in The Hustle in the early days 'cause you had high churn as a media business. It's inherent to a media. You had high subscriber churn. Okay? You were stressed about this. I actually wrongly, wrongly challenged you to be less stressed 'cause I thought you were, you were a great founder and would figure it out. But you gotta put it in a spreadsheet and say, look, if you have churn north of 3% a month, three, four, five, and that is endemic to certain models, look what gravity does to you around when you get to double digit millions, when you get to 10 million, 15 million, 20 million. Usually, gravity weighs you down because you're losing so many customers each month, it almost becomes impossible to replace that leaky bucket.
7. SPSam Parr
  So we, we-- The Hustle was a daily newsletter. We sent an email six days a week. We were at one point-
8. JLJason Lemkin
  Yeah
9. SPSam Parr
  ... I'm trying to remember. We were at 1.7 million subscribers. [chuckles] We lost, uh, fif- 50,000 subscriber-- Or no, maybe it was 40,000 subscribers per month, and we were adding, like, 4,000 a day or something like that.
10. JLJason Lemkin
  Yeah.
11. SPSam Parr
  It was insane. Can you imagine that? Losing 40,000 people, and we're like, "How are we gonna fix this?" And eventually we did, but I know that, like, companies like-- I don't know what The Hustle's at now. I, I assume, I think they're close to three million subscribers, and the churn is really low. Uh, Morning Brew's at, like, four and a half million subscribers. And you wanna know all, all the newsletters do that people don't talk about, so we grew organically to 100,000 subscribers. I imagine many do too. And once you-- Then you do paid marketing to get to many millions.
12. JLJason Lemkin
  Yep.
13. SPSam Parr
  And then you get a name after four or five years, and then you quit advertising or you spend very little, and you're just like, "We're just gonna stay at 3.5 million, three million subscribers-
14. JLJason Lemkin
  I got it
15. SPSam Parr
  ... and we're gonna launch more newsletters." That's the name of the, the newsletter. That's how you get to 100 million in revenue for newsletters. It's the exact same thing as software, which is you go multi-product. But except unlike subscript-- uh, s- uh, software, the churn is outrageous and-- but thankfully, the market size is, like, 30 million people. But it's, it's, like, crazy high, the churn for news letters.
16. JLJason Lemkin
  But that, that ties to the point of being very self-aware about this, right? And that churn, so you, you churned out-- You had, like-- You were churning out-- I, I'm getting that math wrong, but I think you were churning out about 30% of your growth each month, right, in that, in that phase, right?
17. SPSam Parr
  Uh, it was, uh, four-- Uh, so if we sent an email to a million people and, uh, if we had a million subscribers in one month and we sent six times a week times four, that's 24 times, uh, a month, we would lose roughly four and a half percent of the million. So yeah, that 45,000.
18. JLJason Lemkin
  Yeah, that's that 3% to 5% churn we talked about, right?
19. SPSam Parr
  Yeah.
20. JLJason Lemkin
  And on the way up, it's sort of okay because The Hustle's exploding and there's viral elements and it's great, but eventually gravity, that's the gra-- You gotta be honest about gravity and come up with a strategy to address it, right, for small businesses. So that, that, that math just, it, it's, uh, you know... And, and you-- I think you would echo this. Around 10 million in revenue, you need so much growth to overcome that churn, right? You need, like-
21. SPSam Parr
  Yeah
22. JLJason Lemkin
  ... epic, epic-- Like, you can't even f- it's not even what your gut says as a founder. You need so-- You need double-digit growth per month. Here's the insight. You need double-digit growth per month to overcome that churn at scale, right? You need double digit. And that gets hard.
23. SPSam Parr
  Well, and you, and you, you need to understand which business
29:01 – 33:38
Business models that won’t get you there
1. SPSam Parr
  you're in. So you're in the conference business now. I was in the conference business sorta. I think my conference business was doing, uh, over the p- handful of years, I think we probably did 3 million in revenue. You're doing 30 million in one year, so we're not in the same ballpark. But what I learned with the conference business is it sucks. It sucks hard. Uh, and for some reason, I still love it, and same with media. I freaking love it, but it's way harder, I think. And why are you in the conference business if you're supposed to know all of this great stuff about software? Because software seems like we only, we all work the same amount of hours per, per week. Like, it just seems like just start a software company. Why start a conference business where you're, you're in kind of an uphill battle?
2. JLJason Lemkin
  It's a good an- question. I mean, the, um-
3. SPSam Parr
  Do you guys, do you guys make a profit on 30 million?
4. JLJason Lemkin
  Yeah, we do, but you ha- but we've got to h-h... So Saastr Annual is our big flagship event, and so we get 12,000 people in the Bay Area. Now it's every September. It costs $10 million to turn the lights on. That's a stressor. It costs $10 million to turn the lights on, okay, before you make a dollar. Okay?
5. SPSam Parr
  So $1,000 a, an attendee is your cost.
6. JLJason Lemkin
  Yeah, about $1,000 per attendee is the full, the honest, fully burdened cost, about a thousand. We do, we do one in Europe in June for 3,500. That's much cheaper. Um, that'll be about $300 to turn the lights-- Uh, well, $300 per attendee, but it's still, like, a million and a half to $2 million to turn the lights on, okay? Two mil-
7. SPSam Parr
  What's the-
8. JLJason Lemkin
  ... a million and a half and 10 million
9. SPSam Parr
  What's the other cost I'm missing?
10. JLJason Lemkin
  So you've gotta get over that, and then you've gotta pay people, right? And then you've got other expenses. So until you cross, if, if ... It's funny, I get, it is a terrible business, so we talk about ... So I literally had a VC managing 500 million in revenue, making millions and millions a year just in fees with a good track record, call me the other day saying they wanted to build a conference business because investing's so hard.
11. SPSam Parr
  Ah. [laughs] It's like, dude, you still get, you still get paid i- if there's a natural disaster or, like, a rainstorm. That was, like, my whole thing. I'd be like, "Dude, I'm working al- I'm working so hard for this freaking conference, and if it rains, attendance is down." Like, it just sucks. Like, one or two, one or two days of, like, some crazy weather or something can, like, change things.
12. JLJason Lemkin
  Terrible. Um, the reason we did it was on accident. We, we built this community around content, right? So we built content, and then it's a community, and yeah, we got some newsletters and some podcasts. They're not quite at your scale, but they have some scale. Um, and then we just did meetups, and just so many people came to the meetups in the beginning. You've done them, and this is a long time ago. Like, this sounds small today, but our first meetup in 2013, we had 800 people come, and these were great-
13. SPSam Parr
  That's a lot
14. JLJason Lemkin
  ... COs. Great COs, right? COs that now are, are, have gone public or have nine-figure businesses, and they all came, and that, what I ... I didn't know it would be a business, but I knew we had product market fit. So I wanted to build ... Then I did another meetup, and the other meetup had 1,000 and we had to turn people away. And then, then we did a one-day event just to do it. I didn't, it wasn't a business. I outsourced the first two years. I never even looked at a financial statement. The, uh, the first two years I had a partner. He kept all the profit or the revenue. I just drove the engagement, right, and the content. Um, and so this, by the second year we had 3,000 people, and there was demand. So the real reason I got into the business, Sam, wasn't 'cause I wanted to, because after the second year he quit. My partner quit and didn't wanna do it anymore 'cause it was too much work. So I quit. I had no ability to do this. I had no team. I had no blueprint. I didn't know how the revenue or the finances worked, and I had to learn for the third year from scratch, and so it wasn't intentional. Um, I felt like the, a community wanted this, that there was demand, organic demand, and, um, but yeah, it is a terrible business. Once it got, once it got ... Now you can do the math in your head, right? Once it got over 15 million in revenue, it finally generated actual profits, right? But that's a lot of years. Not fake 15, not pretending you're at 15, not, not claiming revenue that's not real, but you gotta really just get over 15 to clear the nut.
15. SPSam Parr
  But they, um, so a lot of trade show businesses, um, on the high end can sell for 15 times earnings. Um, but a lot of them can go for 8 or 10 if it's, like, a B2B, uh, trade show. There's a bunch of-
16. JLJason Lemkin
  Or more
17. SPSam Parr
  ... companies-
18. JLJason Lemkin
  A handful
19. SPSam Parr
  ... yeah, or more.
20. JLJason Lemkin
  A handful.
21. SPSam Parr
  Uh-
22. JLJason Lemkin
  A handful
23. SPSam Parr
  ... yeah, the best ones can go for 20 times-
24. JLJason Lemkin
  But only the best
25. SPSam Parr
  ... if it, i- if it's been around for 40 years and it's an annuity-
26. JLJason Lemkin
  Only the best
27. SPSam Parr
  ... at that point. And, uh, for some reason it's always British companies. A lot of British companies buy trade shows. So there's Informa, there's-
28. JLJason Lemkin
  Yeah
29. SPSam Parr
  ... uh, Euromoney. There's a bunch of them.
30. JLJason Lemkin
  There's Hive.
33:38 – 39:35
$100M conferences
1. SPSam Parr
  you, uh, what could you sell Saastr for, and would you do it?
2. JLJason Lemkin
  We've had two folks that have approached us to buy Saastr over the years. I wouldn't say we've ever had, like, a, a term sheet to, uh, to, to be on the table. Um, the learning from that is it's really been based on comps. I know we talk about E- EBITDA and blah, blah, blah, blah, but it's really been based on comps, right? And Shoptalk was bought for 150 million at about our size, probably under, uh, pr- they got a good deal, and Money20/20 sold for a good deal. It sold for 100 million when it was only doing 10 million in revenue. But both were, like, iconic-
3. SPSam Parr
  Dude, let's talk about that. Let's talk about that. Uh, the guy who started those companies in Ha- is in Hampton. I've got to know him. That guy is amazing. Um, what, what-
4. JLJason Lemkin
  Off the charts, and then he sold, he sold another company for 30 million.
5. SPSam Parr
  But listen, these guys started a Google ... These guys started a tech company, I believe, like a payment company.
6. JLJason Lemkin
  Yeah.
7. SPSam Parr
  They sold it to Google for $100 million. They went and started a conference. It kicked ass. They sold it for something like 50 or 100. I forget the first one.
8. JLJason Lemkin
  He sold Money20/20 for 100 million, and now it's doing-
9. SPSam Parr
  And-
10. JLJason Lemkin
  ... 100 million.
11. SPSam Parr
  Then they did it again with Shoptalk, which is like a-
12. JLJason Lemkin
  They did
13. SPSam Parr
  ... trade show for D- D2C. Now, I forget, what's the other founder's name? It, uh, he, there's a, it's a white guy and an Indian guy. The white guy has a new one named, um, h- it's called HLTH.
14. JLJason Lemkin
  Okay, that I don't know. Uh, that I don't know. I, I know Anil, I know Anil a little bit. I know A- Anil a little bit, but yeah. Yeah.
15. SPSam Parr
  H-L-T-H.
16. JLJason Lemkin
  Yeah.
17. SPSam Parr
  You gotta look at this, because here's what these guys do. The, it's the website is all the same.
18. JLJason Lemkin
  Yeah.
19. SPSam Parr
  Um, it's, like, the same avatars for, and it's, like, the same graphic design.
20. JLJason Lemkin
  Oh, it is.
21. SPSam Parr
  And they just pick a-
22. JLJason Lemkin
  It looks just like Shoptalk or Money20/20. It's the same thing again and again, right?
23. SPSam Parr
  They do the same thing, and he's, and-
24. JLJason Lemkin
  Yeah
25. SPSam Parr
  ... and he's done this, like, four times. I, I think this is their fourth time that they've created a new trade show.
26. JLJason Lemkin
  I see it now. I should've known it.
27. SPSam Parr
  It's a-
28. JLJason Lemkin
  I see it now, yeah.
29. SPSam Parr
  Have you ... So I think this is significantly larger than Shoptalk and Money20. And so HLTH is like a, it's, they do these trade shows where they get all ... It's ba- uh, what a trade show basically is, what a lot of people don't realize, it's basically a, um, marketplace that lasts for three days. And so you get a combination of buyers and sellers, and you hope that you create some type of transaction. And what he does is he charges people, so you can go for free, but you have to offer up a 30 minutes of your time to be pitched, I believe, to set up a meeting.
30. JLJason Lemkin
  Yeah.
39:35 – 44:10
Rule 7: Don’t raise double digit millions
1. JLJason Lemkin
  only a fraction of that. Don't raise that much. So ra- if you raise... Here's a simple way to think about it. If you raise a couple million dollars, which is hard, like it's not, it, it looks easy on the internet. It's hard. But if you raise a couple million dollars, you've lost no optionality. The only thing you've suffered is some dilution. The only thing you've suffered is some dilution. After a couple million, the game changes. After a couple million, the game changes. And so, yeah, I, I, I think there's something to be said for raising nothing, but most people raise nothing because they can't raise anything. I think there's even more to be said, if you can, of rai- being one and done. Anywhere from half a million to two million, whatever you can kluge together, and you use it to, not to pay yourself. That's, that's what losers do. You use it to hire a few good people to de-risk this investment, to accelerate this investment. You use it to hire a few good people and get it off the ground. Most of us need a little help. Like, some folks just literally they can do it on their own. They're two great engineers. They don't need any help. They can go do it on their own. Most of us are not those people, especially if you're a, a business person, it's harder to do it on your own, right? Un-unless you build something on WordPress or, or tools, it's hard to do on your own. You need a little bit of money. But stop there, you, you, not only do you maintain control and have less dilution, but then any exit works. Then any exit works. Once you raise more than 10 million, um, it can be worth it, but if you raise more than 10 million, here's... And this goes to your point. This, people don't get this in to- in today's world. If you raise more than 10 million, you're signing up for a billion-dollar exit.
2. SPSam Parr
  And anything less than that is a disappointment.
3. JLJason Lemkin
  It just might not even work out. Like, there's so many variables. You may run out of money. You might not get... People, once you start raising $10 million, you get addicted to burning more money too. There's lots of issues that, that creep out from that. But you gotta commit to a billion. If you don't see a billion dollar, if you don't feel it in your bones, then don't raise double digit millions. Just don't do it. It's not, it's not, generally not worth it. Find a way to do it with less. And, um, and everyone will be chill if you raise single digit millions or less and sell for whatever. Everyone will be chill. Everyone will be chill. They're not chill once you get to the double digit millions. [laughs] It, it, it ain't, it ain't chill for a long list of reasons. People start expecting a lot. And too many folks these days think that, um, venture capital's free. It has no cost. Um, the, the social contract between investors and founders has broken down the last three years. It has broken down. Um, I, I literally just suffered my worst investing loss ever. I'm 10X lifetime. I suffered my worst investing loss ever.
4. SPSam Parr
  How much did you lose?
5. JLJason Lemkin
  Worst loss ever. 5 million of, not all, all of my capital. Some of it's mine. 5 million out of 200, okay?
6. SPSam Parr
  Ugh.
7. JLJason Lemkin
  So it's not gonna change the pace. But I've never lost this much money. And you know what the founder said?
8. SPSam Parr
  How does that feel? I tried hard, and I tried my best.
9. JLJason Lemkin
  "What do you care? It's not really your mon- what do you care? It's not really your money."
10. SPSam Parr
  Ah. What do you say to that?
11. JLJason Lemkin
  "What do you care?" I could, honestly, Sam, I could, I had to bring in a friend to deal with him. I couldn't talk to him again. I spent years of my life helping him. I helped him raise all his money. I put him in all of our Saastr events for free. I promoted him constantly for years. And then he says, "What do you care? It's not your money"?
12. SPSam Parr
  I remember when I, I took a little bit of angel money, and I, and I remember thinking, like, "I am like a stewardsh- a steward of this ca-" I was like, "I have to die to get a return."
13. JLJason Lemkin
  That's how I felt though. But kids don't feel that way these days.
14. SPSam Parr
  I was like, "It's my life's mission now." I have just like-- 'Cause to take someone's hard-earned money, I felt so much stress. I felt stress. I remember when I hired someone who had a kid, I was like, "Oh, I have a kid now." And then I remember feeling the stress when I took someone's money. I'm like, "This person just trusted me with $25,000. I better go hungry or die in order to get a return from them, because if they, if someone loses my money, I'm gonna wanna beat them up." [laughs] You, you know what I mean? It's like, it's like a big deal. Like, this is someone's mortgage that I, uh, I just took from them. I better make this, uh, get a r- good return. Jason, I appreciate you doing this, man. Uh, what do you, where do people find you? On Twitter? You're, you're a Twitter guy now instead of Quora, even though you got famous on Quora.
15. JLJason Lemkin
  So Quora was great for five years, and now it's nonexistent. Um, but, uh, yeah, you can find me on Twitter at jasonlk. Or honestly, uh, if you're a business-y person, find me on LinkedIn.
16. SPSam Parr
  Dude, thanks for doing this. You're the man. I appreciate you. Um, and that's the pod. [outro music]