Dan Martell - August 08, 2022


Raise Capital for Your SaaS

Hosted by
Dan Martell
Mentioned
Michael Mark Cuban Lomi
Is There A Sure Shot Formula To Success？ Yes. This is it. Become the ＂Ironman＂ of Business

Episode Stats


Length

18 minutes

Words per minute

196.98

Word count

3,628

Sentence count

71


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

Pre-ApproveMe is a mortgage software company that helps real estate companies get faster and more efficient with their loan approval process. In this episode, I sat down with the CEO and Founder of the company to talk about how they built their business and how they plan to continue to grow in the future.

Transcript

Transcript generated with Whisper (turbo).
Hosts, guests, and mentioned names generated with spaCy (en_core_web_sm), reconciled against Wikidata.
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.