- The real winner there, Michael, is if you can get,
three or four clients that want that same feature
to each independently pay, to really make it like a true,
like triple win.
(upbeat music)
What is up, Michael?
How you doing today?
- I'm doing well, thank you, Dan.
Thanks for having me.
- I'm super excited man.
This is gonna be fun.
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?
- 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.
- I love it, I know this space,
well, I have a lot of real estate clients.
The mortgage approval process is obviously really important.
So how long you guys been doing it?
What can you share about the size of the business revenue,
team size, et cetera?
- Yeah, we started it nine years ago.
I was a loan officer, standard founder story.
Solved my own problems.
- Awesome.
- And I we've been doing it for about nine years.
We really started to grow it five years ago.
I think we've got 10 full-time people now.
And we are at about 800, 850 ARR,
and hoping to hit it about 1.2 by the end of the year.
- There we go, that's exciting, Michael, how can I help?
- Oh man, where to start?
I mean, we, yeah, one of the biggest challenges
we're having today is having the capital to scale.
So we've circled the waggon with some of our customers.
We've been having conversations at a high level
about what it would be like to get them more invested
in the product, which would then in turn and bring success
to them because they're leveraging the product.
And so one of the very top of mind things we're focusing on
is, how do we structure that?
What is it like to approach a customer?
What are you trading?
Are you trading equity?
Are you trading access, combination of both?
And love to just pick your brain on that.
- Yeah, so the customer financing for me
is one of the most strategic
and aligned type of financing options.
And the reason why, as you mentioned,
you get buy-in from people that you want buy-in from.
And then you get capital typically at a like less,
like the terms are a little bit more favourable
as the entrepreneur because they're not professional
investors per se, right?
Whereas professional investors might have some weird clauses
around liquidation preps, or discounts the next round
provide all these kind of things like,
a customer that loves your product,
they're like, I believe in you,
I just want to invest in you.
I wanna see the product grow.
I wanna support that.
The way to do it, if you can,
the best way is just kind of, again,
I'm gonna give you different levels.
The best way is to presale multiyear contracts
and get them to pay up front, right?
So it's really just pulling your cashflow forward.
And the reason I do that is 'cause it's customer financing.
Essentially, you get to invest their current dollars today
without diluting equity.
And that one that you see this happen all the time,
I'm involved in a company called Pela,
they launched a product called Lomi.
They crowdfunded 22 million worth of presales,
there's rules around accounting,
and when you can collect the cash to invest in the business,
but at the end of the day,
creating an early adopter programme to get people to pre buy
multi-year contracts of new features, new modules,
even the core product is a really great way to do it, right?
So that's like this level.
Then the next level would be getting customers
to support the roadmap.
So, financing like prepaying to build custom features.
And usually what you'll do is a 50/50 split.
So like if your hard cost is a 100 dollars an hour,
you charge them 50.
The way to do that right is to make sure
that the requirements on your roadmap
are aligned with what you wanted to build anyways,
you don't wanna start building custom dev shop,
because it ends up being a really expensive product
to build when you're building one off features
for a customer versus your market.
So that's like level two kind of customer financing.
Number three is kind of what I think you're alluding to,
that is really, you wanna do it as close as you can
to just basic terms.
So, if I would say like what's super founder friendly,
not so much investor friendly.
So even if it's a customer investing, doesn't really matter.
I'll just keep it like it's a customer, but investment,
same model should work,
is if you can do it on some kind like convertible note,
a simple debt instrument, discount to the next round,
unless you don't plan on ever raising another round,
then you might wanna just do it on a pure equity.
What's called a series seed,
so you kind of like price the round.
And you wanna just give them very basic terms,
and try not to give up too much when you're small,
it's funny, I see some entrepreneurs that undervalue
and other people that overvalue, right?
So like at your level, if you're saying, hey,
we're looking at selling 10 to 15% into our customer base,
that's okay, like you might give yourself
a kinda six to 10 million pre-market valuation, okay.
And you raise a million dollars at 10% equity or whatever,
that's fair, but I've seen other people give away 60%
of their business for 200 grand and that doesn't work.
So there's really no difference other than,
if you're gonna do it also consider going to the market
a little bit, because if you already know that you can raise
half a million from your existing customers,
and you've got that momentum, then you go to like,
early stage series seed or like seed stage investors.
And you say, look, we're raising a million dollars,
then you've already got the half committed.
You just find somebody who's willing to write two checks
for 250 and then you put it together,
and you can kind of raise on that 10 or 15% dilution.
To me that makes sense.
And then it also lets the customers know
that other professional investors are investing,
so they feel good about the terms, versus otherwise.
Now does that help, Michael or do you have a specific
scenario you want to kind of talk through?
- No, I think that does help.
It makes sense.
And I think I am leaning more toward number two because,
which you said was financing for the roadmap.
- It's financing roadmap, yeah.
- Yeah, because the there's a real pivotal time
in our business right now where rates are moving up
in the states, mortgage companies
are really trying to find efficiency.
They wanna know they're planning for the future.
Now's the time to invest in that.
So it's good timing.
- It happens all the time, I literally was on the team,
my exec team yesterday talking about,
this product we use and they're like, yeah,
they don't have that feature.
And I'm like, this is a $200,000 a year problem.
I'm pretty sure I could get on the call with the CEO,
or you guys could call him that if you said,
we'll write you a check for a 100 grand
to build this integration, to solve our problem,
they probably get that done in the next two months,
means that we don't have to deal.
We're gonna have to migrate off their platform.
There's risk in that, there's a tonne of like overhead
of management, project management, data quality,
like just impact to our business that for a 100 grand,
I'd rather write the check than have to move off platform.
And if what I'm asking them to build is like super in line
with what they wanted to build anyways,
they essentially just pull something that was a year out
forward a year, get paid to build it.
And it's super win-win.
And I just think the real winner there, Michael,
is if you can get three or four clients
that want that same feature to each independently pay
to really make it like a true, like triple win.
And you should wanna do that.
Like let's say I go to this company, I'm like,
I'm willing to pay you a 100 grand for this.
If I'm that CEO,
I'm gonna turn around to every one of my other customers
that use the same integration that we have,
and ask them if they want it.
And if they're willing to throw in 50 grand, a 100 grand,
and then take all the money,
build it and then deploy it.
I mean, that's business and I think everybody wins.
- Yeah, that's awesome.
Yeah, that's exactly what I'll be planning on doing now.
One question I have regarding that is,
do you sort of sell the vision of that based on like
what they get in return as far as a product
or like the outcome, for example, in our business right now,
there's a push massively for purchase loans
because refinance is just dried up.
And so now everyone's going like, ah,
I gotta get out there and get purchased loans,
which means competing for realtor business.
And so I've got a very defined pitch for that,
and could project what you might be able to get as a result
of it, is that how you would put it in front of people?
- Yeah, I mean, to me it's like selling anything.
If it's an add-on module or your existing business,
you're always trying to figure out
what's the ROI calculation.
There's like kind of the left brain
and the emotional side to it.
So the impact is what you're always trying to pitch.
And then you justify with emotion,
like what would that mean to your business?
What if you don't and then all of a sudden the market shifts
on you, right now, it's easy, but.
And that's the beauty of it is like product roadmap
and pre-selling to finance development.
That's been kind of my MO
since the beginning of building software.
I literally will do a clickable prototype,
that's a 100% prototype.
I don't try to make it look too fancy
because then the customer or the potential buyer
might think it's real.
So I give 'em like clickable prototype and say, hey,
here's what we're seeing in the market.
We're hearing it from other customers,
wanting to get your feedback.
And this is the key, Michael, ask for advice,
get a customer.
So use the, I need your feedback on this thing
we're thinking of building, to get the advice on it,
and truly listen, like do some customer development,
but then the end of that call,
transition to a sales conversation and be like,
so it sounds like you guys also have this problem.
They're like, yeah, well, it's like, well,
we're creating this, you can call it an inner circle,
an early adopter programme,
customer advisory board.
And we're looking for people that are willing to invest
in this, to co-create it with us.
And this is where I think your question was leading to,
Michael, like, what else do they get?
Well, I like to do the customer advisory board.
Like everybody that invests will get access
to early features and help us co-create the roadmap.
They'll obviously get first access to this product in beta,
which will probably be three months prior
to the rest of the market.
So if you have a competitive advantage,
you'll get direct access to the CEO and his cell number,
which is always a benefit for a lot of people
that are paying for SaaS products.
And you'll, you can even go as far as seeing
some of my clients put, we'll put your name on our website
under like partners that support us.
And that might just be value to them
because they want the link and the recognition.
So there's ways to like create an offer around that.
But the core is, is you gotta lead with the outcome.
It's gotta be beneficial.
They gotta feel like they're getting
a competitive advantage.
And then everything else is really just stacking the offer
to make it desirable.
And then that allows you the better the offer,
is the more you can charge for it.
And that allows you finance even more of your growth.
- [Michael] I love it, that's awesome, thank you so much.
- Yeah, oh, cool, I appreciate.
Anything else, Michael, I can help you with?
- Well, yeah, so, okay.
So we're spooling up marketing on our side right now
and having a lot of early success.
And the result of that is that we're also getting
more people signing up for our services,
our onboarding team, it's loosely an onboarding team.
I'm actually, I'm not the sales side,
but I am helping people onboard.
And we had to massively increase our prices
to make that happen.
But we're still struggling with customer journey,
especially in the activation phase.
Like how do we bring success early
to get them to first value?
And so as we kind of scale and grow,
like just any advice you can provide about that
would be great.
- Yeah, I mean, one of the core metrics
that I talk about often, I have this framework called
this precision scorecard and it's time to first value.
And I think that every company needs to define
what is that first value?
Is it sending an invoice?
Is it getting your first loan origination completed?
Like that to me is the activation step.
If I'm building an Instagram, it's, took a photo,
added a filter, posted it on my timeline,
like everything at the beginning of a new customer signup
has to be focused on driving them to that first time value
and track it, like what percent of your new signups
got to first value in the last 30 days,
and how fast with the average time to achieve that?
And then you can task your product manager,
your customer success manager
depending on how your product works to improve that metric.
And the truth is, as you know,
is the people that get there are gonna use the product more.
They're gonna consume higher,
and they're gonna retain at a higher level and expand.
They're gonna start with a simple package
and over time the volume increases.
So there's tricks to doing that.
So how about I unpack a few of those?
The one thing that I like to do
is I really force the user into a setup flow.
So when I was building clarity and you signed up
as an expert, or as a seeker looking for advice.
We didn't let you do anything in the products search,
look at the directory, et cetera,
until we got what we knew we needed it,
to make sure you were gonna have a successful
engagement in our product.
So for example, if you were a seeker, we would ask you,
what is the number one challenger currently facing
in your business?
And they had to answer that question
or they couldn't move forward, why?
Honestly, if they didn't know the answer to that,
and we're willing to give it to us,
then I shouldn't let them into the marketplace,
'cause to me that, and but if I have that,
what can I do with that?
A tonne of stuff.
One, our recommendation engine was customised
based on that answer.
Our onboarding email sequences was customised
based on that answer,
the questions that we would show you from our answers
product was as dynamic based on that answer,
we would even be able to offer them free calls with experts
that were willing to do free calls to build their profiles
based on that answer.
And we did everything we needed to do
to get the first call to happen,
even if they didn't pay for it.
At the end of the day,
if we can get two people talking on the phone
at the same time, and it was done through our platform,
we just started to build that mental trigger,
that pathway of problem clarity, problem clarity,
man, that call was super valuable.
I wonder who else is on there?
Boom, boom, boom.
So we had to ask them that question.
We'd ask them to pick categories of things
that they felt like were gonna be challenges
over the next year.
We even did this cool thing where we made them listen
to a clarity call with Mark Cuban,
so that it would force them.
Well, it would essentially indoctrinate them
into the product.
'Cause a lot of people we learn when we ask them like,
hey, why haven't you done a clarity call yet?
They were like, well, I don't really know how it works.
Which sounds like when you hear that, you're like, oh,
I get that, but at the time we were like, what do you mean
you don't know how it works?
And then it was like, no,
they don't understand like how the request works,
how they approve it.
Are they supposed to send something ahead of time?
So we literally created this like mini simulation
of a clarity call with Mark Cuban and it was an animation.
It would say request and then accept,
and then the call happens and then the call would play.
So they could kind of see visually the sequence
and hear what was going on
to kind of get comfortable with the platform.
So to me there's certain things that you know,
and this is the technical way of doing this is it's called
the click stream.
Look at your are best customers
and try to get your engineers
to log the activity stream by date.
And so you go in the database, again,
I'm getting super nerdy, but that's my background.
Think of like all the objects that they created and did.
So search, created a thing, did a thing, whatever,
sequence those in a timeline,
and then look at your top customers and look at like,
what are the milestones that they executed
over that first experience, over the first week,
over the first 30 days,
and look at what's common amongst all of them.
And then what you do is you front load that experience
for every new customer.
And that's the game plan
that you give your customer success managers,
or your onboarding people to execute with every new account.
It's like every new account has to,
and you can make it a name, like seven steps to success.
And every new account has to have seven steps.
You have a dashboard.
How many customers have done those seven steps?
The time to first values part of that.
But it just also says like profile completion,
did they connect their accounts?
Did they upload this, did they do that?
And then you can hold them accountable to an outcome.
Does that make sense?
- [Micheal] Yeah, love it,
that's awesome. - Awesome,
well, Michael, as we kind of land the plane and wrap up,
what's been the two or three things as resonated
the most with you that you feel
is gonna have the biggest impact?
- Yeah, so the two things really come to mind are just like
understanding better how to present the idea
of having my customers finance our roadmap.
I mean, that's just.
- Even the way you said that, sounds so clean, right?
- Yeah, I mean, it's clicking,
and we've really struggled with fundraising.
So this is huge.
I'm meeting with our biggest customer tomorrow about this.
So it's very timely.
And the other thing is just like the click stream,
understanding how to look from a data perspective
back at what our most best users are doing
in order to identify what are those things of value
that brings success.
So I'm gonna have the team looking at that right away.
- Bring those back.
Bring 'em forward in the product.
- [Michael] Start with the end in mind, so.
- Yeah, that shapes the onboarding.
- [Michael] Yep love it. - Awesome,
Michael, super fun conversation.
I love this stuff obviously,
and I'm really excited to hear how things progress.
So I hope you have amazing rest of the day, we'll talk soon.
- Yep, take care.
- (indistinct)
(upbeat music)