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

Episode 87 - Travis Steffen Transcription Jason Kirby (08:57.413) Everyone, welcome back to Fundraising Demystified. Today, I'm excited to have Travis Stephan on the show. A serial founder to the point of eight exits has raised over $100 million and has transacted an M &A over $200 million. Travis, you have an incredible track record. Travis Steffen (09:06.337) Yeah, I hear you. Jason Kirby (09:25.546) And you're currently running Riveto to help founders and churn. Welcome to the show. Travis Steffen (09:31.192) Thank you for having me. Super excited to kick this off. Jason Kirby (09:33.647) Yeah. You're a very modest man, you know, with eight exits behind you. I always like to think that my like four exits, like completely, you know, humbled, 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, makes you this just nonstop must build, must grow, must exit, you know, founder. Travis Steffen (09:52.44) Sure. Travis Steffen (09:59.596) I would love to say something really PR friendly and inspirational to people. It is very much a compulsion at this point. Like I just, there are some certain things I just have to see exist. 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. I'm not a solo founder. I've, I've tried it before. My outcomes have no been nowhere near. as good. I thrive in like a complimentary atmosphere with great co-founders. And that allows me to satiate my desire for novelty from a career perspective. I love digging into nuanced diverse problem sets. I love puzzles. 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, 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, something like that, or just like, yeah, just something like that. And they'll just like, let me loose on it and, I'll totally nerd out and have fun, for days. Yeah. yeah. Jason Kirby (11:15.489) It is white. Yeah, the white puzzle. Jason Kirby (11:23.993) And you'll fall for the trap. You'll do it. Travis Steffen (11:26.88) Yeah. And honestly, it is like such a, maybe a primitive way to explain startup land to folks who don't know. And, you know, the consequences of not getting right or 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. until I have a couple of different projects going at which time it is very easy to say no to new things. 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 one new thing a year. 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. 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. 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. And that's what fueled probably the first four of them. Jason Kirby (12:58.719) Okay. You said something there that I want to call out for founders. This idea of start fresh. work with so many founders that, you know, million to 5 million in revenue or it's kind of been there for a while. They haven't really cracked 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've been at this for a while. Like, but they have some, you know, they got it. They got to make it to the next thing. They got to, you know, they just. Travis Steffen (13:20.396) Yeah. Jason Kirby (13:27.749) 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 new value as opposed to trying to keep the same thing going? Like, 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 when you just think about, Travis Steffen (13:46.371) Yeah. Jason Kirby (13:57.123) inflation, you're technically losing money if you're not materially growing the business or. Travis Steffen (13:58.508) Yeah. Travis Steffen (14:01.902) 100%. And you're battling with this, this idea that has been planted in everyone's head since they're 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 multivariate equation of building businesses. And there is absolutely something to be said for setting the boundaries of what a successful and failed experiment look like. Cause 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, being a startup founder. 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. 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, can't count the number of failed experiments I've had in my career. It's, it's a lot there. Yes, there have been eight exits. There have been a lot more that have not done anything. And when you find something that actually clicks with the market, Travis Steffen (16:05.312) in a variety of ways we talk about. Oftentimes we'll talk about, in, in startup world, they'll talk about product market fit a lot. I like to think of it as, as actually like five fits market model channel product and message, and they all have to buy directionally 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 way that you want. being able to collect those as quickly as possible, like Zuckerberg is famous for just ruthlessly cutting failed experiments as quickly as possible. And that's one of the few things that founders can look to him for these days is just that still remains. Jason Kirby (17:03.205) 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 and try another time. I'm like, wait, why am doing this again? Is this the right thing? Does this have material value to this business anymore? Like, shit, how much time, how much money did I lose chasing this thing that should have never started in first place, but then could have been killed at any point in time. Um, so speaking of killing things. Travis Steffen (17:28.108) Yeah. Jason Kirby (17:31.929) Let's talk about the silent killer of businesses and that is churn. You know, that's a word you've used before in calling churn the silent killer. Let's define churn because it's funny. Like when I talk to businesses, they are, AR is this or this is that. And you know, your stats are this. And I was like, okay, what's your churn? like, Ooh, it's a little complicated. You know, they never know the real answer. So walk us through what is churn. Travis Steffen (17:35.438) Let's do it. Travis Steffen (17:40.386) Yeah. Yeah. Travis Steffen (17:52.824) Yep. Yep. Yeah. It is, I'll say it's the most important, by far the most important growth metric, mathematically speaking, as it relates to recurring revenue business of any kind. 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, 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. mean, we just saw this with Chegg 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. 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 day to day voluntary. churn means people are leaving of their own volition. They decide to leave. Involuntary means people don't necessarily decide to leave, but maybe their business shut down, maybe their payments failed, something along those lines where you're not going to provide service to them anymore because they're not exchanging value with you. And there are many, many reasons why either of those things happen. And the understanding of what is healthy and unhealthy churn is also important because it really, Travis Steffen (19:54.968) 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, the inflow and outflow of customers. For every single business, there is going to be a moment in time where that particular company, unless something changes, has reached 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. And if you don't know what that number is, and it's actually really easy to calculate, if you don't know what that number is, you're in danger because you might have a really great month 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. So you know, One of the reasons that 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 have occur, right? So at the end of the day, 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. There's also delayed visibility because it is a lagging indicator. You want to find a leading indicator of churn for you. Oftentimes that is customer engagement. If they're actually actively getting value out of the product in real time, they're going to be less of a churn risk in comparison. the misinterpretation of growth 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 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. So those are a couple of things that come to mind, but Travis Steffen (22:12.29) You know, when you hear like, for example, a SaaS founder who reports their turn on a monthly basis and they might say something like, 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're probably already at your carrying capacity or almost, you know, at some point. So Jason Kirby (22:38.021) Well, that's basically turning every customer every year or, you know, like less than a year. Yeah. That's, that's, that's painful. That defeats the whole purpose of a SaaS model. So I appreciate the education, just like exposing founders to how they need to be thinking about, you know, turn and what it could do to their business. What made you aware of turning your own career and your own businesses, to, have this level of understanding to where it is now. Travis Steffen (22:40.898) Pretty much. Yeah, pretty much. Travis Steffen (22:46.621) Indeed it does. Travis Steffen (23:08.718) The first time I ever tried to raise capital, I definitely got face punched by most of the investors that I was pitching. 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 eventually, you know, sold the business maybe a year later to a company who had solved that problem and wanted our customer base. so, you know, through that lens, just realizing how critically important that was. I did a little bit more research at the time, realized, you know, everywhere throughout, tech, know, big tech, you know, midsize companies, et cetera. 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 better system for keeping customers for long. Those stats are paid heavy attention to by the investing world, by the &A world, et cetera. 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. Jason Kirby (24:24.449) So let's unpack this. Let's try to capture 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? Travis Steffen (24:37.582) Yeah, at the time I was running a business called up share. was, uh, it was probably about 10, maybe 12 years ago and we were a, uh, 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 with the thesis that those companies would get exposed more often to ICP clients that fit their media brand. And they just wanted to make sure that they were able to give a boost. the people sharing would get points, like tokens essentially for real rewards in our reward store. So was like this fun little loop. And it worked. The companies that we were acquiring were small media companies. you know, anytime there was a bill, they had to pay if they hadn't cracked the code on their own monetization, which most had not at that time. they were just scratching and clawing through ads to get some traffic and so forth. they were turning like crazy. And now we were acquiring a lot of, of, customers. think we probably acquired like 250,000 customers with the first three, four months. just being live on some of the integration stores for the media company CMSs. But 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. So we didn't have the ability to be really precise in who we were acquiring. 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. So I think I went out to try to raise something small. I think we were trying to raise like 1.5. or something along those lines. And it was just like my first ever round. I did not know what I was doing at all. And we just would not, we could not get past the first couple of questions about retention because we would share the stat and they're like, this is just not gonna fit with our model. I'm sorry. Like a really cool idea, but it's not gonna 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. Travis Steffen (27:02.158) and eventually I had kind of had to go through and realize exactly why by giving, 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 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 create something that attacked the problem specifically. But, you know, once I did, it definitely hit home and felt like one of the more important things that I'd worked on. Jason Kirby (27:50.115) powerful visual because like I imagine every founder thinks they can do it all bail out the water and fix the leak. But it's a pretty powerful thing. was like, no, we would have sunk. That was inevitable. That's a powerful visual. And, you know, when you, when you ended up selling that company, it was it was there a financial outcome was at least something there did it basically. So I guess from like the position of realizing that you have this major problem, like had you had that solved. Travis Steffen (27:59.47) Yeah. Travis Steffen (28:10.924) Yeah, yeah, there was. Jason Kirby (28:20.357) Like what would have been the value of the company potentially? Travis Steffen (28:23.486) the value would have been far higher. I would say it's hard to say exactly what it would have been, but the, outcome was decent just because it was bootstrapped. had we raised capital, it would have been not a good situation. so, you know, that's, that's what I would say there. 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. and that one's a whole nother story for sure. But, I would say though that, you know, it was the, the moment where, mean, every single time I've sold one of these, will say, Jason, that like, maybe you have, have had this experience to every single time, even as recently as a couple of years ago. I would say next time I'm do it right. Next time I'm going to use all these lessons that I've learned this time and I'm to do it right. And, and every time I definitely have grand aspirations of doing it right, but right changes so quickly, right. 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, coming out of an exit, like you gotta go reapply the playbook to different industry. And there are always different nuances that are in place there. So, yeah, it's been, it's been a, a weird and exciting journey in that way. Jason Kirby (29:23.641) Yeah. Jason Kirby (29:47.237) I tell. Yeah, I know it's, uh, I won't do that again, but then you're just either you do it again and, 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 have before is almost irrelevant now, which is, you know, scary, uh, going into, to the next venture for, people that didn't build in the AI world and now want to, um, Travis Steffen (29:55.287) Yeah. Travis Steffen (30:07.602) yeah. Jason Kirby (30:14.511) 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've seen so many businesses and you built so many and you've turned around so many, like, give us another example. like, kind of work, know, like this was like the really bad one churn was the killer. And, know, you didn't have as a 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. Travis Steffen (30:46.154) Yeah, I mean, there's one just as recently as last year 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. And what I wanted to do with this company, 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 Balfour, and we want to kind of allow founders to benefit from, you know, very deep frameworks that would, 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. we, did some customer discovery and the thing is with, 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. like you may know for, let's just use a completely different analogy. Like you may know that, your company needs HR, right? but it is a can that you kick so far down the road that you almost wait until you're on fire. until you solve that problem. 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, like, 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 cool idea, but we could not keep customers longer than about 90 to 120 days or so, uh, because at that moment in time, that's where you really need to get. mean, and we ended up keeping, you know, a few dozen customers because that was the bandwidth that we were able to deploy. Travis Steffen (33:09.102) as humans into those businesses. So was like a nice cash flowing business, but it was just not what I set out to create. I wanted to create something that would definitely rock the startup ecosystem. And it just wasn't that. So inevitably I elected to just shut that one down. 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 know like the back of my hand, but it is such a tricky puzzle these days. And, and, 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. so like, for example, self-service ass 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? Now, first and foremost, I disagree with that mantra quite a bit, because I do think that while most people are living that life, those who deploy actual human intelligence on problems are going to win. But it is really 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. I'm like, well, did you clone their user base? Jason Kirby (34:33.123) Yeah. Yeah, exactly. get the do you get the actual assets? Like that's the asset, not a website. Travis Steffen (34:36.046) Right? It's. Yeah, yeah, exactly like you know, and it was it's like build this this groundbreaking thing like OK, realistically could I create a two sided marketplace? Just with code with no users. I could have done that before AI for a couple grant, you know with with some freelancers. It's not a hard puzzle. The hard thing is acquiring customers and keeping them so. You know, no, you're not going to clone Airbnb with AI. But it is like that behavioral psychology is valid. That's what you're battling against right now. 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. Jason Kirby (35:17.957) Yeah, I completely agree. And I'm actually in a very similar boat myself. Like we looked at building an end to end AI for kind of the investment banking side for founders. And it was looked at, was like, at the end of the day, it's like, would they really trust a bot with the most important transaction of their career, their life? Like, no way. It's like, that can be helpful, but like at the end of the day, it's like, you know, do you really trust the results you really trust? It's just like, the effort to make it, you know, Travis Steffen (35:39.522) Yeah. Travis Steffen (35:46.221) Yeah. Jason Kirby (35:47.429) beyond 90 % accurate. it's 80 % is easy, that 20 % it's like, that can be pretty bad if you're off of that 20%. 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. 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 business. It's a human's cash going into a human's business. AI just helps us maybe sort out some of the details faster. Travis Steffen (36:10.99) Yeah. Right. Travis Steffen (36:17.656) Definitely. I think, and I think you are seeing a lot of times, founder, 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, there might be some suckers out there. I don't want to like say that, there, there aren't, but most investors who are legit, fund managers are going to see through that on day one, like moment one. The second you have the first conversation, that sort of work is not going to lead to the success that you want it to. But for some reason, and I'm not sure why, people are definitely allergic to the work that makes them the money. So that's going to be a moat. Jason Kirby (37:05.173) Yeah, no one wants to work hard for the money. Everyone wants it easy. yeah, there are, you you hear the stories occasionally of people doing it, but at the end of the day, it's like, they make it look easy after they did all the hard work. It's like, forgot about that. Travis Steffen (37:15.35) Yes. Yeah. We just, for example, we just, we closed around on Friday for one of my companies. we closed about like a, a $15 million round that'll be announced on Tuesday. And, 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, like it still happens like that, even if you have a really great business, it's just going to take some time to get the legit partners that you want. and it is a lot of hard work and there's very little that AI can do to help you in that way. Jason Kirby (37:50.777) Nope. That's not going to negotiate with your board or your, your investors or, know, it's like, might help you do a little bit of market research and, kind of look up at some competitor details, but it's not going to. Yeah, that's what I tell all my team. It's like treat AI as if it's like a very engaged response instantly in turn is available 24 seven. That's like, you know, use them for that, you know, use AI for that. And it's. Travis Steffen (37:57.154) Mm-hmm. Travis Steffen (38:01.678) Yeah, it's a really good intern. I would say that's that's kind of how. Travis Steffen (38:12.79) Yes. Yeah. Jason Kirby (38:18.341) your expectations are managed and it's very helpful, but you always have to check it in terms of work. can't just be like, there it is all done. Um, so very much online, 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, so human relationships, I think will be even more valuable in the age of AI, um, than they were in past. um, so go, let's go back. Um, you know, we've been talking about. Travis Steffen (38:24.15) Yeah, definitely. Travis Steffen (38:39.886) 100%. 100%. Jason Kirby (38:47.813) turn, creating value in businesses. You mentioned Glowflow before we got the show started. You sold that for around 70 million. What were the essential pieces of the business that you worked on that led it to being so valuable and having that exit? Travis Steffen (38:54.368) Mm. Mm. Travis Steffen (39:06.958) Grow Flow was, I would say it was a really interesting situation. So that was a turnaround. I've a couple of turnarounds in my career. 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 or even by the founder who just was out over their skis. Like in this one, it was actually the founder who brought me in to play the CEO role early on. And we took that one from... very very low revenue to just shy of 10 million a year in about three years and the thing that I have found that makes acquisitions a lot easier is predictability. We were able to create a very predictable, forecastable you know, business where we knew exactly what growth we were looking at 60, 90 days down the line. we knew exactly, like we knew all of our numbers very, very well. And when I first came in, what I found was the product was behind, was behind other competitors. And I knew that like, and not at that point in time, the company hadn't really raised any money. All the competitors had raised a lot of money, but the company was still somehow starting 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. We would say, like, if we had some sort of an argument about something, what we wanted to do, what would the most helpful company in the industry do? And the answer was clear as 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. Travis Steffen (41:06.222) Licensed us cannabis companies at almost every stage of the supply chain. And we had products for all of them, but. There, it was such a complex landscape. The legality state to state is so wildly different. What licensure can get you 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. some of the legal elements in that industry. So, and we found that about, you know, 40 % of the larger cannabis companies that we served were owned by private equity. The other 40 % were former black market operators. And then the other 20 % was somewhere in the middle. So you had a very, very, different skill set. depending on who actually owned or was operating the business. Because of that, you people had a really hard time navigating exactly what they had to do every day. and the government tools that you were mandated to report into were, they, they sold to the government. They did not sell to operators. 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, you could do illegal things on the government platforms, oddly enough. Jason Kirby (42:32.133) That's fun. Travis Steffen (42:32.296) so we would prevent you from being able to do those 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 empathize with the problems that the customers are experiencing. mean, we had, we had customer support team members getting invited to customers weddings. We had, 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, in the, the top spot across the board. so we probably raised maybe 20 % of what our average competitor raised. And, and we did probably two to three times as much revenue. 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. 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. Jason Kirby (43:40.933) No, that's amazing. That's a very good example. And look at the material value. Yeah. $70 million exit. too bad. Um, and coming into the, you know, kind of that turnaround situation and being able to leverage your expertise to, to do that. Um, versus when I asked how do you find the time, but yeah, that's another question for another day. Um, so let's, let's talk a little bit about, we talked about kind of your background. 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 Ravato, which is out there to kind of reoccurring businesses, reoccurring SaaS businesses in the churn or reduced churn. Tell founders a little bit more about what Ravato is and why they, you know, like full plug, like it's worth listening to. This is, you know, pretty killer what, what you have built and tell founders about it. Travis Steffen (44:29.624) Yeah. So I started working on Ravado with a business partner, who kind of started a little experiment on the side as I was helping him navigate an exit for his prior company. And I saw a Slack channel that he had set up that just was showing different transactions that were occurring. I saw them, I was like, this is very indicative of early product market fit. I was considering starting something new at the time, 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 when 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, operators like. What would we want that to look like in a perfect world? What is like a no brainer yes? And the first two things that came to mind were I don't want to actually do any of the labor to learn a brand new 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, is 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 hadn't been focused on. We knew it wasn't going to be in go-to-market motions at all because everyone in the world is focused on sales and marketing. Jason Kirby (46:18.501) you Travis Steffen (46:18.796) 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 and pricing? What about retention? And so we just kept coming back to retention and we knew that there were a couple of solutions in the industry that, you know, think Patrick Campbell's sold profit while the paddle for 200 million bucks a couple of years prior is very simple solution. But they did a great job psychologically speaking with some of their offerings. And so we looked at some of those types of companies and I actually called maybe two dozen companies that approached retention in different ways at different, you know, different segments, and found, you know, across the board that no one was really doing what we had envisioned. so we said, all right, the, business that we want to build is we want to, you know, offer a done for you service, you know, leveraged with. a high amount of technology, AI to some degree, but not customer facing, but human intelligence. And we wanna keep customers. Like we wanna keep your customers for you. We wanna prevent them from leaving. We wanna win them back after they have left. And we just wanna take a commission on the win. So we're gonna take, I think we started with... Like where we are now is where it's a 20 % commission on customers that we keep for you, the MRR 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. Over the course of time, we were able to probably about 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 like April, May of 24, we actually started to go out to the market with it and try it for a couple of 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. Travis Steffen (48:36.52) And we did, we elected not to raise this company is going to be bootstrapped end to end. 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, 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, editors, not authors of everything, you know, clients will, and we're tackling 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 piece is in the equation, like we have to have a better product. What does that mean exactly for who, where, in what way? 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. And they're not taking big enough swings to actually answer the reason for their customers leaving. Jason Kirby (49:25.049) Hmm. Travis Steffen (49:36.078) 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. Any of the other involuntary churn we completely handle hands off for you. When it comes time to gathering information about why people leave, we do that as well. And then we try to keep them. We go back and survey your customers that you had canceled months ago. 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 you're actually going to get the real truth and what you need to do to improve. So at the end of the day, essentially what the offer is at Ravado is it is hands off, done for you, performance based retention for subscription based and recurring revenue businesses. Our lowest customer, think. They have an $8 a month subscription. highest one is like six to seven grand a month. As long as you have subscriptions, as long as you have a reasonable customer base and you know you have a churn problem, basically we are in eat what you kill shop. So we use technology behind the scenes. Like we have a full software platform, but you never really have to use or see it at all. We will send you data. You can be as involved as you would like to be on that front. And then you get a Slack channel with us. 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 that they were going through a sale and they thought they had 65 % churn. And we're looking at it and something doesn't look right here. And we just found through their payment processing configuration, which is one of our first steps in onboarding, they were double counting their churn. And they were going to the market with that stat. And yes, we deployed our services and all of our products on every type of churn that they could think of. it's working quite well. But within two weeks, we sliced off $100,000 worth of churn for them just because of the incorrect setup. Now, this particular company is an outlier because it's one of those one-man shows. Travis Steffen (51:50.552) where they're doing maybe several hundred grand a month and it's just one dude vibe coding stuff in his dorm room. And it's a really, really cool situation that in an &A process, he's gonna get bought, especially now, he's gonna get bought, he would never, 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. Jason Kirby (51:51.097) wow. Jason Kirby (52:00.225) Is it &A process? Jason Kirby (52:13.989) Yeah. Jason Kirby (52:19.555) Yeah, whatever bottom would be very happy. Travis Steffen (52:20.268) So little things like that. Yes, exactly. but yeah, that's totally, but it is another reason why, you people come to us is because they just don't know where to start. Jason Kirby (52:25.445) At least he got to recognize him. Jason Kirby (52:33.605) Honestly, when you told me about this, you know, a couple of 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 dead, 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 and A process. You know, good business, were like, they were marking like 70%, 75 % churn. And we had a very similar issue. It's like, well, why are they churning? And then we dug in, they were double counting some churns. The actual churn was closer to like 86%, know, percent. So it was actually better than what we thought. they were basically double counting some things. And, and then, you know, we looked at what the core issue was and it like, okay, it's literally just like helping them. They're leaving a particular platform. but they can go with them. I know they didn't know. And now that's where they're putting all their attention is making it very clear to these customers that they can go to this other platform with them and building out the processes to do so. And it makes a material outcome for the business. The valuation of a business and an &A process plummets if churn falls below 90%. It depends on the business and the revenue size, but if it falls below 90%. You know, it will honestly kill a deal like, uh, private equity in particular. They'll just say, no, we'll pass. Uh, because it doesn't have a certain turn, uh, ratio. it's just, you know, as of, as you think about the value of your business and what it could or could not be, you know, a turn is one of the, 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 ARR, blah, blah, blah, blah. It's all great. You know, it's like, okay, well, what's your turn? Ooh. 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, I was loving founders, like kind of dodge. They're always like, well, you know, it's like a little over here, a little over there. What were we talking about? Yeah. Yeah. Yeah. Like what's the number? Well, you know, you know, they don't actually ever bring it up. Now let me get back to you on that report. It goes back to see what the hell did we end up, what did we say? Travis Steffen (54:27.534) Yeah. Travis Steffen (54:41.014) Yeah, but it's fine, right? It's fine. Yeah, it's no, it's no big deal, right? Travis Steffen (54:49.366) Yeah, let me check. I'll get back to you. Yeah, no, I hear you. Right? Yes, yes. How do we put lipstick on this pig? Exactly. Jason Kirby (54:56.581) That's going to be a disaster. Exactly. So for anyone that's listening and they want to take advantage, what's going to be the best way for them to reach out and learn more? And think you also, you mentioned you had an offer for listeners if they want to take advantage. Travis Steffen (55:12.514) Yeah. Yeah, we do. I mean, if you want automated customer retention for your subscription-based business, and let's say you don't believe what I'm saying here, that we can substantially help you within the first month, so far we have never turned a single client of our own, not a single one. And essentially, we do that on our end because we only charge for outcomes. Jason Kirby (55:32.261) Practice with your preach. Travis Steffen (55:42.38) Right? So like if you start with us, if you onboard, which takes about 15 minutes, reach out at Revatorevatto.com and just schedule a demo. Typically you're going to talk with my co-founder Jordan and he's going to show you the entire system. We're going to walk you through it soup to nuts. If it makes sense for you to try it, you know, we'll onboard you in about 15 minutes. We'll get you into shared Slack channel. We're going to share you data in real time. If you have any interest in seeing how the sausages made were very transparent in that way for clients. But we will offer you $1,000 in free recoveries so that 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 destroyed it. And what that threshold is is up to you. We can shut it off. We won't pay or we won't bill you anything and no commission whatsoever. We'll shut it off. You go back to do what you're doing. No harm, no foul. If you do stick around with us and you listen to this show, you know, just say that in the interview, we'll give you a thousand bucks in free recoveries. You know, meaning there's zero commission on any of those. It's just money in your pocket that you would not have otherwise had. These are clients that would have left and we're keeping them. And then we're just taking a 20 % commission on that. one month's MRR, the next month it's all yours. So, you know, at the end of the day, there would be no reason to leave if you're a client of ours. You can see evidence of what we've done for some of our clients, by the way, at just rivato.com slash proof. You'll see what recovery rates have been from a chair and prevention perspective. There's videos from every single one of them that will tell you what their experience has been. We try not to proactively introduce you to clients to try to not bother them too much. Jason Kirby (57:08.421) Yeah, it's killing you. Travis Steffen (57:35.406) But you can reach out to them, and they will talk about it, assuming they respond. But we have SAS, we have AI, we have BizOps, we have education, we have lending. Anything that has a recurring rep doesn't have to be subscription, even if it's just payment plans. That is something that we also help with as well, making sure that everyone is on track and on schedule. And then if you have any questions about your payment processing setup, We do that eval before we onboard you and we're gonna tell you exactly what your low hanging fruit is there because that is a source of some of it That that you do need to know about for sure Jason Kirby (58:16.005) No, it's phenomenal offer. We'll make sure to put that all in the show notes. And, uh, you know, we probably collaborating on multiple things to help founders take advantage of this just because it is probably one of the highest value add things that a founder could focus on. And they're not having to pay you 10, 20, 30 grand out in front to hope it works. You know, it's like fruits of the book. Yeah. And it's. It is such a hard problem to solve. my previous businesses and like trying to solve it's just like, especially if it's small tickets, it's just like. Travis Steffen (58:33.388) Yeah. Or to do it all yourself, right? Like here are some tools that maybe you can use to do it all yourself. Jason Kirby (58:45.621) so hard to justify the time, 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 amazing work that you're providing to the ecosystem. I really hope this business continues to thrive and crush it because of Major Player, just because it will materially change the value of the industry. So Travis, it's been an absolute pleasure having you on the show. Any final words for our audience before we part ways here? Travis Steffen (59:08.941) pleasure. Yeah, I mean, I'm sure we'll have to do a follow up and dig 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 harrowing tales to regale the listeners on. So happy to do it again. But I would say, 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. but it is actually one of the highest levers, like it's, it's the most profound point of leverage you have in your business. even a small improvement compounds so dramatically. 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? 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 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? One thing we found is there are a lot of founders out there who actually, for better or for worse, lie to customers about the outcomes they're going to get from their product. Like maybe if there's a perfect situation where, you people will say results not typical is the thing that you kind of have to say these days, legally speaking. Try to make your results as typical as you can, right? Like try as hard as you can to ensure that when you are Jason Kirby (01:00:40.078) Yeah. Jason Kirby (01:00:53.163) Yeah. Travis Steffen (01:00:59.968) 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, et cetera. like it is the business or the industry in general, regardless are littered with bad actors that stretch the truth to make the sale. And because of that, just that one factor. just mismanagement of expectations, their turn rate goes through the As 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. Jason Kirby (01:01:39.917) I know exactly what you're referring to, It's something that's very valuable for any and all founders to recognize. I know we all want to over promise in our delivery, but just being honest and just saying like, Hey, we might not give you exactly what you are. Like we've had these successes. We've also had these failures, you know, based on what we know about you will 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, guarantee a hundred percent success no matter what. It's like, that's a... Travis Steffen (01:02:08.077) Yeah. Jason Kirby (01:02:09.283) dangerous game to play. could be like 99 % there, but they expected 100%. Travis Steffen (01:02:14.35) Yeah, totally. Jason Kirby (01:02:16.837) Well, Travis, thank you so much for being on the show. It's been great and I look forward to getting this out next week. I'm gonna go ahead and stop the recording. Travis Steffen (01:02:23.276) Awesome, sounds great.