Dan Martell - Raise Capital for Your SaaS

00:00:00.000 The real winner there, Michael, is if you can get, you know, three or four clients that want

00:00:04.600 that same feature to each independently pay to really make it like a true like triple win.

00:00:24.120 What is up, Michael? How are you doing today?

00:00:26.440 I'm doing well. Thank you, Dan. Thanks for having me.

00:00:28.020 I'm super excited, man. This is going to be fun.

00:00:30.000 Real quick, as we kick things off, obviously, what's the name of the business, the customer you serve, and how you solve their problem?

00:00:40.520 Yeah, the name of the business is Pre-Approve Me, and we're in the mortgage software industry, and our customers are mortgage companies, and we help bring efficiency to a very convoluted process.

00:00:56.260 I love it.

00:00:57.160 I know this space well.

00:00:58.940 have a lot of real estate clients. The mortgage approval process is obviously really important.

00:01:05.740 So, how long have you guys been doing it? What can you share about the size of the business,

00:01:09.420 revenue, team size, etc.? Yeah, we started it nine years ago. I was a loan officer,

00:01:17.580 you know, standard founder story, right? Solved my own problems. And we've been doing it for about

00:01:23.420 nine years we really started to grow it five years ago um i think we've got 10 full-time people now

00:01:30.380 and we are at about 800 850 arr and hoping to hit about 1.2 by the end of the year there we go

00:01:40.540 yeah that's exciting um michael how can i help oh man where to start i mean we um yeah the one

00:01:48.460 of the biggest challenges we're having today is um having the capital to scale so we've circled

00:01:55.740 the wagon with some of our customers we've been having conversations at a high level about what

00:02:00.700 it would be like to get them more invested in the product which would then in turn bring success to

00:02:05.900 them because they're leveraging the product and so one of the you know very top of mind things

00:02:10.620 we're focusing on is how do we structure that you know what is it like to approach a customer

00:02:15.100 what are you trading are you trading equity are you trading access combination of both and you

00:02:21.760 know love to just pick your brain on that yeah so the customer financing for me is one of the most

00:02:28.000 um strategic and aligned type of financing options and the reason why as you mentioned

00:02:33.680 um you get buy-in from people that you want buy-in from and then you get capital typically at a like

00:02:41.840 less, you know, like the terms are a little bit more favorable as the entrepreneur because

00:02:48.020 they're not professional investors per se, right? Whereas the professional investors might have some

00:02:52.840 weird clauses around liquidity, liquidation perhaps, or, you know, discounts the next rounds

00:02:59.040 per rata, all these kinds of things. Like, you know, a customer that loves your product, they're

00:03:03.240 like, I believe in you. I just want to invest in you. I want to see the product grow. I want to,

00:03:06.660 support that. The way to do it, if you can, the best way is just kind of, again, I'm going to

00:03:16.440 give you different levels. The best way is to pre-sell multi-year contracts and get them to

00:03:20.420 pay up front. So it's really just pulling your cashflow forward. And the reason I do that is

00:03:25.280 because it's customer financing. Essentially, you get to invest their current dollars today

00:03:30.480 without diluting equity. And that one, you see this happen all the time. I'm involved in a

00:03:35.960 company called Pila. They launched a product called Lomi. They crowdfunded $22 million worth of

00:03:41.480 pre-sales. There's rules around accounting and when you can collect the cash to invest in the

00:03:46.340 business. But at the end of the day, creating an early adopter program to get people to pre-buy

00:03:52.760 multi-year contracts of new features, new modules, even the core product is a really great way to do

00:03:58.300 it. So that's like this level. Then the next level would be getting customers to support

00:04:05.760 the the roadmap so so financing like pre-paying to build custom features and usually what you'll

00:04:12.480 do is a 50 50 split so like if your hard cost is 100 an hour you charge them 50 the way to do that

00:04:18.640 right is to make sure that the requirements on your roadmap are aligned with what you want to

00:04:23.040 build anyways you don't want to start building custom dev shop because it just it ends up being

00:04:27.600 a really expensive product to build um when you're building one-off features for a customer versus

00:04:33.040 your market so that's like level two kind of uh customer financing number three is kind of what

00:04:38.240 i think you're alluding to that um is really you want to do it as close as you can to just

00:04:44.080 basic terms right so you know if i would say like what's super founder friendly not so much

00:04:50.000 you know investor friendly so even if it's a customer investing it doesn't really matter

00:04:53.520 i'll just keep it like it's a customer but investment you know same same model should

00:04:58.720 work is if you can do it on some convertible note, a simple debt instrument, discount to the next

00:05:06.400 round. Unless you don't plan on ever raising another round, then you might want to just do

00:05:10.960 it on a pure equity, what's called a series seed. So you price the round and you want to just give

00:05:18.080 them very basic terms and try not to give up too much. When you're small, it's funny. I see some

00:05:24.400 entrepreneurs that that undervalue and other people that overvalue right so like at your level

00:05:29.200 if you're saying hey we're looking at selling 10 to 15 percent to our customer base that's that's

00:05:33.920 okay right like you might give yourself a kind of six to ten million pre-mark you know you know

00:05:40.720 pre-market valuation okay you know and you you raise a million dollars at 10 equity or whatever

00:05:46.960 that's fair but i've seen other people give away 60 of their business for you know 200 grand and

00:05:51.840 that doesn't work right so there's really no difference other than you know if you're gonna

00:05:58.960 do it also consider going to the market a little bit because if you already know that you can raise

00:06:05.360 half a million from your existing customers and you've got that momentum then you go to like

00:06:11.360 you know early stage series seed or like seed stage investors and you say look we're raising a

00:06:16.160 million dollars then you've already got the half committed you just find something that's well in

00:06:19.840 the right two checks for 250 and then you put it together and you can kind of raise on that 10 or

00:06:24.720 15 dilution to me that makes sense and then it also lets the customers know that other professional

00:06:29.440 investors are investing so they feel good about the terms versus otherwise now does that help

00:06:34.880 michael or do you have a specific scenario you want to kind of talk through no i think that does

00:06:39.120 help um you know it's it makes sense and i think i am leaning more toward number two because which

00:06:45.040 which is what you said was financing for the roadmap.

00:06:47.380 It's financing the roadmap, yeah.

00:06:49.120 Yeah, because there's a real pivotal time

00:06:52.380 in our business right now where things are,

00:06:54.060 rates are moving up in the States.

00:06:56.320 Mortgage companies are really trying to find efficiency.

00:06:59.060 They wanna know they're planning for the future.

00:07:01.820 Now's the time to invest in that.

00:07:03.200 So it's good timing.

00:07:05.980 It happens all the time.

00:07:06.860 I literally was on the team,

00:07:07.980 my exec team yesterday talking about this product we use

00:07:12.360 and they're like, yeah, they don't have that feature.

00:07:14.660 And I'm like, this is a $200,000 a year problem.

00:07:19.340 I'm pretty sure I could get on the call with the CEO

00:07:22.040 or you guys call them,

00:07:23.160 that if you said we'll write you a check for a hundred grand

00:07:25.520 to build this integration to solve our problem,

00:07:27.960 they'd probably get that done in the next two months,

00:07:30.980 means that we don't have to deal,

00:07:32.220 we're going to have to migrate off their platform.

00:07:35.120 There's risk in that.

00:07:36.440 There's a ton of like overhead of management,

00:07:38.900 project management, data quality,

00:07:40.420 like just impact to our business that for a hundred grand,

00:07:44.540 I'd rather write the check than have to move off platform.

00:07:47.820 And if what I'm asking them to build

00:07:50.660 is like super aligned with what they wanted to build anyways,

00:07:54.060 they essentially just pull something

00:07:56.000 that was a year out forward a year,

00:07:58.360 get paid to build it and it's super win-win.

00:08:00.420 And I just think the real winner there, Michael,

00:08:03.200 is if you can get three or four clients

00:08:06.000 that want that same feature to each independently pay

00:08:09.320 to really make it like a true like triple win, right?

00:08:13.140 and i would be you should want to do that like let's say i go to this company i'm like i'm willing

00:08:17.860 to pay you 100 grand for this if i'm that ceo i'm going to turn around to every one of my other

00:08:22.500 customers that use the same integration that we have and ask them if they want it and if they're

00:08:26.740 willing to throw in 50 grand 100 grand and then take all the money build it and then deploy it i

00:08:31.860 mean that's that's business and i think everybody wins yeah that's awesome yeah that's exactly what

00:08:37.220 i'll be planning on doing now one one question i have regarding that is um do you sort of sell

00:08:42.900 based on the vision of that based on like what they get in return as far as a product or like

00:08:47.860 the outcome um you know for example in our business right now there's a push massively

00:08:53.940 for purchase loans because refinances just dried up and so now everyone's going like i got to get

00:08:59.700 out there and get purchase loans which means competing for realtor business you know and so

00:09:04.900 i've got a very defined pitch for that and you know could project what you might be able to get

00:09:10.180 as a result of it is that how you would put it in front of people yeah i mean to me it's like

00:09:14.660 selling anything right if it's an add-on module your existing business you're always trying to

00:09:19.220 figure out what's the roi calculation there's like kind of the left brain and the emotional

00:09:22.820 side to it so the the impact is what you're always trying to pitch and then you know you justify with

00:09:29.460 emotion like what would that mean to your business what if you don't and then all of a sudden the

00:09:32.980 market shifts on you right now it's easy but and and that's the the beauty of it is is like

00:09:39.300 product roadmap and pre-selling to finance development that's been kind of my mo since

00:09:44.980 the beginning of building software it's i literally will do a clickable prototype that's that's 100

00:09:50.820 prototype i don't try to make it look too fancy because then the customer or the potential buyer

00:09:55.380 might think it's real so i give them like clickable prototype and say hey here's what we're seeing in

00:10:00.020 the market we're hearing it from other customers wanting to get your feedback and this is the key

00:10:04.420 michael ask for advice get a customer so use the i need your feedback on this thing we're thinking

00:10:09.860 of building to get the advice on it and truly listen like do some customer development but then

00:10:15.860 at the end of that call you know transition to a sales conversation and be like so it sounds like

00:10:21.300 you guys also have this problem they're like yeah well it's like well we're creating this

00:10:25.140 um you know you can call it an inner circle an early adopter program you know uh customer

00:10:30.260 advisory board and we're looking for people that are willing to invest in this um to co-create it

00:10:36.740 with us and and this is where i think your question was leading to michael like what else do they get

00:10:40.980 well i like to do the customer advisory board like um everybody that invests will uh get access to

00:10:47.540 early features and help us co-create the roadmap they'll obviously get uh first access to this

00:10:52.660 product in beta which will probably be three months prior to the rest of the market so you

00:10:56.260 If you have a competitive advantage, um, you'll get direct access to the CEO and his cell number,

00:11:01.100 which is always a benefit for a lot of people that are paying for SAS products.

00:11:05.100 Um, and you'll, you know, you can even go as far as seeing some of my clients put,

00:11:09.120 you know, we'll put your name on our website under, you know, like partners that support us.

00:11:13.380 And that might just be value to them because they want to, the, the link and the, the recognition.

00:11:18.440 So there's ways to like create an offer around that.

00:11:21.200 But the core is, is it's gotta, you gotta lead with the outcome.

00:11:24.440 It's gotta be beneficial.

00:11:25.580 they got to feel like they're getting a competitive advantage and then everything else is really just

00:11:29.520 stacking the offer to make it desirable and then that allows you the better the offer is the more

00:11:34.480 you can charge for it and that allow you finance even more of your growth i love it that's awesome

00:11:39.880 thank you so much yeah oh cool i appreciate it anything else mike i can help you with well yeah

00:11:44.260 so okay so we're spooling up marketing on our side right now and having a lot of you know really

00:11:49.220 success and the result of that is that we're also getting more people signing up for our services

00:11:53.920 is our onboarding team it's loosely an onboarding team right i'm actually i'm not the sales side but

00:12:00.100 i am helping people onboard and we had to massively increase our prices to make that happen

00:12:04.180 but we're still struggling with customer journey especially in the activation phase like how do we

00:12:10.900 bring success early to get them to first value and um and so as we kind of scale and grow like

00:12:19.380 just any advice you can provide about that would be great. Yeah. I mean, one of the core metrics

00:12:25.000 that I talk about often, I have this framework called this precision scorecard and it's time to

00:12:30.980 first value, right? And I think that every company needs to define what is that first value? Is it

00:12:36.920 sending an invoice? Is it getting your first loan origination completed? Like that to me is the

00:12:45.040 activation step you know if i'm building an instagram it's took a photo added a filter

00:12:50.240 posted it on my timeline like everything at the beginning of a new customer sign up has to be

00:12:56.800 focused on driving them to that first you know first time value and track it right like what

00:13:02.160 percent of your new signups got to first value uh in the last 30 days and um how fast what's the

00:13:09.760 average time to achieve that and then you can task your product manager your customer success

00:13:14.160 manager depending on how your product works to improve that metric and the truth is as you know

00:13:19.200 is the people that get there are going to use the product more they're going to consume higher

00:13:23.440 and they're going to retain at a higher and expand right they're going to start with a

00:13:27.920 simple package and over time the volume increases so there's tricks to doing that okay so so how

00:13:34.880 about i unpack a few of those the one thing that i like to do is is i really force the user into

00:13:42.400 a setup flow so when i was building clarity and you signed up as an expert or as a seeker looking

00:13:48.880 for advice we didn't let you do anything in the product search look at the directory etc until we

00:13:55.200 got what we knew we needed to make sure you were going to have a successful engagement in our

00:14:00.560 product so for example if you were a seeker we would ask you what is the number one challenge

00:14:07.120 you're currently facing in your business and they had to answer that question or they couldn't move

00:14:12.080 forward why honestly if they didn't know the answer to that and they weren't willing to give

00:14:16.720 it to us then i shouldn't let them into the marketplace because to me that and but if i

00:14:21.520 have that what can i do with that ton of stuff one our recommendation engine was customized based on

00:14:26.640 that answer our uh our onboarding email sequences was customized based on that answer um the

00:14:33.520 questions that we would show you from our answers product was as dynamic based on that answer um

00:14:39.680 we would even be able to offer them free calls with experts that were willing to do free calls

00:14:45.120 to build their profiles right based on that answer and it just we did everything we needed

00:14:50.240 to do to get the first call to happen even if they didn't pay for it at the end of the day if

00:14:54.320 we can get two people talking on the phone at the same time and it was done through our platform

00:14:59.440 we just started to build that that mental trigger that that that pathway of problem clarity problem

00:15:05.840 clarity man that call was super valuable wonder who else is on there boom boom boom right so we've

00:15:10.400 asked them that question we asked them to pick categories of things that they felt like were

00:15:14.720 going to be challenges over the next year we even did this cool thing where we made them listen to

00:15:18.880 a clarity call with mark cuban so that it would force them well it would essentially indoctrinate

00:15:25.600 them into the product right because a lot of people we learned when we asked them like hey

00:15:28.560 why haven't you done a clarity call yet they were like well i don't really know how it works

00:15:32.320 which sounds like when you hear that you're like oh i get that but at the time we were like what

00:15:37.920 do you mean you don't know how it works and then it was like no they don't understand like how the

00:15:41.280 request works how they approve it are they supposed to send something ahead of time so we

00:15:45.760 literally created this like mini simulation of a clarity call with mark cuban and it was an animation

00:15:51.200 that would say request and then um and then accept and then the call happens and then the call would

00:15:57.760 play so they could kind of see visually the sequence and hear what was going on to kind of

00:16:03.040 get comfortable with the platform so to me there are certain things that you know and this is the

00:16:08.320 technical way of doing this is it's called the click stream look at your best customers and try

00:16:13.600 to get your engineers to log the activity stream by date and so you go in the database again i'm

00:16:19.200 getting super nerdy but that's my background um think of like all the objects that they created

00:16:25.840 and did so search created a thing did a thing whatever sequence those in a timeline and then

00:16:32.160 look at your top customers and look at like what are the milestones that they executed over that

00:16:39.360 first experience over the first week over the first 30 days and look at what's common amongst

00:16:44.720 all of them and then what you do is you you front load that experience for every new customer and

00:16:49.680 that's the game plan that you give your customer success managers or your onboarding people to

00:16:54.320 execute with every new account it's like every new account has to and you can make it a name like

00:16:59.120 uh seven steps to success right and every new account has to have seven steps you have a

00:17:04.240 dashboard how many customers have done those seven steps the time the first value is part of that

00:17:09.040 but it just also says like profile completion did they connect their accounts did they upload this

00:17:13.680 did they do that and then you can hold them accountable to an outcome does that make sense

00:17:18.240 yeah love it that's awesome awesome well michael as we kind of land the plane and wrap up um what's

00:17:23.120 been the two or three things that has resonated the most with you that you feel is going to have

00:17:28.080 the biggest impact? Yeah. So, the two things really come to mind are just like understanding

00:17:32.320 better how to present the idea of having my customers finance our roadmap. I mean, that's

00:17:39.120 just… Even the way you said that sounds so clean, right? Yeah. Yeah. I mean, it's clicking

00:17:44.560 and we've really struggled with fundraising. So, this is huge. I'm meeting with our biggest

00:17:48.960 customer tomorrow about this so it's very timely um and the other thing is just like the click

00:17:53.280 stream understanding how to look from a data perspective back at what our most you know uh

00:18:00.080 best users are doing in order to identify what are those things of value that brings success so i'm

00:18:06.560 gonna have the team looking at that right away bring those back yeah bring them forward in the

00:18:09.760 product yeah i guess start with the end of mine so that's yeah that shapes the onboarding yeah

00:18:14.720 Awesome. Michael, super fun conversation.

00:18:16.820 I love this stuff, obviously.

00:18:18.800 And I'm really excited to hear how things

00:18:20.740 progress. So I hope you have an amazing

00:18:22.740 rest of the day. We'll talk soon.

00:18:24.480 Take care.

Dan Martell - August 08, 2022

Raise Capital for Your SaaS

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