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Episode 25

Winning Long-Term: Creating Media-Led Growth and Driving Revenue





Episode details

This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Nathan Latka, CEO of Founderpath. Known for his entrepreneurial spirit, data-driven approach, and thought-provoking insights, Nathan shares his three-phase entrepreneurial journey, starting with his initial foray into the booming social media world and progressing into the creation of the Latka Agency, and then Founderpath. Randy and Nathan discuss the changing landscape of the startup market, the importance of media-led growth, and the role of debt financing in funding software companies. Nathan shares insights from his extensive experience interviewing SaaS CEOs and highlights the need for founders to have a clear vision, build their tribe, and understand the value of inorganic growth.

Speakers

Randy Wootton
Randy Wootton
CEO, Maxio
LinkedIn
Nathan Latka
Nathan Latka
Founder & Chief Investment Officer, Founderpath
LinkedIn

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Video transcript

Randy Wootton (00:04):

Hello everybody. This is Randy Wootton, CEO of Maxio and your host of SaaS Expert Voices, the podcast where we talk to experts in and around SaaS about what's happening today and what they think is going to be happening tomorrow. I'm really excited to have Nathan Latka join us today. He is one of those influencers in the space that I've known for years. In fact, when I was at Percolate, we did an initial interview on his podcast when he was running the Latka Agency, but he's had this incredible experience primarily as an entrepreneur, which we'll talk a little bit about. It's been broken into three basic phases.

(00:35):

From 2011 he started a variety of social media and social marketing companies and was super successful, it was his first startup. Then he moved into running the Latka Agency, which we all probably have followed his reports that he publishes, a prolific publisher of information using data to inform entrepreneurs and really one of the people driving the media-led growth model and how do you create content and generate, it was great to see. And then in 2020 he started his own fund. It's a debt financing fund, which we'll get into a little bit of detail of why he went debt versus VC. He's also an author and podcaster. He's a connector, he brings people together. He's a provocateur in terms of the ideas that he shares. And so it's just been great to get to know you over the years, Nathan, and thank you very much for joining our podcast.

Nathan Latka (01:24):

No, Randy, it's certainly mutual and congratulations on the merger and the rebrand and what you're doing at Maxio and your team to lead this space. So excited to jump in today.

Randy Wootton (01:33):

Awesome. So we talked a little bit about your three chapters. Maybe give us a little bit of background there you were, social media was blowing up and you jumped into that space. And then we can talk about, well, what led that to the Latka Agency?

Nathan Latka (01:47):

Yeah, I think taking a step back, my dad is a month older than my grandma, and so I grew up with parents that were 22 years apart. And that meant my dad was a coal miner, grew up pinching pennies in Pennsylvania. My mom was a double entrepreneur and was the breadwinner. And so when I went and studied architecture at Virginia Tech in 2008, in my back of my head I always knew, I said, I want to make a lot of money so I can have financial freedom and do what I want with my life. I don't want to do what I'd done growing up, which is penny pinching. I love my dad to death, but that's how he grew up. And so when I was in architecture at Virginia Tech in southwest Virginia, and I heard fifth year students when I was a freshman saying, we're graduating, we can't get a job. And I'm going, this is the third ranked program in the country. Why would I put myself through this for five years if I don't have a guaranteed job? And that's when I said, I've got to find another way. And I found this thing, Randy, called FBML, which was called Facebook Markup Language. It's the code you used to launch custom Facebook fan pages back in the day, and that was my first software company.

Randy Wootton (02:50):

That's great. And so then how did you move, well first, any lessons learned because I had been in that social space as well. I had been CEO of Percolate, which was a social media marketing space, and just we talked about at that time that all of marketing was going to shift to the pace and pattern of social. Meaning it was always on, real time, how to add value, thinking about rather than when I was at Microsoft, we'd had these campaign planning which would take quarters. It was like you had to be reacting within 24 hours. Is there something about that experience in social media marketing that then led you to found the agency?

Nathan Latka (03:23):

Well, I think a lot of the success we had at Heyo, that was the name of the software company, H-E-Y-O, we bootstrapped it to about a million dollar run rate. And yes, obviously I want to take credit for that, but we were also extraordinary lucky. I mean, Zuckerberg was on the cover of every magazine. Facebook was blowing up and we just happened to capture some of that momentum and it generated revenue for us. But in the back of my head you're always going, this is not my platform. We are dependent on somebody else. What is the real moat we're building here?

(03:51):

And so ultimately I said, well, if I want to build something special and really build additional, we should probably raise capital. And I say VC dollars is some of the best marketed, maybe the best marketed money in the world because you're sort of convinced that if you don't raise VC you maybe don't have maybe a real or a unicorn software company. So anyways, I raised 2 million bucks on a $8.5 pre-money valuation, $10.5 post. And the big lesson from this period of my life, Randy, was when I got a $6.5 million acquisition offer from [inaudible 00:04:26] contact to sell the company after that VC round. You've been around the block, you know how my board responded, what'd they say.

Randy Wootton (04:33):

They said, well, we're not going to clear the fresh stack.

Nathan Latka (04:36):

Exactly, exactly, right. You can't sell for $6.5 if you just raised a $10.5 post. But in my head I'm going, I'm 21 years old, I'd love to take home $3 million post tax. What are you talking about I can't sell the company. And this is where you learn the hard way. Thankfully I learned it early, but I said, let me sell the company. It wasn't a massive win, but we got the deal done. So I could say I'd sold a company and then said, I just need to learn. And that's when I got into Latka Agency, launched a podcast. The intent there was to interview founders and learn as much as I possibly could before launching my next business.

Randy Wootton (05:09):

Well, that's great. And I do think as someone, I've only been VC, well, I guess my first CEO gig was public company, so it had already gone out and I joined them after they were public. And so managing public company shareholders really different than managing a board of VCs who were coming in at different stages. And my last company Percolate, we had Sequoia, GGV, Lightspeed, First Round Capital.

Nathan Latka (05:30):

How much did you guys raise at Percolate?

Randy Wootton (05:32):

Oh gosh. Well, they had raised a bunch before I showed up. I think it was north of $70 million and we were upside down and we eventually sold the company. But to your point, as a CEO, well professional CEO coming in, my intention was to certainly create shareholder value, but number two was to land the tech, to land the customers and land the people and have it be a successful transaction in terms of best possible outcomes.

(05:56):

So I think the VC model, to your point, so few people get invested in in terms of total companies that actually have VC investment. I think it's less than 1% of all software companies or something. So there's an enormous amount of successful private companies out there. But to your point, the VC and getting funded by VC, people think it's like ringing the bell, and if they don't have the experience that you've had or that you're sharing on your podcast about how to structure the deal, they can give up a lot of equity or set expectations at super high valuation that they got to grow into and just becomes an issue. Okay. And so then Latka, you were doing, how many folks did you interview through your podcast?

Nathan Latka (06:41):

Yeah, so we got the podcast going, the first episode went live in August of 2017. The intent was to do a couple per month, but I fell in love. For anyone listening, thinking about launching a podcast for your SaaS company as a media moat. Something to consider is you have to think about it like a long-term game. You've got to say, would I publish one episode per week for three years with no listeners and still enjoy the process? And if the answer is no, don't even start, it's not worth it. Now, if you create and do it consistently and create habitual habits with your listeners, over time it becomes a massive asset, which is Randy, probably why you guys are out there and are making the investments you're making at Maxio, but it's a long-term play. And so we've interviewed now today, personally I've interviewed over 3,300 B2B SaaS CEOs.

Randy Wootton (07:27):

Wow, that's incredible. Yeah, I think there is something about, do you like to have conversations. That's been the upside for me personally was, I don't know, we've probably done 30 so far, but every person I've interviewed really interesting, have great stories and I've enjoyed it. And so to your point, whether or not we're getting the tap loads that we would like, not yet, I think we're in the top 50% of all podcasts, but there's a super long tail of people doing podcasts. So trying to figure out the sweet spot in terms of guest and content and promotion is really interesting.

(07:58):

Okay. And so then the Latka Agency, you did that for a bit. To your point, you interviewed a bunch of people to learn all those lessons. After 3,300 interviews, I imagine you had a lot of pattern matching, which we'll get to in a second, but then you decided to start your own fund, a debt financing fund, this Founderpath. Talk a little bit about what the genesis of that was and why you went debt versus VC. You alluded a little bit earlier to that, but I think it's a really interesting point.

Nathan Latka (08:24):

When I was building Heyo back when I was, sorry, 21, 22, I thought that everyone who built a software company raised money. I thought that that was the option. I didn't realize that there is a waste management software in Southwest Kentucky that's not on Crunchbase, that the Washington Journal has never featured and that Sequoia doesn't even know about, that's doing six million of ARR, profiting $2 million of cashflow every year. But I experienced those stories over time on the podcast and realized for about every one that had raised equity or raised VC, there was about 900, it's like a one to 1000 ratio, 999 that were happy, profitable, not super fast growing, but very happy founders, profitable, $5 million software companies.

(09:13):

And so what I said at that moment was, and this happened really in 2018 timeframe, is it shouldn't be binary. You can't access capital markets unless you're a SaaS company growing 300% year over year and go raise VC. And the SVBs of the world, they're doing sort of sponsor-backed lending. They want to see you raise 20 million from Sequoia, then they give you five million because they're banking on the deposits. That's not actually underwriting the software company, retention, churn, ARPU, CAC, LTV. And so we said is, man, I bet I could lend to some of these companies and actually underwrite the business, not the equity sponsor. And that will create an opportunity for these companies that never want to raise VC to get some cash to grow a little faster or run an experiment or hire an engineer. And so Randy, that was a long answer, but in 2018 I started writing personal checks for about 10 K doing very small debt deals with software companies.

Randy Wootton (10:06):

Oh, interesting. Oh great. Right on.

Nathan Latka (10:08):

[inaudible 00:10:09] a small fund.

Randy Wootton (10:10):

That's great. So that idea of venture debt versus the debt that you were like ARR debt or revenue based financing, I've heard it called. We actually, most of our customers at Maxio, we have about 2,400 customers, most of them are venture PE backed. And we've explored this idea of, gosh, we have the invoicing and billing data. So the risk of the analysis that a bank or someone like you and your company would need to do is very different than if someone was just showing up because one, you got all the history of the data. And then number two is you can get right in the flow.

(10:42):

And to be perfectly honest, we've worked with some other partners in this revenue-based finance space, and our customers currently haven't seen us as a channel to get access to debt. They want that from their bank. And we're going a little off script here, how do you find those people? Clearly you have 3,300 people that you've interviewed and you've got this huge network, and is that what you're doing is just building on that CRM to go out and say, here's a new value prop, debt financing, control your own fate, don't get caught in the VC gauntlet.

Nathan Latka (11:14):

Yeah, I mean, what I would say is it depends. Some founders, they understand the VC game and they want to go play that game. And I'd say, go for it. We'll promote the heck out of you. We wish you luck. God speed. Others know they don't want to go that path. But I think what I spend a lot of time doing is once I realized debt was an option in 2018, I started asking about it in the interviews to learn more. So I'd ask VC funded companies, hey, how do you think about debt? And what they would tell me is, well, we couldn't really access debt until we did our series D for 100 million and Goldman did a $50 million term loan at SOFR plus 200 or back then LIBOR plus 200 BPS. So like a 6% interest rate with 2% warrants on a six-year term with a 24-month IO or a bullet at the end.

(11:56):

And I'm like, okay, that's all fine, but what if someone doesn't want to raise the series D at all in the first place? Who's going to back them? And then I went in and I did a lot of research on Lighter Capital. I thought what they built was interesting, but you paid Lighter Capital back four to 9% of gross monthly receipts, so you never quite knew what your payment was going to be. It was kind of confusing and if you grew quickly, you'd pay Lighter back faster. So your effective interest rate was higher. That didn't make sense to me.

(12:21):

I loved what SaaS Capital was doing because this is a compliment in lending space, they're really boring and it's perfect. They're never going to go out of business for lending to bad credits.

Randy Wootton (12:33):

Correct.

Nathan Latka (12:34):

I mean, you look at what has happened at Pipe, they really spent a lot of money educating the space about what revenue-based financing was two, three years ago. But the founders are not there anymore because they had a lot of losses. So SaaS Capital had a great model, but when I looked at SaaS Capital and said, should I get into debt, can I offer something different than SaaS Capital? They really weren't even taking phone calls unless you had a minimum of three or 5 million of ARR. Because Steve and the team over there, they're great, but it's a 10 person team and there's not a lot of tech. They have to pick big deals to do. They have limited time. And so the sweet spot I identified was can we automate underwriting for founders with one to 3 million of ARR and enable them to get 500 K to a million bucks factoring their receivables? And that's when we launched Founder Path and the larger fund in 2020 and 2021.

Randy Wootton (13:21):

Well, congratulations. I mean clearly you did it just the way entrepreneurs do, is you go interview a bunch of people, you find out if there's a sweet spot, a pain that's not been satisfied, you segment your audience, your ICP very specifically, and then you offer value that other people aren't able to deliver. So congratulations. And this is your third fund that you're now offering through Founder Path?

Nathan Latka (13:41):

Yeah, first one was, first one was five million before even Founder Path. I've been, it was really hard to manage all the borrowers, so I said here's founderpath.com, connect your API so we can monitor automatically. That was the launch of Founder Path. And then in 2022 we raised our second fund, which is $150 million fund, and that's what we're currently investing out of today.

Randy Wootton (13:59):

Got it. Awesome. All right. Well thank you very much. What a great career and congratulations for your success and wish you continued success. And maybe there's a way we can partner and figure out how to offer some of your debt services to some of our customers.

Nathan Latka (14:14):

I just have to give you guys a shout-out real quick. We work with a lot of partners and a lot of times API endpoints are messy and it's really hard to work with, but we have a lot of founders that have connected their Maxio accounts. Your API endpoints are very easy to read, so credit to your engineering team and your API team there. But we've underwritten and wired money to many Maxio customers because their data was clean. They use your MRR waterfall, they use your templates. It's beautiful and easy for us to underwrite because you guys help them keep things clean.

Randy Wootton (14:39):

Well, that's great, Nathan, thank you. That was unsolicited but appreciated. That's what we talked, well, part of the reason I came here was because it's investor grade reports and we talk about people getting funded, stay funded. What's interesting, I hadn't thought broadly about, well we had, because we were looking at the revenue based finance, but we should chat more about how we can broaden the definition of what it means to get funded and how do you get capital to go do what you want to do.

(15:02):

I'd love to shift. We're going to talk about a couple other things. One is what's happening in the broader startup market today, and then number two, we'll talk about what does it mean to be successful as a CEO and then we'll see how it goes from there. But you've talked to 3,300 customers or entrepreneurs and more through all the other events that I've seen you at and been with you at. What are you seeing in the startup market in terms of how things have changed over the last two years? Everyone talks about growth at all cost versus efficient growth. I mean, we don't need to spend a lot of time on that, but just double click down for us. What's the insight that you have that isn't being talked about broadly in the marketplace because people are only staying at the surface level of, hey, you got to be efficient growth not grow at all costs.

Nathan Latka (15:44):

Yeah, I mean, look, I'm only 34, so I don't have the benefit of 40 years of experience or history, but if we expand a little bit longer duration than just the past two years and maybe look at the last five years, you used to be able to back five years ago at my first software company, we could buy attention. We knew what we could spend on an ad to get the sign-up, to get the trial to convert. You then, I don't know if my dates are exactly right here, but in 2017, 2018, Jeff Katzenberg, billionaire, very successful with Meg Whitman, ex eBay, I mean Top Tech CEO, they got together if you remember, and created with a lot of hype this thing called Quibi, which they wanted to launch and go after the streaming wars, compete with Disney Plus and Netflix. They spent billions Randy, trying to buy attention. They launched, it failed, it went out of business, they shut it down, billions were lost.

(16:31):

The lesson there is you cannot buy attention anymore. It doesn't matter how much money you have. If you are a bootstrapped founder competing against a VC backed competitor and they're trying to buy attention, but you're more creative and you have figured out to get the attention of your customers in a creative way, you will win long term. It's just a matter of time. So that is, I would say if you force me to only articulate one C change over the past five years, it would be that you must earn attention today with media led growth, you cannot buy it.

Randy Wootton (17:01):

That's great. I think a couple of points on that. One is just there's been, well with SaaS growing, there's been an enormous number of companies been funded with all that VC money we were talking about before. They're all spending money on trying to buy attention, buying keywords, but they're not saying anything different. And so when you look at their websites, you can often take the logo and just put it from one to the other. I saw this in the marketing, MarTech space specifically, and there was something like 20,000 MarTech vendors and that guy, chief MarTech just every year does the-

Nathan Latka (17:33):

[inaudible 00:17:34].

Randy Wootton (17:34):

Yeah, it's scary as hell if you're in MarTech. And so I got out of MarTech and went to the CFO, the office of the CFO to play in that space. And one of the things, the plays that we're doing is the Maxio Institute. And the Maxio Institute is we take the 2,400 customers, we go through the data because we have the billing and invoicing data and we publish a report every quarter. And other than surveys, which are people fill out surveys, we are one of the few that has the actual data and are able to do that. And so to your point, how do you build a foundation around thought leadership, around differentiated data, which is what you did at the Latka Agency in particular, and I see you continuing to publish, hey, what's the top 250 software companies and what size are they? And it's just continuing to provide insights into data that no one else has.

Nathan Latka (18:20):

Yeah, that was [inaudible 00:18:22] also because I got podcast listeners in 2019 that said, Nathan, you've recorded 600 episodes at that point, which one should I start with? And I said, well, what do you care about? And they said, well, I want to listen to someone with five million in revenue. I said, oh, I have to categorize all these on getLatka.com so people can sort by revenue or profitability.

Randy Wootton (18:42):

Oh, interesting.

Nathan Latka (18:42):

And that's how getLatka.com got going and then we started selling subscriptions to that data set. Think of it like a mini PitchBook or Crunchbase for B2B SaaS. And it doesn't do $10 million of revenue, but I can tell you it does in the millions of revenue. And we've brought in a great CEO, the ex CEO of Datanyze, who bootstrapped a five million and sold to ZoomInfo and Ilya Simon is now doing a great job leading getLatka.com, which includes the podcast, the magazine, and some of the media entities that you've mentioned.

Randy Wootton (19:06):

That's great. Well, I'm not the first person to say this, but data is the new gold, and I think if you're just an application layer without being really a system of record, you're going to struggle because someone is going to have access to the data, they're going to be able to aggregate it. And then this next, maybe this is the other trend just speak to a little bit is AI, is it real or is it hype? I was, first CEO company was a public company, first generation AI, and it was the real deal. And what we're seeing similarly is if you don't have the data, the source data, you're not going to be able to put the intelligence layer on top of it to create real differentiation. How about you, what are you seeing in terms of the hype around AI and the startup marketplace writ large?

Nathan Latka (19:52):

Yeah, I mean look, you look at Jensen and Nvidia yesterday, the stock price pop after the earnings call is incredible. But ultimately what AI is about is about producing intelligence and making it available faster. And so that's what I like to think about. For our own company, I say at Founder Path, how can we produce intelligence faster? And if that means training an LLM, wonderful, then it's like, okay, do we use AMA, do we use OpenAI? What do we use for that kind of stuff?

(20:18):

You guys, I imagine are doing the same kind of thing because you sit on a very unique data set and it's like how do you produce intelligence at scale for your user base? Typically, we tend to do this by having growth advisors, people that have to find patterns and get on a call and coach founders or vice versa. And so they're going to be ways where you and I, Maxio and Founder Path can figure out how to build some of this actually, this intelligence, we can produce it inside of our applications with no calls at all. And I think that's where we're spending most of our time.

Randy Wootton (20:45):

That's great. We are as well. I would, having been down this path before, getting the data right and getting it in the right structure is a huge lift. And if it hasn't been designed in terms of making itself available for AI to process it, it's a big lift to go back and restructure your database. And so I think a lot of companies that are starting today, AI first, are thinking about, okay, how do we chart our database? How do we create vector database? There's a whole database strategy that if you were a web-based application, you may not be thinking about, but I think probably VC's and others are really looking for what's your data strategy and your AI strategy for the companies that are funding these things.

Nathan Latka (21:20):

Yeah, you nailed it. I mean if you talk to OpenAI, the app works, the voice interface you and you say, what is the churn rate of ZoomInfo? Name any publicly traded company, and it's going to say, tell you churn is 6%. And you say, well, is that logo churn or revenue churn? Is that gross or net? It's going to go, oh, I don't understand your response. Please go read the SEC filing. You know what I mean? This is the kind of thing we're like, at Maxio, I'm sure you deal with a lot. We deal with a ton at Founder Path, when we are trying to ingest data to underwrite we've got to get everyone to use our definition or our four definitions of churn and categorize it appropriately. Otherwise, it doesn't matter how good your AI is because you've trained the LM the wrong way on bad data.

Randy Wootton (21:57):

Right, amen. I think that was one of the reasons why I was excited about to come to this company is I mean GAAP, right. GAAP's defined, you have an argument around what part of customer success do you put above the line and below the line. That's the excitement in GAAP. Other than that, it's done, right? You're just ensuring that you're closing the books. Side point, I do think there will be a day powered by AI that companies will be able to close a zero-day close. And so you wrap the month, the next day you have your GAAP financial statements done. That's going to be through accounting software. But when you think about the world of ARR and then the metrics, the SaaS operating metrics, it's the wild wild west.

(22:35):

And to your point, people have different ways of defining things and we're trying to come out with a metric policy to say, hey, here's how it's done standard across the industry. So if you want to get funded, you need to be doing it this way. What we find is often early stage companies have their uncle doing their books and they're reading articles and they think they got the rev rec done right. And they're like, no, no, we want to do it this way. And until they get really often at that stage, they're using a CPA or a client advisory service, a fractional CFO, someone who really knows SaaS to come in and say, no, no, no, no, you're not doing rev rec correctly. Their ARR is all over the place. And so to your point when you're trying to fund someone, understanding truly what is contracted ARR versus live ARR, and if you're contracting ARR because you gave first six months away for free, it creates confusion and noise in terms of how you're representing your business. I imagine that makes it hard for folks like you and you're trying to aggregate that and trying to provide intelligence on top of it.

Nathan Latka (23:35):

You nailed it.

Randy Wootton (23:36):

Well, awesome. Well, let's shift to the next topic, which is around, hey, in this crazy world, lots of things changing, moving super fast, what's required to be a successful CEO? I've been writing the Seven Secrets of Success for CEO's. I would say my bias is I come in at companies that are series C, so I've not been like you, an entrepreneur and founder. And so maybe if you wouldn't mind just talking a little bit about the distinction you would draw between founder and CEO. What makes a founder successful and then as they make that transition to CEO, what do you think are the things that they need to be thinking about through that transition?

Nathan Latka (24:10):

Look, I don't have a lot of experience moving past the founder led CEO into just the CEO's sort of role, but in my head, the way I sort of think about it based off the interviews I've done is somebody like Randy Wootton is coming in because you are dealing with things that are, the founder's got a vision, the CEO is about operating. These are the people, these are the teams, there's the budget, here's the P & L, here's the board deck and the founder's vision. That's sort of how I think about it. So the second that the vision isn't carrying the whole business, a lot of founders can get up to 10, 20, 30 million bucks just on vision, but at some point you've got to start operating the business. And I think that's when it makes sense, we're using the word CEO, but you could also keep the founder CEO and hire a president. And there's a lot of ways to structure it, but I think that's the biggest difference. Would you disagree?

Randy Wootton (25:00):

No, I think spot on. Sometimes people will split it between startup and scale up. So if you're thinking in terms, and this is what I think I bring to the table is, hey, how do you run operations at scale globally. How do you build efficiency, operate and execute. I think to your point, there can be startup CEO, clearly there are a bunch that have gone through and made a crap load of money, but I think part of it is often in B2B SaaS, the startup founder is technical and so they have a vision for the problem they're trying to solve and the technical solution. They're doing evangelist sales, but at some point to go build the go to market motion in terms of how do you think about crystallizing the positioning and messaging when it's just not you selling it. So it's not one to one, you're not playing tennis. Instead you're playing, I don't know what the metaphor is, but you got to go reach a hundred people. How do you scale your go to market.

(25:51):

And then I think the other thing is sometimes technical founders tend to be like, well, the product works, people should just like it. And so then you got to install your customer success as a buffer between the reality of the product and the promise. Those different components I think is where you can get a scale up CEO or president, to your point, or COO and can add a lot of value. I think you find that with Cheryl Sandberg, you find that with Eric Schmidt, you find that at other companies as well where the founding CEO's and founders have said, well, we need someone to come in and help operate. So I think that's great. Well, maybe then just focusing on that founder, that startup CEO, what have you found to be the three or four characteristics of all the people you've talked to that are consistent of not ensure success, but the most successful ones embody?

Nathan Latka (26:40):

Yeah. I mean they have to have a vision about what they believe about the future that other people don't believe, right. Otherwise, everyone else would be doing it and competition would drive out all the profit margin. So they've got to have something like that they believe in. Now the question is how do you get to something you believe in that you think the market doesn't see yet? Well, usually that comes from you're eating your own dog food. You used to go cut lawns and you hated the software you used. Now you have and launched lawn cutting software or marketplace to cut lawn. So I always look for what I call, especially in the world where attention wins, the founders that are best at getting attention is where they're telling their own story because the market goes, of course they understand the problem the best, they came from lawn cutting. I look for vision about the future and I look for the founder market fit, not product market fit, the founder market fit and the founder's story fit to the market. And then those are I think two key ingredients.

Randy Wootton (27:33):

That's great. In fact, about lawn mowing, I'm in this group, this Vistage group, which is a collection of CEO's and there's a guy who started a company called Electric Sheep. He used to cut lawns, and this is now a robotic lawn cutting tool that has launched to do commercial landscaping. And it came from out of his experience, but also with his background because he had studied robotics and he brought those two things together. So I love that idea of founder market fit. And then similar, that was your story as well in terms of how you got to where you were. And so that's awesome.

(28:11):

So founder market fit, what about, I was alluding to this a little bit in joining Vistage. One of the hardest things about CEO at any stage is it's a really lonely job. So I talk about building your tribe and having a mentor, a coach, a peer group, and then also just your own advisory board of people who've known you for 15 years, can call out your own BS. What have you found successful founders have done in terms of building their tribe? Because sometimes it could be, I don't need anybody else, I've got this vision, I'm totally convinced this is right. And if I talk to other people, they're going to slow me down. Versus, oh no, I'd like to get mentors, I'd like to get coaches. What are you seeing is most successful for the folks that you've talked to?

Nathan Latka (28:51):

Yeah, I mean, I think there's two kinds of founders here. The founders that read and are consumers of intellect all day long and they're terrible at taking action. I would much prefer the founder that takes action quickly and learns from first person versus just reads all day. You see what I'm saying?

Randy Wootton (29:07):

Yep.

Nathan Latka (29:08):

So my priority would always be the action taking CEO first, and then it would be, okay, they've taken action to 10 million of ARR, or 5 million of ARR. How can they or me or I or them build out a group around them so that as they make additional bets in the future, they can be better informed bets but not compromise speed. And so that's why I've tried to surround myself with at Founder Path. I've got people that they know me personally, so my first angel investor at Heyo, he's very close to me so he knows how and when I overreact or when I don't react tough enough or the kinds of people I worked well with. So he's who I go to for that kind of stuff. There's others, like our series A lead, Savneet Singh, that has been around debt and finance for a long period of time. So anything related to warehousing or margins or macro or micro or alpha and beta, risk, reward, underwriting policies, I'm going to somebody like him. And so you sort of have your mini tribes based off what you think you're weak at or strong at or what you need for the future. And that's how I've done it at Heyo, I mean at Founder Path today.

Randy Wootton (30:11):

That's great. One of the values that VC's sell in addition to giving you capital is the expertise and experience, and by being on the board they're going to help you be more successful. I think it depends on who the VC is and what the relevant experience is. It depends on whether the partner who sold the deal actually shows up on the board or they give it to one of the people on the team. Bootstrapping your own company or taking debt financing, you don't have to have a board, you don't have to have, or at least a board with fiduciary responsibility because you're not playing with their money. Do you have a regular board that you set up in terms of an advisory board and you're coming in and sharing your results, or is it more the model that you were hinting at where if you have a specific issue, you go to an individual that you know is an expert to address versus having a regular board meeting in the discipline that a board meeting then entails?

Nathan Latka (31:02):

I think cadence is valuable, but any founder that has no board, that finds it hard to get motivated to look at their financials and close not every quarter and know how they're doing, is not going to be successful long term. Now, you can put a board in place to put pressure on you to close it out and put the report out every quarter, but I mean, I do that myself and a lot of our best bootstrap founders, they do this themselves and their board is their top six customers, which is the best board. So I think there's a variety of ways to do it. I can also tell you horror story, I mean I won't name them but I mean there are many VC backed companies where if a VC has a hundred investments and you're not in the top five, that board member's not paying attention to your board meeting, they're not reading the deck ahead of time. They might even be working on replacing you. So I know there are some very valuable VC's, but they're usually investing all their time in their big winners, and that's usually less than five, 10% of their portfolio.

Randy Wootton (31:57):

Amen. I think some people talk about the A company, B company and C company. And the A company is the one where they're going to make the return for the fund and they're investing energy and effort. The B companies, they're kind of like, well, I'll come to the board meeting and we'll see how it plays out. The C companies, they're actively thinking about either replacing the CEO, and that's where someone like me comes in, or what are they going to do, because they're on eight to 10 boards, it's hard to spend time. And I do think that the VC model is big returns for few investments. The challenge as a CEO in the portfolio is you only got that one investment. You're that one company, and if you've dropped from A to B and you're on the threshold of C, it can become really unnerving. You're like, wait, this is when I actually really need you, is to come in and bring all that experience to bear and help me turn the ship.

(32:44):

So I think that's great in terms of thinking about who do you bring in. I am actually on two boards right now outside of the Maxio. One is Opal, which is content marketing. And so I had been in content marketing at Percolate. They're VC backed, Madrona backed, and Excel I think. Great board members. And because I have background experience, I'm kind of like the independent for them. The other one I'm on is a private company, Guided Financial, which provides funding for people who want to use their 401 K and buy a franchise or something. Getting early, really early, I should put you guys in touch, but there might be an interesting overlap in your ICP.

(33:21):

Any who they don't have invested capital, so it's just them running it. And so the board meeting is more of what we were just describing of, hey, we're coming in, we'll read the deck and we'll help you think through things. But at the end of the day, Jeremy, the CEO, has complete control. And so he can say, meh, interesting idea, but I'm going to go do X. You're like, good luck. So very different.

(33:43):

Well, great. Well, why don't we shift to the last deep dive topic and then we'll go to the speed round, around disruptions in the office of the CFO. Do you have, of all the companies you're talking to, people that are going after the office of the CFO, of all the CFO's you've talked to or controllers, maybe agencies or CPA firms that are supporting the entrepreneurs that you're working with, what are you seeing more broadly in that space?

Nathan Latka (34:07):

I think the biggest misconception that founders, who it's only their first or second company and they've never gotten above five or 10 million of revenue, the biggest misconception those founders have about what a CFO does is they think a CFO is just logging into QuickBooks or Maxio all day long and just closing the monthly books. But let me point out some examples to you. Giles Palmer, when he was running Brandwatch acquired BuzzSumo for 15 million cash. It was doing 5 million of revenue, three X multiple. A year and a half later or slightly after that, he sold the company for a five X multiple. There's a two X multiple arbitrage. That is financial engineering, that is inorganic growth. That goes through the office of the CFO.

(34:47):

So these founders that look at a CFO role as bean counters are missing out on a massive opportunity. In fact, they're not even being exposed to opportunities to drive inorganic growth. And when you look at the most successful software companies today, they all have some component of inorganic growth. If you look at a publicly traded company that most of you haven't heard of called Par Technologies, which competes with Square, they're IOT plus SaaS. So they put the hardware in the restaurant and then they sell the software to the restaurant. Well, Savneet just bought for 400 million bucks of cash and equity, a combined entities doing 80 million top line and 20 million of profits. He's trading though at a multiple higher than 80 million into 400. So that is multiple [inaudible 00:35:33]. That is inorganic growth.

(35:35):

And if you can figure out an M& A strategy where you're either buying very similar products, but maybe instead of selling at an SMB level of a thousand dollars per year or less, maybe you bought in your same space, but you bought a sales motion. You bought a same tool in your space, but they sell to the enterprises. That's an M&A strategy. Another one might be you look at FreshWorks, they've got thousands, tens of thousands of SMBs using them. If they buy one other tool and upsell it across 10% of the base, they just added 30 million of ARR. That's ARPU expansion kind of acquisition. This kind of stuff all flows through the office of the CFO.

Randy Wootton (36:10):

Yeah, well, great examples. I think that was spot on in terms of thinking about organic growth is what's coming from your current product in your current segment. And I think for founders, they're starting with a, here's the problem, the ICP and the persona we're going to go after. As they start to think about how to expand those customers, what are the other set of products you could be selling in? Well, you could build those, or to your point, you can do an inorganic play. You can go buy a company. I think then it's, well, how do you go buy that company? How do you get the funding? Do you self-fund it out of your own EBITDA or this is what the PE promise is, hey, we're going to go put money in, we're going to build the platform, drive efficiencies, use the EBITDA, and then also give you additional capital to go buy that inorganic growth that's going to lead to either ARR arbitrage or EBITDA multiples over time.

(36:58):

I would say that has been my biggest lesson learned coming into a PE-backed mashup. Maxio was the integration of two companies, SaaSOptics and Chargify, who each been around for about 12 years. We put them together, try to create a platform, we start offering new modules. But the growth assumptions that I talk with the board are, okay, so what's the organic growth going to be? And then who are you going to go out and buy and how does that plug in? And so it is a continual conversation. And to your point, it is in large part driven by a CFO being able to say, okay, well, this is what we need the shape of the business to be, to be able to support that. What are we going to invest in organic growth versus how are we going to optimize EBITDA? And then the other point that you mentioned, I think on the financial engineering is spot on. How do you-

Nathan Latka (37:41):

I was going to say, when I grew up too, I always watched TVs and you see all my books behind me. I'm reading bios of these big M&A deals, and you sort of are trained to think as a founder, well, I can't think about M&A until I have a PE firm behind me and I've got a hundred million of revenue, and then I can go do... I mean, there are companies that sign with Founder Path with a million bucks of ARR, and we gave them capital, non-dilutive. They use it to go buy other companies for like 500 K cash and 500 K in stock. They double their revenue. I mean, inorganic growth is not something that is reserved only for $50 million ARR founders with a private equity backer.

Randy Wootton (38:15):

Great insight. And I think that's clearly one of the values that you offer with the access to capital you're providing. I think the other point you were making, which I, part of the reason why I came to this company was the CFO moving from back office to front office. So moving from closing the books and compliance to being able to have a seat at the table with the CEO and the CRO to define what our monetization strategy is going to be. So what are the pricing and packaging we're going to roll out? How is that hitting in terms of win rates? How is it impacting churn? And that is, all that data is coming from the office of the CFO. And so they can be much more, rather than just cash management, they can really help you figure out, okay, what's your growth management? And so moving into that front office seat.

(38:59):

With people that you work with though, when do you find that they hire a CFO? Because my experience has been it takes getting to about 30 employees. Prior to that you're probably doing it on QuickBooks, you're doing cash accounting. Is there an inflection point that you're finding when bootstrapped CEO's are bringing a controller on board or a fractional CFO?

Nathan Latka (39:21):

Yeah, I mean look, this is a big [inaudible 00:39:25], there are companies that I still battle with in our portfolio every day that are doing six million of revenue with no full-time finance person. That's too late. You should have a full-time finance person at that point. You don't need to pay a $200,000 per year CFO if you're a million of revenue. So there's a bunch of really great firms, I'm sure you work with a bunch as partners, but you look at [inaudible 00:39:43] Partners, Ben Murray at SaaS CFO, Escalon Partners, there's a bunch of these fractional CFO firms that you can pay somewhere between 50 and 150 per hour or two to 4K per month to do basic things like QuickBooks, general ledger management, some FP&A, stuff like that, the non-strategic stuff. But eventually, once you get up to I think three, four, five million bucks of revenue you should have in your fixed headcount expenses, a budget for a 150 to 250 K per year, full-time CFO.

Randy Wootton (40:12):

Yeah, agreed. I think that's probably the right inflection point. And there are a bunch of these folks, these fractional CFO's. I would say the key is to find a firm that focuses on your industry. So there are very few CPA firms that are working with B2B SaaS. There are some out there, [inaudible 00:40:30], Crews.

Nathan Latka (40:30):

What are your top three?

Randy Wootton (40:31):

Yeah, the ones that I'm, well, these are the partners we're closest with is [inaudible 00:40:36], Crews, both West Coast. And so a lot of their portfolio comes from VCs and PEs. FRC is a great one, Naval Academy grad. Shout out to FinStrat, who a guy named Christian, I really have enjoyed getting to know, because he came up through finance. He wasn't a CPA, and he has some startup experience. So his whole starting point is he goes to the entrepreneur and says, what is your end? What do you want to try to achieve? You got to be honest. How much do you want to sell this for? Do you want to run it as lifestyle business? And then you do the three-year backup and say, okay, well then this is what needs to be true about the business and how you shape it. So he's adding the services at the highest level in terms of being a financial advisor, financial engineer, as well as providing the accounting service.

(41:23):

You can always get a CPA, but I think your point about bringing a CFO on board, finance becomes strategic. It's not just about closing the books. It's like, how are we going to run this business? How are we going to grow this business? And what's the exit? Especially for people that are doing bootstrap, because you don't have the VC saying, hey, this is our expectations into T2D3. If you're not on track, we're going to do something else. This is you figuring out, well, do I want to create generational wealth? Am I just trying to buy an RV and retire with my wife? But getting honest about that then changes how you run your business.

Nathan Latka (41:58):

You nailed it. And scenario analysis, right, it's really hard to run scenario analysis quickly without a full-time model and someone owning and maintaining that model with actuals and historicals and go forward.

Randy Wootton (42:08):

Awesome. All right. Well, we're right towards the end of our conversation. Let's wrap up with the speed round. So three questions for you, and we can keep it short. One is favorite metric and why.

Nathan Latka (42:19):

A payback period. Anyone that can get the money back instantly has the highest money velocity and short payback period is much better than a big LTV to CAC ratio.

Randy Wootton (42:27):

Awesome. Specifically CAC payback versus gross margin payback, or do you have a-

Nathan Latka (42:30):

Yeah, CAC. Exactly. You could do gross margin. Actually, that's even more conservative, but yeah, CAC payback.

Randy Wootton (42:35):

Yeah, I was talking to a guy who runs a firm, actually Targus Alex on a podcast. He's a great one of these financial advisor fractional CFO's, and he does gross margin payback. And that's the first time I had heard that, because I've always been in the CAC payback world. But yeah.

Nathan Latka (42:49):

Well, yeah, and the gross margin, just for anyone that wants to calculate that without spending a bunch of money, you're taking your monthly ARPU times your margin, right. So if you're selling something for a hundred bucks a month and you have 85% margin, you have $85 per month, divide that into your CAC of 160. You have a two-month gross margin and CAC payback.

Randy Wootton (43:03):

Yeah. Yeah. And so I thought it was a great new one that I hadn't known that much about. Favorite book, doesn't have to be a business book, but if you got a favorite business book and why.

Nathan Latka (43:13):

Yeah. Look, I have recency bias on this, so you can see it, I actually was reading it this morning, but Charlie Munger as he just passed, so his almanac is really, really good and I'm knee-deep in that right now.

Randy Wootton (43:23):

That's great. You're the second person who's recommended him, and I'm going to buy it and put it on my stack by my bed. Third question, who's your favorite influencers? So this is someone that's actually coming out with interesting ideas that you spend the time to read either the email or you follow them on LinkedIn, he or she, which one do you like most?

Nathan Latka (43:42):

Well, yeah, I'll say there's a lot of very loud influencers that I don't think have a lot going on up here. And there's a lot of people with a lot going on up here that are very bad influencers. They don't know how to get attention. So my answer is going to be someone that I think does both. I think Jamin Ball is very good. Altimeter Capital on Twitter. He summarizes publicly traded SaaS calls in a very easy to understand format. And I think he's one of those rare combinations of very intelligent, also knows how to package his intelligence and his feedback in a way that is easily to consume.

Randy Wootton (44:08):

Sorry, can you spell his last name for everybody?

Nathan Latka (44:10):

Ball, like a bouncing ball, B-A-L-L.

Randy Wootton (44:12):

Oh, Ball. And which firm is he with?

Nathan Latka (44:14):

Altimeter Capital.

Randy Wootton (44:16):

Altimeter Capital. I don't know him. I will add him to the list. Well, Nathan, as always, I learned something every time we chat. Enjoy your perspective. Congratulations to your success, and thanks so much for being part of SaaS Expert Voices.

Nathan Latka (44:29):

Thank you Randy.