Gary Saarenvirta on The Top [Podcast]

Original Source: How SaaS CEO Plans To Cut $500,000 Burn Amid Virus To Hit $8m Revenues This Year

The Top Podcast Transcription

Nathan:

Hey guys, I'm recording this here on April 5, it's Sunday, everyone’s trying to survive the crisis. Quick note to you guys: we are moving. You know, we used to delay these episodes by, you know, four to eight months after we recorded them, in terms of releasing them on the podcast, we've changed that. A lot of these interviews you're going to hear over the next many months are going to be ones we recorded only days prior. We think that's a smarter way to run the show. I've made the change, so expect more urgent information coming out. Secondly, I am getting destroyed on iTunes reviews by these people that say: ‘Nathan's rude, he's hard hitting, blah blah blah.’ Which, by the way, I am. it's part of my style, it's what works. The problem is people that love that style never take the time to go leave a five-star review, so I only get one or five-star reviews on iTunes, and right now there's a streak of one-star reviews. It is driving me crazy. It would mean the world to me guys, if you're loving the show, you love how direct I am, you like this style, if you go leave a review on iTunes now. If you do that, and tweet it to me, text to me, email it to me, whatever you want, I'm going to reply with a very special surprise I think a lot of you guys will really like. It is heavy, heavy data oriented. Alright, so I appreciate that, thanks guys. Enjoy the show.

Nathan:

Daisy Intel, helping online retailers decide what products to promote, how to do it to drive additional revenue, seeing a little bit of a pullback right now with the virus, but they raised $15 million to get through it. Burn was up a little north of 500 grand a month. They're cutting that burn down to make sure they can live off the cash they just raised back in September last year, but they still are seeing nice growth, up from, up, 7 million run rate today up from 4 million just about 18 months ago, hoping to break about 8 million run rate at the end of this year, despite, obviously, the recession and virus. Hello everyone, my guest today is Gary Saarenvirta. He is the CEO and founder of a company called Daisy Intel, which is helping companies optimize operational decision making. He's a rocket scientist with 25 years’ experience helping enterprises make hundreds of millions in net income gains using artificial intelligence. His mission is to reduce poverty, as companies invest these gains to lowering prices, which lowers cost of living for you and I. Gary, ready to take us to the top?

Gary:

Absolutely.

How Client’s Use Daisy Technology

Nathan:

Alright. So, artificial intelligence can be a little bit dangerous because there’s a lot of marketers and sales guys, like me, they just throw the term around. It doesn't mean anything. So, walk me through a case study, how is somebody using Daisy Intel?

Gary:

So, we're helping them make decisions that are beyond human capability. So, in retail for example, deciding what combination of products to promote every week is beyond human ability, because combinations matter. Customers buy solutions, not products. So, if you're making a dinner, like an Italian dinner, you're buying ground beef as the promoted item, well customers are gonna buy pasta, or tomato sauce, bread, milk. So, the combination matters. So, if you have 50,000 products, and you have to choose 2000 to promote, that's 10 to the power of 3600 combinations. That's more than the number of atoms in the universe. So, that's where the AI comes in and goes, finds, helps find the optimal combination that's beyond human ability. So, we, the idea is you can simulate something you've never seen before, that's the, a key defining feature. Simulate faster than the pace of time, and you don't have to have historical examples. If you need historical examples, that's called statistics.

Nathan:

Interesting.

Gary:

The vast majority of companies, what they call AI, they just really mean statistics or supervised learning.

Nathan:

And is that, is that the real kind of prime use case? which is how, you know, if, if Walmart is going to send an email out to their customer list, and they want to give a coupon in the email to drive as much foot traffic, you'll say: ‘ok, send out the cereal.’ Because you know if you give $1 discount on the cereal, they're going come in and buy milk and these three other things. So, it's like upselling, but how to get foot traffic in the door.

Gary:

Yeah. Now that's part, that's one of the use cases. And we do pricing, and inventory forecasting, space planning, supply chain. In insurance we do fraud detection, and underwriting. We do medical diagnosis and healthcare. So, really complex decisions that are, the computer is applying math beyond a human’s ability.

How Many Customers is Daisy Serving?

Nathan:

Ok. Now, when you came back on in October of 2018, you shared that you were founded, you founded the company in 2003, and you were sorting out 17 customers then. How many customers are you working with today?

Gary:

We have like 25 customers today, you know, enterprise customers. So, that's our, you know, our deal size is quite large, you know, is like about 300 K. Some of the old deals were, you know, early customers paid very little. So, I mean, recent deals are, kind of, half a million and up on an annual basis.

Nathan:

Ok. Got it. So, sweet spot there again. 200, $300,000 sorts of deals, with some that are much larger.

Gary:

Yup.

Nathan:

Ok, very good. And that would, so I mean 25 customers times, obviously that ACV, I mean, you've, it sounds like, doubled over the past 18 months?

Gary:

Yeah, we've almost doubled in the past 18 months. I mean, the world has gone sideways now, given that retailers are struggling to do supply. I mean, promotions have been frozen. So, that's kind of affected our short-term revenue. But, I mean, our, we're fortunate that the retail industry in the long-term will be less effected than others. Insurance is less effected than other industries. So, I think new sales is kind of stalled, but I think we’ll preserve the majority of our revenue. So, I think we're just, the world is going into pause, hit the pause button. But then we expect to get back on to even faster growth. We were planning to triple in revenue this year, based on a series A we just did in September.

What is Daisy’s Run Rate?

Nathan:

So, that, I'm doing some background math here, you were doing about 4 million at early, or beginning, 2019, you're at around 7 or 8 million run rate today?

Gary:

Yeah, were at 7 million run rate today. And then we were planning to get to about 1.2 million run rate this, by the end of the year. Or sorry, 1.2 million monthly, so we're gonna get to about 17 million by the end of the year. That was the plan, our first quarter sales were on track to that. And so, now it’s been like, kind of, pause, right?

How Much Capital Has Daisy Raised?

Nathan:

Yeah. So, let's talk, you just did a recent raise. So, let's talk, every founder right now is thinking like, how do I make sure I have enough cash to outlast this? And once I feel comfortable about lasting it, should I actually invest more aggressively now? Because it's, everything's cheap and it’s an opportune time. And these are like the big questions. So, let's dive into that for you. You raise additional capital, how much total have you raised now to date?

Gary:

Yeah. We raised, you know, a total of 15 million today. We did a $10 million raise in September, you know. And so, that was capital raise. And so, we're kind of, we want that last. We're planning to do a B round this year in the fall. I think that’ll be delayed a bit, but yeah. So, the goal was to burn through that money. There's was a, it came in two tranches. So, first tranche was 7 million. The second one will be 4, it'll actually be 11 million. But, so that, that 4 will be unlocked later this year. And so, the goal was to make sure we have cash runway to get to those milestones. The milestones of like 8 million and 10 million. Those are the milestones for tranche two of the A, and then the B round.

Nathan:

Ok, interesting. So, how much of the 7 million that you actually got accepted back in, and it sounds like you also did a $5 million round with Espresso, a debt round on top of the 7, right? So, you had basically 12 million in cash in the bank come in in September?

Gary:

No. I mean, we had, it was a topping up an existing credit facility. So, we had, you know, so, and it was, and it was this credit facility based on run rate. So, you know, we could grow up to 5. So, we currently have enough cash. You know, we're cutting burn like everybody else. So, we've, kind of stopped, you know, obviously travel has stopped, which is a big part of what we do, traveling to sell. You know, marketing, conferences, stuff like that has stopped. So, we've, kind of, stopped all discretionary spending for the moment, kind of, on the, on the marketing, travel front. And then the, we’re probably doing some temporary layoffs to, at some point, we're thinking about that if the world continues to go sideways, just to make sure that the cash will last as long as possible.

How Much Runway Does Daisy Have to Make it Through COVID?

Nathan:

Yeah. So, once you're done, kind of, right sizing the company to make it through the virus, how many months of runway do you wanna have in the bank?

Gary:

We want to have, you know, 12 months. With our credit, I think it will be, what, I mean, the destiny, our destiny will be in our control with our credit facilities as long as we can grow slowly, because our credit facilities are a multiple of our revenue. So, I think we want to cut the burn back to the place where we can run indefinitely within our credit facilities, but that means we got to get some growth. So, I’m relying on modest growth will allow us to last indefinitely, and allow us to get to the place, you know. So, we've built a plan that's back, and we got 18 months of runway within our existing credit facilities.

What Was Daisy’s Burn Prior to COVID?

Nathan:

Yup. What was burn prior to virus? You’re talking like 300, 400 grand a month, something like that?

Gary:

No. It was like, it was like 500 grand a month. We were planning to burn, you know, 500 times12, 6 million, spend 7 million, you know. Like, leave a bit of buffer there. That was the plan to spend that money. And that would, that would get us to the next round. So, now we're just dialing that back, you know, dialing back to probably like 200 K a month, so.

How is Daisy Taking Advantage of Online Retailers?

Nathan:

Yeah. And how do you, so obviously travel goes out the window. That's an easy thing to cut because no one's traveling. You maybe cut back on some marketing stuff, but how do you make sure you cut, but at the same time, take advantage of online retailers, who are going to be growing like crazy right now, that might use you more in a recession?

Gary:

Yeah, I mean, so we're doing a lot of campaigns, outbound calling. So, you know, we, we, our inside sales team has got, you know, we've targeted them. There’s a number of clients out there, and we've had a lot of active deals in the funnel. So, I think the ones that were very active, and close to closing, we're still working with those. We've just flipped our sales process to be by video like this, you know. Fortunately, we’re a tech company, so doing video meetings is not a big deal. So, we flipped everything to video and continue out there. And we're looking for alternative revenue sources. We're helping, doing some COVID analysis for retail to help them forecast their supply chain, maybe reduce their assortment in the short-term so they can have stock on the shelves, how to win back customers that you’ve lost to the discounters. And so, we're doing really low cost, one time, say: ‘Hey, for a one-time fee, we'll do this for you,’ on the belief that, on the back end of this, they’ll be grateful to us and maybe engage us. So, we're kind of getting creative and then finding different ways to bring sales in the door.

How Big is the Daisy team?

Nathan:

Yeah, that's good. Bring cash in the door. And what's the team size today? How many folks?

Gary:

The team size today is 65 people.

Nathan:

Ok. And how many, it sounds like engineering heavy. How many engineers?

Gary:

Engineers are about 22 people.

Nathan:

Ok, got it. And then how many quarter carrying sales reps?

Gary:

Eight.

Are Customer’s Pausing Accounts During COVID?

Nathan:

Eight. Ok, very good. That's good. And so are you, are you seeing, so ignore growth for a second, historical companies that have already been paying you for a year or two years, are you seeing them ask for things like: ‘hey, can you pause our account?’ Are you seeing churn spike?

Gary:

Yeah, we're seeing that, ‘can you pause?’ Like we, some of the retailers, you know, they're making more money. And then, but even though they're doing, doing that, they're not doing promotion, some of them paused, kind of, promotions, while they're sorting this out. So, we've had people pause. One company paused revenue. One company accelerated a sale, they were liquidating and they did it 6 months faster. So, they sold the company. And so, that was kind of a churn, but most of them are continuing. And we're doing other value-added services to make sure that there's no kind of churn for the, for the short-term, so.

What Will Daisy’s Revenue Retention Be Like This Year?

Nathan:

That's interesting. So, what do you think your net revenue retention this year will be?

Gary:

I think our net revenue retention will still be more than 100%.

Nathan:

Ok.

Gary:

I think that's, that's our belief. And because, we think we're still going to sell, I think this year is, although we, I think, I think we plan to get to, you know, even in this environment, probably 8, 8, 9 million in, in run rate by the end of the year.

What Does Daisy Expect its Gross Revenue Churn to be This Year?

Nathan:

Yup, yup. And you shared last time you were on about 10% of gross revenue churn annually, 20% expansion for 110% net revenue. Do you think you'll probably do about the same thing?

Gary:

Yeah, I think we might. I think I, you know, like local churn might be a little more. I mean, our numbers are small, like we're not a typical, because we're an enterprise SaaS, we have a small number of customers. So, one customer loss is like 4%, right?

Is Daisy Concerned About Banks Shutting Off Credit Lines?

Nathan:

Yeah, yeah. Very good. And then are you, one, one big thing right now, there's a couple of CEOs I've interviewed that have credit lines. And a couple of those, whether it's a bank or a lender, have surprised the CEO a little bit, and actually said: ‘hey, I know we agreed to the, we're doing no credit lines anymore.’ They basically shut off their credit lines. Any concerns with Espresso doing that to you guys?

Gary:

I mean, our goal is to talk to them. We talk to them every week to make sure that we're on the same page. We've given them a plan that we believe is viable. A plan, that shows that, if they support us, we're going to be viable. And so, I have 100% confidence that we will come through this, this pandemic. And I don't know what the company will look like at the end of that, but with the partners that we have, I believe that they'll stay with us. And we'll continue to talk to them and work with our investors. And we're leveraging, you, you know, the Canadian government has some emergency funding. And there's some government institutions that help businesses anyway, so we're leveraging everything that's available out there to keep everybody on side and happy. And just keep communicating, I think that's key. You just got to talk to your finance partners regularly, give them confidence, let them know what's happening. You know, pick a plan that you can make, and then make it, that gives banks confidence.

Nathan:

Yeah.

Gary:

That’s what we’re focused on.

The Top’s Famous 5 Questions

Nathan:

Very good, Gary. Let's wrap up here with the famous five. Number one: favorite business book?

Gary:

Favorite business book is still that ‘Built to Last: Good to Great.’ You know, I, that was, that was a really great one that I loved from the past.

Nathan:

Number two: is there CEO you're following or studying?

Gary:

I'd say, not really, specifically. I mean, I look at all the big tech CEOs. I mean, I read a book about Elon Musk lately, so that was kind of interesting. I, kind of, I used to think he was a bit of a doofus, but I think he’s, reading his book I got some more insight. And I don’t think he’s as much as of a doofus as I thought he was. So, that was really interesting.

Nathan:

Number three: what's your favorite online tool for building Daisy?

Gary:

I think the sales for, sales management tools. I think those are great. I love tracking the funnel, that's something I look at every day, so.

Nathan:

Number four: how many hours of sleep to get every night?

Gary:

Well, I'm getting, I'm getting, like, six, seven hours of sleep, you know, I think that's --

Nathan:

And what's your situation? Married? Single? Kiddos?

Gary:

I'm married with kids. So, divorced. My kids are all grown up, but I’m remarried.

Nathan:

How many kids?

Gary:

I got three kids.

Nathan:

Oh, wow. Ok. And how old are you?

Gary:

Me? I’m 54.

Nathan:

54 - Last question: what do you wish your 20-year-old self knew?

Gary:

I would’ve started a business a lot sooner.

Conclusion

Nathan:

Guys, there you have it. Daisy Intel, helping online retailers decide what products to promote, how to do it to drive additional revenue. Seeing a little bit of a pullback right now with the virus, but they raised $15 million to get through it. Burn was up a little north of 500 grand a month, they're cutting that burn down to make sure they can live off the cash that they just raised back in September last year. But they still are seeing nice growth, up from, up, 7 million run rate today, up from 4 million just about 18 months ago, hoping to break about 8 million run rate at the end of this year, despite, obviously, the recession and virus. Gary, we have room for you, man. Thanks for taking us to the top.

Gary:

Thank you. Thanks, Nathan. Appreciate it.