How does customer retention drive a higher M&A valuation?

The first time I ever tried to raise capital, I definitely got face punched by most of the investors that I was pitching. What were the essential pieces of the business that you worked on that led it to being so valuable and having that eight exits, raised over 100 million and has 200 million in exits. The thing that I have found that makes acquisitions a lot easier is we all want to overpromise and overd deliver, but just being honest and say we'll guarantee 100% success no matter what. It's like that's a dangerous game to play. If you have any intention to ever raise money, to ever sell your company, this is something that you want to pay very close attention to forever. Welcome back to Fundraising Demystified. Today I'm excited to have Travis Stefen on the show, a serial founder to the point of eight exits, has raised over $und00 million, and has transacted in M&A over $200 million. Um, Travis, you have an incredible track record, and you're currently running uh to help founders and turn. Welcome to the show. Thank you for having me. Super excited to kick this off. Yeah, you're a very modest man, you know, with eight exits behind you. I always like to think that my like four exits woo, but like completely, you know, uh humbled uh by by your track record. And yeah, I think it would be great for for people to understand a little bit more about kind of what makes you tick, you know, just like what makes you this just nonstop must build, must grow, must exit, you know, founder. I would love to say it's something really PR friendly um and and inspirational to people. Um it is very much a compulsion at this point. Like I just there are some certain things I just have to see exist. Um, and I've I've learned enough about myself at this point in my career to know that I thrive playing multiplayer games, so to speak. Um, I'm not a solo founder. Uh, I've I've tried it before. My outcomes have no been nowhere near as as good. Um, I thrive in like a a complimentary atmosphere with with great co-founders. Um, and that allows me to satiate my desire for novelty from a career perspective. Uh, I love digging into nuanced, diverse problem sets. I love puzzles. And and that's kind of when you think about a startup, it is really you're trying to almost put together a puzzle of wet spaghetti noodles, right? And it's it is the the most fun, most complicated type of puzzle ever. This manifests itself in other weird areas of my life. Like my wife and friends will get me some of those puzzles, actual like jigsaw puzzles that are just a single color and or something like that or just like Yeah. Just something like that. And and they'll just like let me loose on it and um I'll totally nerd out and have fun and you'll fall for the trap. You'll do it. Yeah. Oh yeah. Yeah. And honestly, it is like such a maybe a primitive way to explain startup land to folks who who don't know. and um you know the consequences of not getting rate it right or higher but for me I would say there are just opportunities that I'll see it's a blessing and a curse of people who know that they are able to build things to to have enough discipline to say no is definitely something I have continually struggled with um until I have a couple different projects going at which time it is very easy to say no to new things um if I only have one that's where I get myself in trouble because I'll usually try to systemize the crap out of that business so much that I will have a lot of free time while the business is performing and I'll think to myself, all right, time for something else. So, usually on average, I'll try to start like um one new thing a year. Uh and I am ruthless with experimentation and I try to shut things down the second I don't think that they can be what I thought. Um and occasionally that comes in the form of kind of like a mild to moderate exit. my early in my career, you know, there were certain things that I they were successful businesses. They could have been good little businesses for a long time, but just didn't necessarily click with what I wanted them to be and the larger vision that I had for them. And that, you know, early on, uh, maybe about a decade plus ago would be a signal for me that, okay, let's see if we can find a buyer and start fresh. Um, and, you know, that's that's what fueled probably the first four of of them. See, okay, you said something there that I want to call out for founders. This idea of start fresh. I work with so many founders that, you know, million to five million in revenue or it's kind of been there for a while. They haven't really crack the code to kind of break out and you can just look in their eyes like you look tired. You know, it's like you you've been at this for a while. Like, but they have some, you know, they got to they got to make it to the next thing. and they got to, you know, they just pride themselves so much on that business when reality of like the selling the business having some kind of outcome might not be the greatest, might not be maximized, but it frees your time to go pursue another opportunity. And at what point are you losing value by not building something of, you know, new value as opposed to trying to keep the same thing going? Like, you know, is the business going to be worth more doing what you're doing in two years or three years or is it going to be worth the same it is today? And we just think about, you know, inflation, like you're technically losing money if you're not materially growing the business or 100%. And you're battling with this this idea that has been planted in everyone's head since they're a able to make memories. And it's this like stock recycled motivational quote that's like never ever quit ever. Everything that you want is is is right on the other edge of not quitting. And because of that, and it's just like the most tired, recycled advice of all time. And you hear a lot in athletics, athletes don't have the opportunity to pivot, right? Like this is what they they're doing. So they think it's great advice and it probably is for other professional athletes. But those those words of wisdom don't always apply in the same way in uh really robust multivaried equation of building pistases. And there is absolutely something to be said for setting the boundaries of what a successful and failed experiment look like because early on every startup is an experiment. It's an evolving hypothesis. If you don't know what your constraints are and you don't know what your definitions of success and failure are, you're going to burn years of your life trying to just drag this thing kicking and screaming to the point where you're at least just even making a reasonable income. And the stress that you incur in that process is insane. Like there is there might be one or two more stressful jobs in the world than than being a startup founder. Um I don't want to do those jobs, whatever those are. But I would say that a really good seasoned founder knows when to a quit at something, but b not label it as that. uh because it is a little bit of an ego bruise to say that or to label yourself as a quitter in some way, but there are I can't count the number of failed experiments I've had in in my career. It's it's a lot. Um there yes, there have been eight exits. There have been a lot more that have not done anything. Uh and when you find something that actually clicks with the market in a variety of ways, we talk about oftentimes we'll talk about um in in the startup world I talk about product market fit a lot. Um, I like to think of it as as actually like five fits. Market, model, channel, product, and message. And they all have to birectionally fit together with one another for you to have the ability to scale at the rate that you should. And you really know when you've clicked into some sort of solid fit. It just is a very different thing than any other thing that you might start that is a failed experiment. If you have to ask yourself if this experiment is succeeding or failing, it's probably not succeeding in the the way that you want. So, um being able to collect those as quickly as possible, like Zuckerberg is famous for just ruthlessly cutting failed experiments as quickly as possible. Um and that's one of one of the few things that founders can look to him for these days is is just that still remains. I think it's a valuable lesson and it's one of those things that I I fall prey to sometimes where I'm like all right we're going to try this and it's like didn't really hit the goals that I want maybe try again like try another time try another time like wait why am I doing this again is this the right thing does this add material value to this business anymore like how much time how much money did I lose chasing this thing that should have never started in the first place but then could have been killed at any point in time um so speaking of killing things let's talk about the silent killer of businesses and that is churn. You know that's that's a word you've used before in calling churn the silent killer. Yeah. Let's define churn because it's funny like when I talk to business AR is this or this is that and you know our stats are this and I was like okay what's your turn like yep it's a little complicated. Yep. You know they never know the real answer. So walk us through what is churn. It is. I'll say it's uh it's the most important by far the most important growth metric mathematically speaking as it relates to uh recurring revenue business of any kind. Um it is often one of those stats that is neglected because it's tricky to understand. Unlike customer acquisition which is very cut and dried u churn is a wildly multivariate puzzle and there are never there's never just one reason for churn. There are occasionally moments that are mass churn events something where you have an outage or there's some really poor decision or a significant disruption to your business model. I mean, we just saw this with uh Cheg and with Stack Overflow. Beloved companies for many years got disrupted by AI, lost 90% of their market share in a year, right? And it was nothing to do with what they were doing or not doing. It was just this is a new business that completely took the value that they were offering for years. Um, and that's one reason, but there are dozens and dozens and dozens of others. And most people will measure churn as a lagging indicator. I mean it is right. It's the result of what a number of other factors you know how they impact the business dayto day. Voluntary churn means people are are leaving of their own valition. They decide to leave. Involuntary means people don't necessarily decide to leave but maybe their business shut down. Maybe their payments failed. um something along those lines where you you're not going to provide service to them anymore because they're not exchanging value with you. Uh and there are many many reasons why either of those things happen. Um and the understanding of what is healthy and unhealthy churn is also important because it really uh it comes down to one stat that isn't often heavily talked about in the startup world, which is carrying capacity. Mathematically speaking, you're going to have a certain velocity of acquisition and you're going to have a certain velocity of churn, right? The inflow and outflow of customers for every single business. There is going to be a moment in time where that particular company unless unless something changes has reached a a carrying capacity, which means you are flat. No matter how many users you pour in that day, you're going to bleed out the same number of users. Um, and if you don't know what that number is, and it's actually really easy to calculate, um, if you don't know what that number is, you're in danger because you might have a really great month the the month prior and then you hit that mathematical carrying capacity and you're flat. Nothing has changed. Performance is still exactly where it was, but you've ignored this churn stat for far too long. Um, so you know, one of the reasons that I we would call it the silent killer is there are probably 10 times more solutions out there and more people creating content around customer acquisition in contrast to customer retention. I would argue that customer retention is 10 times more important than customer acquisition. It's also cheaper to to have occur, right? Um, so you know, at the end of the day, uh, if you have an overemphasis on acquisition metrics, oftentimes it's because all the content you're consuming in your world is based on that. Um, there's also, you know, delayed visibility because it is a lagging indicator. You want to find a leading indicator of churn for you. Oftent times that is customer engagement. If they're actually actively getting value out of the product um, in real time, they're going to be less of churn risk in comparison. um the misinterpretation of of growth uh signals as well. If you don't have like cohort analysis in place, if you don't have the ability to actually slice and dice your data so you can tell why things are happening, you're just kind of monitoring them from afar. It's it's almost like you're watching a movie and you have no impact on it whatsoever. It's just something that you see and then you go back to doing what you do every day and just focusing on acquisition. Um, so those are a couple of the things that come to mind, but um, you know, when you hear like for example a SAS founder who reports their churn on a monthly basis and they might say something like, "Oh, well we're turning you know 10% a month or something like that." No big deal. Very big deal. Massive deal. Like if you annualize that, it's insane how much you're pouring out the other end and you will not you're going to you you're probably already at your carrying capacity or almost uh, you know, at some point. So well that's basically turning every customer every year or you know like less than a year. Yeah, pretty much. That's that's painful. That defeats the whole purpose of a SAS model. Indeed it does. Years. Um so I appreciate the the education just like exposing founders to how they need to be thinking about you know churn and and what it could do to their business. what made you aware of turning your own career and your own businesses uh to to have this level of understanding to where it is now? The first time I ever tried to raise capital, uh, I definitely got face punched by most of the investors that I was pitching, um, and it was all around our retention rate at the time. And we actually didn't end up raising for that business because retention was not it was not going to support a venture model. So, we actually had to figure out how we were going to bootstrap it. potentially, you know, sold the business maybe a year later uh to a company who had solved that problem and wanted our customer base. Uh so, you know, through that lens, just realizing how critically important that was. Um I did a little bit more research at the time realized, you know, everywhere throughout uh tech, you know, big tech, you know, midsize companies, etc., the ones with the better retention rates had a way higher valuation across the board. and it might have been almost the exact same company. It just had a a better system for keeping customers for longer. Um, those stats are paid heavy attention to by the investing world, by the M&A world, etc. So, if you have any intention to ever raise money, to ever sell your company, this is something that you want to pay very close attention to forever. It should be at the forefront of your mind. Let's unpack this. Let's try to capture the the value understanding of what this meant for your business. So you try to raise money. Do you remember how much you try to raise or what valuation you're trying to raise at? Yeah, at the time I was running a business called Upshare. I was uh it was probably about 10 maybe 12 years ago and we were a um platform for online media companies to uh build some sense of collaborative virality into their products. So what I mean by that is is essentially we would incentivize the act of uh their ICP sharing content across social media that they had created um with the thesis that you know those companies would get exposed more often to ICP you know uh clients that that fit uh their you know media brand and they you know just wanted to make sure that they were able to give a boost and um the people sharing ing would get points like tokens essentially for real rewards in our reward store. So it was like this fun little loop and it worked but the companies that we were acquiring were small media companies and you know anytime there was a bill uh that they had to pay if they hadn't cracked the code on their own monetization which most had not at that time. Um they were just scratching and clawing through ads to to get some traffic and and so forth. um they were turnurning like crazy and now we were acquiring a lot of of uh customers. I think we probably acquired like 250,000 customers with the first three four months um just being live on some of the the integration stores for the media company CMS's but we we could not figure out a way to keep them in mass. We were getting so many in through organic sources that we couldn't control. Uh so we didn't have the ability to be really precise in who we were acquiring. Uh so we're just onboarding everyone with a pulse that found us and a lot of people found us and then most of them would leave. Uh so when I think I went out to try to raise something small. I think we were trying to raise like 1.5 or or something along those lines and it was just like my first ever round. Um I did not know what I was doing at all. And um we just would not we could not get past the first couple questions about retention because we would share the the stat and they're like this is just not going to fit with our model. I'm sorry. like a really cool idea, but it's not going to work. And they were right. I didn't understand why. I just kept thinking to myself, this is not as big of a deal as they're making it. They don't understand. These are just money guys, right? They don't get it. Uh and eventually I kind of had to go through and realize exactly why by getting, you know, getting to our own carrying capacity that then suddenly, okay, we had to figure out a way to acquire more customers. Because at that point, the analogy I would make is we were sitting in a boat in the middle of the ocean and we're bailing out water. If we would have stopped long enough to plug the leak, the boat would have sunk. And that is the story of so many founders, right, who who neglect this sort of thing until it's too late. So that got me interested in the space. I mean, it took me years to to create something that attacked the problem specifically. Um, but you know, once I did, it definitely hit home and and felt like one of the more important things that I had worked on. That's a powerful visual because like I imagine every founder thinks they can do it all, bail out the water and fix the league, but it's a pretty powerful thing. It was like no, we would have sunk. Yeah, that was inevitable. Um, that's a powerful visual. And you know, when you when you end up selling that company, you was it was there a financial outcome? Was at least something there or did it basically? So I guess from like the position of you know realizing that you have this major problem like had you had that solved like what would have been the value of the company potentially? Uh the value would have been far higher I would say. It's hard to say exactly what it would have been but the the outcome was decent just because it was bootstrapped. Um had we raised capital it would have been not a good situation. Um, so you know, that's that's what I would say there. Um, but because it was bootstrapped, like there were there were a few bucks, you know, after paying out the team and whatnot that that I was able to use to build the next thing. Um, and that one's a whole another story for sure. But, uh, um, I would say though that, um, you know, it was the the moment where I mean, every single time I've sold one of these, I will say, Jason, that like maybe you have have had this experience too. every single time, even as recently as a couple years ago, um I would say next time I'm gonna do it right. Next time I'm gonna use all these lessons that I've learned this time and I'm going to do it right. And um and every time I definitely have grand aspirations of doing it right, but right changes so quickly, right, in in every one of these companies that like it's a completely new ecosystem. It's a and you know if you get hit with a non-compete which I always almost always have uh coming out of an exit like you got to go reapply the playbook to a different industry and there are always different nuances that are in place there. So um yeah it's been it's been a a weird and exciting journey in that way. I could tell. Yeah, I know. It's I won't do that again. But then you're just brought either you do it again and or you bring a whole new set of problems that you have to, you know, the playbook doesn't work anymore. Uh and time like what what's changed with AI versus what we had before. It's like whatever playbook you had before is almost irrelevant now, which is, you know, scary uh going into to next venture for for people that didn't build in the AI world and now want to. Um, so you could tell like you know the reason why I wanted you on the show was to talk about you know the churn and you you've seen so many businesses and you built so many and you've turned around so many like give us another example. It's like you kind of work you know like this was like the really bad one. Churn was the killer and you know you didn't have as material of an exit as you could have had you not had that problem. like what's another example of one of your businesses where you focused on churn and what was kind of the material outcome of your business due to your efforts focusing on churn? Yeah, I mean there's one just as recently as last year uh that I ended up shutting down because this was too much of an issue and it's not because we didn't know about retention at that point. It's just a it's a puzzle that is difficult to solve in your head. You have to apply it in real life and see how buyer psychology factors into everything. Uh and what I wanted to do with this company um the company was called growth team. We wanted to build an AI growth leader like we wanted to build you know Sean Ellis or Brian Balffor uh and we wanted to kind of allow founders to benefit from you know very deep frameworks that would uh enable them to grow their company faster. What we found is the market wasn't craving that as much as I expected the market to crave it. Um we we did some customer discovery and the thing is with uh customer discovery like people are going to tell you certain things that they logically believe are true but when it comes time to actually taking those actions in their business different factors take over. So like you may know for let's just use a completely different analogy like you may know that um your company needs HR, right? Um but it is a can that you kick so far down the road that you almost wait until you're on fire uh until you solve that problem. And and that's the case for a number of different problems because people are very focused on acquisition, right? And we had cracked the code on acquisition. But what we found is every single one of the founders that we worked with were so unique and their companies were such uh like I mean the problem sets that they were experiencing were not standardized enough to create a mass market solution that was actually effective. We could create the mass market solution. Maybe it was, you know, mildly beneficial, but it wasn't anything close to what you would find from a full-time growth lead who was living and breathing your problem and that's it. Uh, so it was a a cool idea, but we could not keep customers longer than about 90 to to 120 days or so. uh because at that moment in time that's where you really need to get I mean and we ended up keeping you know a few dozen customers because that was the bandwidth that we were able to deploy um as humans into those businesses. So it was like a nice cash flowing business but it was just not what I set out to create. Uh I wanted to create something that would definitely rock the startup ecosystem and uh it just wasn't that. So inevitably um I elected to just shut that one down. uh we hadn't had retention cracked on it. And this is 20 years into my career, right? This is one of those things that I I know like the back of my hands, but it is such a a tricky puzzle these days. And and um I think companies are experiencing it more and more these days because we're in we're in the era of don't make me work. We're very used to AI like a lot of people are used to AI doing a lot of the actual labor for them. Um, so like for example, self-s served SAS is going to be less valuable moving forward, even if it works really well because if it's a little bit laborious, a lot of founders are going to ask themselves, how can I automate this with AI? You know, how do I not have to do any of this with AI? Um, now, first and foremost, I disagree with that mantra quite a bit because I do think that while most people are are living that life, those who deploy actual human intelligence on problems are are going to win. Uh, but it is really the the almost unanimous tenor of the market right now and you see it on LinkedIn where everyone is getting engagement on the here's an AI agent I built that will clone Airbnb or whatever. Well, would you clone their user base? Yeah, exactly. You get the Do you get the Axel assets? Like that's the not a website. Exactly. like you and it was it's like build as this groundbreaking thing and like okay realistically could I create a two-sided marketplace just with code with no users. Um I could have done that before AI for a couple grand you know with with some freelancers. It's not a hard puzzle. The hard thing is acquiring customers and keeping them. So um you know no you're not going to clone Airbnb with AI. Uh but it is like that behavioral psychology is valid. That's what you're battling against right now. Um, and so if you don't have an answer for that, the solutions that worked three, four years ago are not going to work today. Yeah, I completely agree and I'm actually in a very similar boat myself. Like we looked at building an end toend AI for kind of the investment banking side for founders and we just looked at I was like at the end of the day it's like would they really trust a bot with the most important you know transaction of their you know their career of their life like no way. It's like it's helpful, but like at the end of the day, it's like, you know, do you really trust the results? Do you really trust? It's just like and the effort to make it, yeah, you know, beyond 90% accurate. Like it's 80%'s easy, but that, you know, 20%, you know, it's like that can be pretty bad if you're if you're off on that 20%. Um, you know, so I'm very much still like AI can make us more efficient, but you can't really take the human out of at least in my world deal making, you know, when it comes to like doing deals. It's still human to human. It's not an AI's cash going to an AI's, you know, business. It's a human human's cash going into a human's business, right? AI just helps us maybe sort out some of the details faster. Definitely. And I I think um and I think you are seeing a lot of times uh founders, you probably see it every day, founders are creating whole decks and doing research and it's not actually them. They might not even know their numbers. They're just putting what they think they need to put on a deck to look impressive. And uh there might be some suckers out there. I don't want to like say that uh uh there there aren't uh but most investors who are legit uh fund managers are going to see through that on day one like moment one right the second you have the first conversation. Um that that's that sort of work is not going to lead to the success that you want it to. Um but for some reason I mean I'm not sure why uh people are definitely allergic to to the work that makes them the money. So that's that's going to be a vote. Yeah. No one wants to work hard for the money. Everyone wants it easy. And yeah, there are, you know, you hear the stories occasionally, people doing it, but the end of the day, it's like they make it look easy after they did all the hard work. Yes. Yeah. We just, for example, we just uh we closed a round on Friday for one of my companies. Um we closed about like a a $15 million round that'll be announced on Tuesday. And um I mean, we were working on it for nine months. you know, we had a false start at the one yard line before Christmas and like I've been through this process dozens of times at this point and um like it still happens like that. Even if you have a really great business um it's just going to take some time to get the legit partners that you want and it it is a lot of hard work and there's very little that AI can do to help you in that way. Yeah. It's not going to negotiate with your board or your your investors or you know it's like might help you do a little bit of market research and you know kind of look up some competitor details but yeah it's a really good intern I would say that's what I I tell all my team it's like treat AI as if it's like a very engaged responds instantly intern is available 247 that's like you know use them for that you know use AI for that and it's you your expectations are managed and it's very helpful but you always have to check it in terms work. You can't just be like, "There it is, all done." Yeah, definitely. Um, so very much on uh in line with the human element. As much as AI is critical, it's going to be amazing. It's awesome, but you know, at this point, still human relationships, I think, will be even more valuable in the age of um than they were in the past. You're likely having trouble raising money or selling your company. Personally, I've had four exits and I've raised over $145 million. If you want a free coaching session with me, just like, subscribe, and leave a comment down below letting me know what you think of today's video. For a chance to win a free coaching session with me, I'll select three winners every single month. You just have to like, subscribe, and leave a comment down below for a chance to win. Now, on to the video. So, let's let's go back. Um, you know, we've been talking about, you know, turn creating, you know, value in businesses and you you mentioned Glowflow before we kind of got the show started. Um, you sold that for around 70 million. Um, you know, what were kind of the essential pieces of the business that you worked on that led it to being so valuable and and having that exit? Grow was I would say it was a really interesting situation. So, that was a turnaround. I've done a couple turnarounds my career. Uh most of my exits have been as a founder, but there have been a couple that I've been brought in early on by the board um or even by the founder who just was out over their skis. Uh at like in this one, it was actually the founder who who brought me in to play the CEO role early on. Uh and we took that one from uh very very low revenue to just shy of 10 million a year uh in about three years. And the thing that I have found that makes acquisitions a lot easier is predictability. Um we were able to create a very predictable forecastable um you know business where we knew exactly what growth we're looking at 60 90 days down the line. Uh we knew exact like we knew all of our numbers very very well. And when I first came in what I found was the product was behind it was behind other competitors. And I knew that like in that at that point in time the company hadn't really raised any money. Um all the competitors had raised a lot of money but the company was still somehow starting to to build a little bit of early momentum and I started to investigate and realized that the biggest gap that a lot of the competitors had was support. And I said to myself, all right, well this is where we'll win. We're going to be the most helpful company in the industry. And we applied that mantra to almost every decision that we made internally. Um we would say like if we had some sort of an argument about something uh like what we wanted to do, what would the most helpful company in the industry do? And the answer was clear as a as a bell every single time. And one of the ways that that manifested itself was we would actually hire former operators. The customers that we served were licensed US cannabis companies. For example, we were doing compliance, inventory management, point of sale, analytics, and sales tools for licensed US cannabis uh companies at almost every stage in supply chain. And we had products for all of them. But there it was such a complex landscape. The legality stateto state is so wildly different. What lensure can get you uh changes at different steps of the supply chain depending on the state. there's very little to zero interstate commerce and there's often a lack of enforcement on uh some of the the legal elements in in that industry. So, and we we found that uh about you know 40% of of uh you know the larger cannabis companies that we uh served were owned by private equity. the other 40% were uh former black market operators and then the other 20% was somewhere in the middle. So you had a very very very different skill set depending on who actually owned or was operating the business because of that. You know people had a really hard time navigating exactly what they had to do every day. Uh and the government tools that you were mandated to report into were uh they they sold to the government. They did not sell to operators. they had no incentive to make it a good customer experience. So we actually acted as a platform as a service over top of all those and um you could do illegal things on the government platforms oddly enough. Uh so we would prevent you from being able to do those on on our platform. But what we also then did is we ensured that former operators who had played the role of our customer in their business or in a business that they worked for served as their support reps. and that one thing because they could speak the language, they knew the lingo, they knew, they empathized with the problems that the customers were experiencing. I mean, we had we had customer support team members getting invited to customers weddings. We had uh like they built really solid relationships with hundreds and hundreds and hundreds of operators in the industry. And that one thing I would say made our customer retention well well uh in the the top spot across the board. Um so we probably raised maybe 20% of what our average competitor raised and um and we did probably two to three times as much revenue. Uh and it was just I would attribute it almost exclusively to that one thing. I mean we did end up hiring a lot of really great senior engineers. Um, we had really great leadership. We had an amazing company culture, but that one thing I think was the core differentiator that plugged the leaks. No, that's amazing. That's a very good example. And and look at the material value. You $70 million exit. Not too bad. Um, and coming into, you know, kind of that turnaround situation and being able to leverage your expertise to to do that. Um, versus ask how do you find the time? But, you know, that's another question for another day. Um, so let's let's talk a little bit about you. We talked about kind of your background. You you've been there. You've done that pretty much across the gamut of everything you can see, but you still see new stuff. And now you've launched Revato, which is out there to kind of help reoccurring businesses, you know, reoccurring SAS businesses end the churn or reduce churn. Uh tell founders a little bit more about what Rav is and and why they, you know, like full plug like it's worth listening to. This is, you know, pretty killer what uh what you have built and you know, tell tell founders about it. So, um I started working on Revado with a business partner Jordan um who who kind of started a little experiment on the side as uh I was helping him uh navigate and exit for his prior company. And um I saw a Slack channel that he had set up uh that just was was showing different transactions that were occurring. I saw them I was like this is very indicative of early product market fit. Um, I was considering starting something new at the time, uh, and was playing around with a couple ideas and just started to dig in with him a little bit and we just played around with the idea of of co-founding something together. And so we started to craft the vision of what type of company we wanted to start and and what I say that it's like what if we were buying a piece of software or we're buying into a service of some way as as operators, like what would we want that to look like in a perfect world? what is like a no-brainer? Yes. And the first thing two things that came to mind were um I don't want to actually do any of the labor to set or to learn a brand new um piece of software. I'm already busy as hell. I want something to be as hands-off as possible and I only want to pay for outcomes driven. Those two things were like kind of the guiding principles for us. So we started to think to ourselves, what is uh an underserved critical category that could make for a really great business, but also drive really, really, really great outcomes for customers based on the fact that maybe this is a problem that is impacting them significantly, but they, you know, hadn't been focused on. We knew it wasn't going to be in go to market motions at all. Uh because everyone in the world is focused on sales and marketing. So we started to think, okay, what else could we leverage here? Do we want to focus on activation? Do we want to focus on monetization, pricing? What about retention? And so we just kept coming back to retention. And we knew that there were a couple solutions in the industry that, you know, I think uh Patrick Campbell sold profit well the paddle for 200 million bucks a couple years prior. It's very simple solution. Uh but they did a great job psychologically speaking with some of their offerings. And so we looked at at some of those uh types of companies and I I actually called maybe two dozen companies that approached retention in different ways at different uh you know different segments uh and found you know across the board that no one was really doing what we had envisioned. Um so we said all right the the business that we want to build is we want to you know offer a done for you service um you know leveraged with a high amount of technology um AI to some degree but not not customerf facing um but human intelligence and we want to keep customers like we want to keep your customers for you we want to prevent them from leaving we want to win them back after they have left and we just want to take a commission on the wind. So, we're going to take uh I think we we started with um like where we are now is we're it's a 20% commission on customers that we keep for you, the MR of that customer in the month that we save them and next month it's all yours again. If we don't drive outcomes, we don't get paid. So, we're heavily incentivized to make it be the best-in-class solution that you know for a fact you cannot replace yourself and build on your own. Um over the course of time we were able to probably about it took about six months to experiment with something that actually drove enough outcomes to build a business around and then we've just iterated on it every single week since then. So since we went to market with it uh about a year ago, we and maybe just a little over a year ago now, I think we started in like April, May of 24, we actually started to go out to the market with it and try it for a couple companies and it started to work really well for for a handful of companies and we said to ourselves, all right, like let's actually build a business around this. And we did we elected not to raise this company is going to be bootstrapped end to end. Um, and what we found was just human relationships in the same way that we built them at GrowFlow are where, you know, the business actually um does incredibly well because we're in Slack with every single customer. We're sharing data in real time, but they're they're able to be um editors, not authors of everything. You know, clients will. and we're tackling a a problem that they they know is a problem, but they have absolutely no idea where to start outside of just improving their product. And even when that uh piece is in the equation, like we have to have a better product, what does that mean exactly for who, where, in what way? Um most founders just get so stuck in becoming a feature factory, they might just put little mild improvements around something that's already not working. uh and they're not taking big enough swings to actually answer the reason for their customers leaving. Um that was one of the things that we wanted to do like let's create decision intelligence here where you actually know exactly why everyone's leaving and what to do about it. Um any of the other involuntary turn we completely handle hands off for you. Um when it comes time to gathering information about why people leave, we do that as well and then we try to keep them. uh we go back and survey your customers that you had cancelled months ago. Um and like we will we will survey them and get to the get to the truth and we will have to offer them a little bit of incentive for their time, but um you're actually going to get the real truth and and what you need to do to improve. So, at the end of the day, essentially what the offer is at RVAT is um it is hands-off uh done for you performance-based retention for subscription based and recurring revenue businesses. Um our lowest customer, I think they have an $8 a month subscription. Our highest one is like six to seven grand a month. Um, as long as you have subscriptions, uh, as long as you have a reasonable customer base and, uh, you know, you have a churn problem, basically, we are an eat what you kill shop. So, we use te technology behind the scenes like we have a full software platform, but you never really have to use or see it at all. Um, we will send you data. Uh, you can be as involved as you would like to be on that front and then you get a Slack channel with us. Uh, so we're actually sharing edge cases for you in real time. We just actually had a company that was referred into us by an investment bank partner that we have um that was they were going through a sale and they thought they had 65% churn and uh we're looking at it and we're like something doesn't look right here and we just found through their payment processing uh configuration which is one of our first steps in onboarding they were double counting their churn. Oh wow. And they were going to the market with with that stat. Um, and yes, we deployed our services and and all of our products on every type of churn that they could they could think of, and it it, you know, it's working quite well, but within two weeks, we sliced off $100,000 worth of churn for them just because of the the, you know, incorrect setup. Now, this is this particular company is an outlier because it's one of those uh one-man shows where they're doing maybe, you know, several hundred grand a month and it's just one dude vibe coding stuff in his dorm room. Um, and it's a a really really cool uh, you know, situation M&A process in an M&A process. Uh, he's he's going to get bought, especially now. Um, he's going to get bought, but it like he would never this we're talking millions in lost value had he not come to us just because of that one issue. He would never have found it himself. Yeah. Um, so her father would be very happy. Yes. Exactly. Exactly. So at least you got the value. Yeah, totally. Uh but it is another reason why, you know, people come to us is because they just don't know where to start. Honestly, when you told me about this, you know, a couple weeks ago, I just like this has to exist and everyone has to know about it because one, it's like one of those like drop deadad amazing offers that are just like take it, you know? It's like if anyone out there has any level of turn, doesn't even know their turn, you know, definitely got to reach out to you guys and have this conversation to figure out, you know, what could be material. Like we had business, same problem. Uh taking them through an M&A process, you know, good business. They were close like they were marking like 70% 75% churn. And we had a very similar issue. It's like, well, why are they turnurning? And then we dug in, they were double counting some churns. The actual turn was closer to like 86, you know, percent. So it was actually better than what we thought. Yeah. Um they were basically double counting some things and and then you know we looked at what the core issue was and it's like okay it's literally just like helping them they're leaving a particular platform but they can go with them and know they didn't know and you know now that's where they're putting all their attention is you know making it very clear to these you know customers that they can go to this other platform with them uh and and building out the the processes to do so. And yeah, it makes a material outcome for for the business. You know, the the valuation of a business in an M&A process plummets if churn falls below like 90%. It depends on the business and revenue size, but like you know, it falls below 90%. You know, it it will honestly kill a deal. Like uh private equity in particular, they'll just say no, it'll pass because it doesn't have a certain turn uh ratio. So it's just, you know, as a as you think about the value of your business and what it could or could not be. You know, churn is one of the, as you mentioned with investors and everyone else, it's one of the first things people bring up. It was like, oh, we're doing 2 million, 4 million, 5 million AR, blah blah blah blah blah. It's all great. You know, it's like, okay, well, what's your turn? Oo, you know, like it could just like kill the mood real fast. So if you don't know it or if it's bad. Um, always open founders like kind of dodge. They're always like, "Well, you know, it's like a little over here, a little over there." Yeah. Right. It's fine. Yeah. It's no It's no big deal, right? Yeah. Yeah. Like, what's the number? Well, you know, you don't actually ever bring it up. Yeah. Let me check. Uh, I'll get back to you. Let me get back to you on that report. Goes back just what the hell do we What do we say? It's going to be a disaster. Yes. How do we put lipstick on this pig? Exactly. Exactly. Um, so you know, for for anyone that's listening and they want to take advantage, you know, what's going to be the best way for them to to reach out and learn more? And I think you also you mentioned you had an offer for for listeners if they want to take advantage. Yeah, we do. I mean, if you want automated uh customer retention for your subscription based business um and let's say you don't believe uh what I'm saying here that we can substantially help you uh within the first month. you know, we so far we have never turned a single client of our own. Not not a single one. Um and um you know, essentially we we do that on our end because we only charge for outcomes, right? So like if you start with us, if you uh on board, which takes about 15 minutes, um reach out at ravado revat.com um and just schedule a demo. Typically, you're going to talk with my co-founder Jordan. Um, and he's going to show you the entire system. We're going to walk you through it soup to nuts. Uh, if it makes sense for you to try it, you know, we'll onboard you in about 15 minutes. We'll get you in a shared Slack channel. Uh, we're going to share you data in real time if you have any u interest in seeing how the sausage is made. We're very transparent in that way for for clients. Um, but you know, we will offer you $1,000 in free recoveries. So that like at the end of that 30 days, for example, one of the things that we also say is if we haven't crushed your existing system for keeping customers, if we haven't not just beat it, but like destroyed it, uh, and that what that what that threshold is is up to you. U, we can shut it off. We won't pay or we won't bill you anything at no commission whatsoever. We'll shut it off. You go back to doing what you were doing. No harm, no foul. Um, if you do stick around with us and you listen to this show, um, you know, just say that in the interview. we will give you a thousand bucks in free recoveries. Uh, you know, meaning there's zero commission on any of those. That's just money in your pocket that you would not have otherwise had. These are clients that would have left and we're we're keeping them and then we're just taking a 20% commission on that one month's MR. The next month it's all yours. Yeah. So, you know, at the end of the day there there would be no reason to leave if you're a client of ours. Um, you can see evidence of what we've done for some of our clients, by the way, at just revado.com/proof. Um, you'll see what recovery rates have been uh from a chair and prevention perspective. There's videos from every single one of them that will tell you what their experience uh has been. We try not to proactively introduce you to to clients to try to not bother them too much, but you can reach out to them and they will talk about it. Um, you know, if assuming they respond. So uh but we have SAS, we have AI, we have bisops, we have um education, uh we have lending, like anything that has recurring revenue. It doesn't have to be subscription, even if it's just payment plans. Um that is something that we also help with as well. Uh making sure that everyone is on track and on schedule. Um, and then if you have any questions about your your payment processing setup, um, we do that eval before we onboard you and we're going to tell you exactly what your low hanging fruit is there because that is a source of some of it, um, that that you do need to know about for sure. No, it's phenomenal offer. We'll make sure to put that all in the show notes and uh you know we'll be probably collaborating on multiple things to help founders take advantage of this just because it it is probably one of the highest value ad things that a founder could you know focus on and they're not having to pay you 10 20 30 grand up front to hope it works you know it's like or to do it all yourself right like here here are some tools that maybe you can use to do it all yourself it's such a hard problem to solve like my previous businesses and like trying to solve it's just like especially if it's small tickets it's just like so hard to like justify by the time to figure it all out and put all the resources in. You really need a team and that's basically what you guys are doing. So, I think it's uh amazing work that you're providing to the ecosystem. I really hope you this business continues to thrive and crush it because a major player uh just because it will materially change value uh of the industry. So, Travis, it's been absolute pleasure having you on the show. Uh any final words for for our audience before we we part ways here? Yeah, I mean I'm sure we'll have to do a a followup and in digging into some like fundraising stories and exit stories. I know that's why a lot of people come to you and I do have many uh harrowing tales to regail the the listeners uh on. So happy to happy to do it again. But I would say um you know final words of advice, treat churn like a product. Assign it an owner instrument it with KPIs. Experiment against it. you know, founders are often going to think that it's something that they're going to fix later. Um, but it is actually one of the highest lever like it's it's the the most profound point of leverage you have in your business. Um, even a small improvement compounds so dramatically. Uh, so I would say build the habit of asking why are people leaving? When they do leave, what can we do about it? Can we save them? Um, can we, you know, pay them to give us the real truth in terms of why they have left and can we assign sessions to our team to determine exactly how we can preempt this sort of feeling in the future? And so much of is it is down to behavioral psychology. Can we preempt this feeling that they're having in the future in some way so that it's not ever something that they even consider? Um, one thing we found is is there are a lot of founders out there who actually, you know, for better, for worse, lie to customers about the outcomes they're going to get from their product. Like maybe if the there's a a perfect situation where, you know, people will say results not typical is the the thing that you kind of have to say these days legally speaking. Um, try to make your results as typical as you can, right? like try try as as as hard as you can to ensure that when you are managing the expectations of your customers, you can do so honestly, but you can do so in a compelling way. Meaning like this is what you can expect and if you don't hit this, this is what you can do about it. Here's how we're going to help you um etc. But like it it is um the business or the the industry in general regardless are littered with bad actors that stretch the tr the truth to make the sale and because of that just that one factor just mismanagement of expectations their turn rate goes through the roof because people were expecting even if they get value if they're expecting something different or they're expecting something more they're going to be upset. I know exactly what you're referring to, man. It's uh it's something that's very valuable for for any and all founders to to recognize. I know we all want to overpromise and our deliver, but just being honest and just saying like, "Hey, we might not give you exactly what you or like we've had these successes, but we've also had these failures, you know, based on what we know about you, we'll have this type of result, but no guarantees." Like just being transparent and honest is a better way to set up a relationship than it is to say, "We'll guarantee 100% success no matter what." It's like awesome. dangerous game to play. You could be like 99% there, but they expected 100%. Yeah, totally. So, it was exit number four for me. We sold the company No, it was exit number five. We sold the company uh to we basically the company was um we were building little product pods. We had a product manager, an engineer, a designer, um and a strategist. And we were selling fractional access to those pods to companies that didn't have full product teams. and needed to to build one the correct way rather than just like hiring some offshore developer and they did not know how to speak the language of development or manage you know that process. Uh it was working really well. I absolutely hated building the business after about a year. Um, I elected to sell it to uh graphs firm and Manhattan that wanted to expand their practice and um I did not I I had sold a couple other companies previously through uh bankers and so forth and um thought I knew the process really well. I was like I'm going to do this one myself. Um went budget on an attorney as well which I will never ever do again. Um, but I was in my early to mid20s at the time and we sold it and we got like we agreed to some sort of like earnout situation. Uh, got a little bit of money up front and then as payments were about to click in about four months later. Um, I had gotten a call from one of the the buyers and they basically said, "Look, uh, we have run the numbers. Uh, it is going to be more expensive for us to pay you what we owe you than it will be to defend ourselves in court. So, we're not going to pay you anything else. Um, sue us. Uh, go yourself essentially. And I immediately get on the phone with to my attorney. I'm like, we had a contract. What is the deal? Like, can these guys go to jail? Like, what's going on? Like, so green. Um, exactly. Had no idea, right, that it was just this is an equation at this point. And um yes, maybe maybe like we'll we'll probably win by going to court with them, but it'll cost me a good chunk of change and that's going to eat up a couple years maybe and um a good chunk of of any money that I had at the time. Uh, and so I just thought to myself because their their whole reason for doing that. They said that I had sold them um like I I I was not truthful about I was what I was selling them and it was because the staff that came with the deal were quitting after a while. Um, they did not like the new ownership. Yeah. And I and I thought to myself, I'm like, "This sounds so ridiculous, but I had gone budget on an attorney and I did not go with the banker and I did not get the specificity in uh my my deal docs or have the protection in any way um in case some sort of like bad situation occurred like this." At the time, um we had leveraged that agreement to fund the next company. And so that that lender called the loan and I was suddenly my co-founder and I were both you know high six figures in the hole uh as a result like after having several exits in a row. Um like it it was terrifying and then my co-founder unfortunately passed away. So his parents were u school teachers in England and I didn't they had just lost their son. I didn't want them to suddenly shoulder a mountain of debt as well. So I'm like, "All right, feed it all to me and let's see what we can do." First time in my life, I like went and got a job in Silicon Valley, was just building things and hustling around the clock for, you know, I was now seven figures in the hole, you know, over seven figures in the hole. Um, and so I was just like, this is all because I did not go with a seasoned expert to help me sell my business in the right way. and I got a little bit too brassy and overleveraged for the next one. The next one was going great. We had to fireell that company so that we could pay back some of this um you know some of this uh uh loan that at the time early mid20s personally guaranteed it cuz I'm an idiot and I didn't know what that meant right um so you know looking back on it like 15 years later essentially um I just I I have to shake my head because I'm just like man trajectory would have been so much different had I just made one decision decision differently and that was to work with, you know, seasoned experts to help me sell my business because I had done that several times before and they all worked really smoothly. Yeah. Um and, you know, we've never we've never not done it since. Uh and it's always worked a lot more smoothly. So, yeah, it and just it pays to have not just the advice and guidance, but also just like get the load off your shoulders. Oh man, for sure. It's it's not the core competency of the founder in so many cases. Oh my god. That's probably one of the worst stories I've heard. That's Oh, it's bad. And like the the worst part about it, I will say like for years I was so scared to talk about it because um like if you would have looked me up on the internet, you would have been like this guy is doing very well, right? Um but because yeah, because of a couple stupid decisions um early on as like a 20s, you know, kid who's just way I mean you remember that time you were way more confident than you should have been. Thought you knew everything about the world. I thought it was God's gift to entrepreneurship. And that humbling moment though was probably one of the greatest assets that I've been able to leverage moving forward in my career. Um, but at the time it was like everyone thought that I was like rolling in in money and I was actually in significant debt. Like, hey, you want to write me an angel check? You're like, no. Oh, man. Yeah, that definitely happened a lot. And um and thankfully after a couple years, I was able to get to even immediately that day quit quit that job. I had consulted a lot with the lender, hustled all out on the side, paid it down, was living in a studio apartment uh for a while, which you know, having gone from I mean I had this like I was living with um a couple other co-founders in this um like threetory place right on Abbott Kenny in in uh Los Angeles. It's really like awesome place. We had concerts in the living room. going from that to a shitty studio apartment. Um, and trying to keep this whole thing secret because I was afraid of what it would do to my reputation, my career, and threaten my ability to like build new things. Uh, it was humbling for sure. But it was all because I I did not um I thought that I could do it all myself and I did not do it all myself. And like since then, I mean, for example, the last couple that we sold, like we've had great attorneys that we paid a lot of money to uh at Exit. Uh but it's their job to see around corners and we would work with like a banker to, you know, kind of broker and facilitate the deal and make sure everyone's on their game. And it's it's a full-time job to like sell a business for sure. We were also prepping a bridge round just in case the deal didn't go through because you get some false starts in that world. Um so that's a full-time job. And then keeping sure that like making sure the company is still performing which kind of at times means you can't say anything to really too many people internally cuz you don't want anybody to start spending money in their head and have a false start happen and then the psychological tell anyone. No like and they all you have to make all these decisions like why are you making decisions? Just shut up and do exactly exactly shut up and do it. Please just shut up. Yes. Yes. Yes. Don't ask questions I can't give you answers to. Okay. If I give you the answer, it's worse. All right. Yes. Do the D. Yeah. Exactly. Exactly. So So yeah, that's uh that was that that story. That's a That was a story. A good nugget for folks. That was that was obviously my personal favorite. But obviously the you know that's a but like now explains why you're so humble. Yeah. You know the track record you have and all that kind of stuff. You just Yeah. You know, it's chill. Yeah. few because I I've had the same problem with my my first uh my bootstrap businesses before the tech startup stuff. I thought it was I had the go, you know, the might of touch. I was like awesome. I got like three businesses run at the same time. I'm awesome. Everything's great. And then, you know, overextended myself. Thought I could I didn't have to do the work. Thought I could just hire everyone to do everything. And then I spent a lot of money real fast and I was like, "Wait, where's what what's my top light?" Oh, not much. What's my what's my bottom line? Negative a lot. Oh. Oh. Oh, Okay, let's stop that. like my entire nest egg that I had like acrewed from my first bit, you know, first few businesses and I were cash flowing, traveling the world, having all this fun had basically got entirely consumed by this other business that, you know, I had these big ambitions for, but like didn't actually do the work and um just lit a bunch of money on fire and left me in a very unfortunate situation where I was like, wow, that was that was a mistake. Should not have done that. very different but you know similar in terms of uh coming to the realization that I do not I am not God's greatest gift to to earth when it comes entrepreneurship nor nor am I yeah I'm going to continue to make mistakes throughout my career and just got to um try to catch them early before they become cancerous and uh you know try to do I mean I think Naval says it best like play long-term games with long-term people there it's very rare that you find co co-founders that are perfect compliments and work the way that you And when you do like work with them for every single company that you run. Yeah. I mean that's where wise advice. Well, uh well that was a nice little nugget that I was not expecting to have in the show. Well Davis, thank you so much for being on the show. It's been great. Awesome. Sounds great. All right. Thank you for watching today's episode. As a reminder, I'm your host Jason Kirby. I have built and sold multiple companies with over 135 million in transactions as either a founder, operator, investor across multiple industries. I'm currently the managing director and founder of Thunder.bc, where we help companies and founders at all stages navigate what capital to raise and who to raise it from and help improve company's odds of raising the capital. If you need help, reach out to us at elk.under.c. If you like today's show, please share with your friends, give us a like or comment down below, and as a reminder, this show is published weekly. And to get notified of new episodes and our newsletter, be sure to go to our website at join thunder.bc. And if you sign up today, I'll send you a few freebies on how to negotiate a term sheet, how to get a free list of relevant VCs, and much more. That's it. No more shameless plugs. Thank you, and see you next week.