This is part of our AMA series with top SaaS founders and operators. If you’d like to join live, apply to FounderLed here.
I’ve admired Ken Hoppe, co-founder and CEO of Modigie, since meeting him before SaaSOpen. He was scheduled to speak, and instead of going back and forth over email, he preferred to just pick up the phone and have a conversation.
He gets things done, and he gets them done efficiently. So it’s no surprise that, even though he’s a first time SaaS founder, he’s bootstrapped Modigie to $1.7m in revenue – and done so profitably. He’s even raised $300k without giving up equity.
He joined us for an exclusive “Ask Me Anything” session for FounderLed members last week to discuss the framework he and his co-founders used to be profitable from the outset, how he focuses on de-risking for his buyers to close deals, and how he approaches pricing.
See below for a lightly edited recap of the top questions Ken answered.
You’re a first time SaaS founder who’s grown profitably to $1.7m in revenue. How did you do it?
There might be an ageism thing here – but the good news about starting a SaaS company when you’re older is that you have a pretty good network to tap into. A very good friend of mine is a software analyst, and he talks to CFOs and CEOs of publicly traded companies all day – companies of all shapes and sizes.
I was lucky enough to tap in and say, “if I build this company, what is your recommendation?”
The number one recommendation was to outline the skill sets of the founders. So we had three people that believed in the vision and we mapped it out. What are all the different skill sets that if we had to hire that specific person, a CFO, a head of product, what would that cost?
How do we create a division of labor between the three founders to make it so out of the gate, we’re doing the work of 20 people in three? That’s number one.
Number two was looking at what we could outsource for non-revenue generating things. I say outsource, outsource, outsource. Anything non-essential? Outsource.
For example, we outsource our development. One of the most expensive things when you’re building software is skilled developers. We were very fortunate to find good talent that’s stayed with us in a contracting capacity since we started the company.
Then, when we transitioned from services to SaaS, true SaaS, we outsourced our SalesForce to an entity in India to keep our cost basis down. They’ve been exceptional for us for three years running. We outsource our finance and payroll.
Our core application engine sits in Google Cloud, and there’s Python code development. We’ve got a core engineer who sits in Bavaria Germany, and he’s outsourced. We just continue to add like an accordion. When we need additional expertise, he’ll go out also and bring in contractors.
Also – do not take on a lease. In a remote distributed workforce, don’t be burdened with the overhead of having an office. I think that if you’re a software developer, software company, you can have culture without having that big liability hanging over your head.
We’ve been really thoughtful about anticipating dry periods, or lumpy revenue. I don’t want to go to venture capital. I could have gone to Google for VC, and I feel proud we didn’t have to do that.
These are the things we really thought through, and we continue to measure as a management team. When we meet on a monthly basis – well actually weekly – we ask “what are things we can outsource?”
And we’re fairly stable at this point. We’ve already made that decision. We have consistency, but it was a really important thing.
It’s a variable line item that we have great control over.
You mentioned finding outsourced developers. How did you find them? How are you able to retain them for a year or more?
It can be really risky. I feel that there’s an element of you have to just start. So, we treated it just like we would normally.
If you were to do a home renovation, you’re going to interview three, four different contractors. We took the same approach here. And then you go in leaning in, thinking that you just make best efforts and you just figure it out along the way.
Then you start to develop human relationships, and you treat them as your own employees. You reward them as they work for you because they’re dedicated to you. So the contract roles that we had were essentially full time.
They just didn’t have the traditional benefits. They didn’t carry a Modigie badge, but they all have Modigie emails, and they’re on our stand up calls every day. They’re customer facing. They act, look, feel, and they’re like they’re Modigie, and their LinkedIns are Modigie.
You can’t get lost on the human element in the day to day interactions, even with our customers. But people that directly work for us and that we sub out to, you treat them like humans and special people.
They’ll be loyal to you the best that they can. And that’s really worked for us.
I saw on the SalesForce App exchange that you start at $25k. Is that how you price? How do you approach pricing?
Great question. Yeah, I think as founders, too, it’s always like, what is that? Pricing? We’re always iterating on pricing.
The short answer on the $25k is no. When you’re on the App Exchange, it’s incredibly rigorous to get approved and certified. We didn’t want just anybody to download our software.
You can get into Modigie at $10,000, but we have companies at this point that have invested over $700k on our software over a period of time. We were doing $100k, $75k deals before the economic headwinds. Pretty high end enterprise deals for a small emerging company.
We spent no dollars on marketing, so we actually had to prove our value out. Each and every time, each and every customer and every time we would do a proposal, we would do a custom proposal.
And we started thinking about, well, that’s not how SalesLoft and Outreach and even SalesForce charges – they charge a flat monthly fee per headcount versus the way that we were.
We actually have gone to a per user model as opposed to what you see on the App Exchange, but we’ve never sold that $25k package. The App Exchange is really a wonderful medium, but we’ve never leveraged or relied on the App Exchange to do our selling for us.
It delivers our application and then we deliver the actual software link separately than through the App Exchange. It’s sort of just like a listing for visibility of your product for people who are considering it.
I’ll give you an example. We have a very large cloud services provider that their policy is they cannot use a SalesForce managed package unless they download it from the app, you know, and so they have to download it from the App Exchange.
What are some of the ways you closed early deals? You’ve talked about “de-risking” it for the customer. How do you do that?
It’s been very interesting, our setup. Our customers are concentrated in technology – which is a good thing and a bad thing. It’s a good thing in good times. So our customers were spending at all costs, and then went to cut at all costs.
I think most of us have lived through the dot com era – and it was a little bit like that. But we were providing tremendous value.
But it wasn’t as difficult as it was in the period of time where CFOs were getting involved on every expense line. We actually had to start showing empirical evidence that we were providing value.
Initially, people needed more mobile numbers, and they knew it – and we would deliver. And that became not good enough. What we started doing to remove friction so that our buyers or sponsors could go to the CFO and say, “Listen, Modigie is willing to write performance metrics into the contract and we have an out.”
Now, there’s risk because there’s a lot of front end effort when you’re acquiring customers, particularly in the Sales-Led growth area. There’s a lot of front end investment in software. We don’t recover that until year two, year three – so there was risk involved in our model.
But it proved very favorable because we de-risked it for our buyer. We gave them out because we were unknown.
When you’re an unknown vendor and you’re asking for the numbers that I was sharing with you earlier, it’s really hard because someone’s job is on the line if they go get that funding and the vendor doesn’t perform or doesn’t deliver.
We really wanted to basically ally ourselves with our sponsor and make sure that they knew we were partners. That was really important for me because this persons extending even though they have a need that we could fulfill.
So that’s what we did. We wrote in some language to reduce friction. We’ve adjusted. All of us want twelve month contracts, some of you do month to month where there’s auto renewals.
We just decided to give a lot of flexibility based on our clients’ situation and earn the right to get to the next month.
Earn the right, and that’s what we found in the SaaS world every month. You kind of have to earn your right to get the next month and the next month.
And that’s how we approach the business.
Are you aiming for larger deals with customers and how do you add value to them?
Well, that’s a tricky one. I’ll give you my perspective. One of the greatest things we did – and I forgot to mention it – is we run our business like a cash flow business.
We were able to build our product based on specs that customers use that we could resell. We would do some custom work for a specific use case and they became a product.
So what we continued to do on the feedback loop is the company I just mentioned that we just did a two year contract with, they are helping us build a new product line that satisfies a really important P1 for them, which is tracking.
We call it Champion Monitor, which is where they’re tracking where their buyers go to their next company and it becomes a new lead, and it derisks their deal. It’s really helping.
One way to do it is to expand the number of users. We were doing site licenses. We weren’t doing user based licensing. But even if you’re doing user based licensing, that’s contracted, that’s been a challenge for a lot of SaaS companies.
You can add new product functionality, which is the direction we’re going in, which is we’re continuing to expand because in my space, in the sales tech space, which is where we fall, there’s pressure to consolidate the tech stack.
What we’re doing is finding that we were a point solution. Now we’re expanding our feature functionality to actually displace point solutions.
Are you looking at any acquisitions?
I think about that a lot. Very thoughtful question. Obviously, it takes capital to do that, which we haven’t amassed the capital yet.
There are some components that if I had, like a texting platform or a dialer, that I think we could control more of the ecosystem.
So a very thoughtful question. Nothing in the purview. I have a list of companies, a hit list for if and when.
Has anyone heard about Acquire? They used to be called MicroAcquire, but now they’re just called Acquire. It’s a SaaS marketplace where you can buy SaaS companies or list your SaaS companies and sell them.
I think it’s changing the game because this is such an interesting avenue to explore when you have revenue.
More places to find Ken:
- Follow him on LinkedIn
- His keynote at SaaSOpen 2023: Profitable Growth is sexy again. How we hit $1.7M profitably with only 6 FTEs and plans to scale profitably by 5x YoY
- Interview with Nathan Latka on the Top Entrepreneurs podcast
This is part of our AMA series with top SaaS founders and operators. If you’d like to join live, apply to FounderLed here.
