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The SaaS Podcast

SaaS Turnaround: From Near Failure to $10 Million ARR – with Derek O’Carroll [218]

SaaS Turnaround with Derek O’Carroll of Brightpearl

SaaS Turnaround: From Near Failure to $10 Million ARR

Derek O'Carroll is the CEO of Brightpearl, a cloud-based enterprise resource planning (ERP) product for retailers and wholesalers.

In 2016, a SaaS company founded in a small city in the UK was struggling with a business model that was unsustainable. After almost 10 years in business, the company was struggling to retain customers and was quickly running out of money.

That same year, Derek O'Carroll was hired as the new CEO to help turnaround the company. He spent a lot of time talking to employees, partners, and customers to figure out the issues.

He started building a list of things that needed to get fixed. And the more conversations he had, the longer his list got. He quickly realized that he wouldn't be able to fix everything.

He needed to focus. So he eventually identified 3 key areas of improvement. And he decided to focus the majority of his time and his teams' time on solving those 3 things.

It looked like a good plan. But it wasn't smooth sailing. In fact, when they started executing on the plan, they actually made the customer churn problem even worse for a while as they lost a lot more customers very quickly.

But they stayed the course and kept executing the plan. And eventually, it paid off.

In the last 3 years, revenue has more than doubled and is growing at almost 50% year over year. And they've significantly reduced their customer churn.

The key lesson here is that if your business is struggling, or you feel like revenue has flatlined, or you have high churn, sometimes it can be overwhelming.

Where do you start? What do you solve? You might have a super long list of things. But identify the top 2 or 3 things that you believe will make a difference and do a really great job to execute relentlessly in those areas.

I hope you enjoy the interview.

Transcript

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Omer Khan [0:15]  
Welcome to another episode of the SaaS podcast. I'm your host Omer Khan and this is the show where I interview proven founders and industry experts who share their stories, strategies and insights to help you build, launch and grow your SaaS business. In this episode, I talked to Derek O'Carroll, the CEO of Brightpearl, a cloud-based enterprise resource planning product for retailers and wholesalers. In 2016, SaaS company founded in a small city in the UK, was struggling with a business model that was unsustainable. After all those 10 years in business, the company was struggling to retain customers and was quickly running out of money. That same year, Derek O'Carroll was hired as the new CEO, to help turn around the company. He spent a lot of time talking to employees, partners and customers to figure out the issues. And he started building a list of things that needed to get fixed. And the more conversations he had, the longer his list got, it quickly realized that he wouldn't be able to fix everything. So he needed to focus. So eventually, he identified three key areas of improvement, and he decided to focus the majority of his time, and his team's time on solving those three things. It looked like a good plan, but it wasn't all smooth sailing. In fact, when they started executing on the plan, they actually made the customer churn problem even worse for a while, as they lost a lot more customers very quickly. But they stayed the course and kept executing the plan. And eventually, it paid off. In the last three years revenue has more than doubled and is growing at almost 50% year over year, they've significantly reduced their customer churn. The key lesson here is that if your business is struggling, or you feel like revenue has flatlined, or you have high churn, sometimes it can be overwhelming. Where do you start? What do you solve? You know, you might have a super long list of things. But identify the top two or three things that you believe will make a difference, and do a really great job to execute relentlessly in those areas. And that's the lesson from this interview. And I hope you enjoy it. Real quick before we get started. Firstly, don't forget to grab a free copy of the SaaS toolkit, which will tell you about the 21 essential tools that every SaaS business needs, you can download your copy by going to theSaaSpodcastcom. Secondly, enrollment for SaaS Club Plus is now open. Plus is our online membership and community for new and early-stage SaaS founders. So if you need help launching and growing your SaaS business, and you want to connect with other founders around the world, and build recurring revenue faster than plus will help you to do just that. Just go to saasclubplus.com to learn more. Okay, let's get on with the interview. Derek, welcome to the show.
Derek O'Carroll [3:14]  
Thank you very much. I'm delighted to be here with you today.
Omer Khan [3:17]  
So do you have a favorite quote, you can share with us something that inspires and motivates you or just gets you out of bed every day to work on your business?
Derek O'Carroll [3:25]  
I don't know who came up with it. But I do like the the phrase always make yourself dispensable.
Omer Khan [3:30]  
Why do you like that?
Derek O'Carroll [3:31]  
I don't know. Well, because it's, it allows you to work with teams who are in unbearably better than you. But it also allows you to put yourself in a position where you lead by example. And what I do in life is I like to take teams that are not performing very well and make them high performing. And and to do that I need to know and understand each part of the business. And I like to lead by example, but I have to make myself dispensable pretty quickly, and promote talent into those roles and then create a team in the process.
Omer Khan [3:58]  
Love it. So for people who aren't familiar. Can you tell us about Brightpearl? What does the product do? Who's your target market? And what problems are you hoping to solve for them?
Derek O'Carroll [4:09]  
Yeah, so our product is a cloud-based service that automates the back office for merchants in today's world. And today, brands and merchants sell product in multiple channels, so physical like in store at shows, but also online with their own website and through services like Amazon or eBay, or other marketplaces. And when they sell, they need to have a cloud-based solution that coordinates and orchestrates cash and products essentially, and then create accounts automatically, and then provide data in real time to allow the leaders of those companies to make decisions in an informed manner. So it's like a replacement for what your listeners might know is your ERP software or legacy ERP software, and Brightpearl pretty unique because we are specific to the industry we serve. So we we focus on retail, which includes obviously wholesale, and the platform allows our customers to do direct to consumer, but also business to business and offer that out in a in a self service manner. So that's what we do. We target merchants that trade no less than a million dollars GMV or gross merchandising value, up to about 150 million. And if you'd spoken to me three years ago, I would say that we targeted people from a million to 30 million GMV. But every year we've invested in the platform and increase the size of customers that we serve, as you would expect, and we serve our customers in 20 countries. But we focus our proactive operations in the UK where the company was founded by 50% of our business just under 50% of our businesses in the UK and EMEA, and then our US headquarters, servicing North America, Canada and South America and Australia actually, based out of Austin, Texas, and that's bad, just over 50% of our business.
Omer Khan 6:04
So can you give me example of some companies that are customers today of Brightpearl?
Derek O'Carroll [6:08]  
Oh yeah. So company come to mind would be a growers house, which is a company that is based out of Arizona. It specializes in providing a range of products, both on a B2B and B2C basis for hydroponics. And it's a very successful high growth business. And it sells in multiple channels. And it sells in multiple currencies across multiple states in the US. So it needs to deal with things like us sales tax, and so forth. So that's good example. They've been with us about four years, and they've grown pretty much in the thousands of percent every year. But I think that's more reflection of the boom and cannabis market in in the US. And now in Canada over here in a media market of big brands like Oliver Sweeney shoes, that is a leading brand here in the UK, they're a good example. Because they are traditional in terms of they have stores, shops, so to speak, but they're growing their business online. So they need a platform that can serve the traditional sales channel at the shop, but also the online channel as its service through their website, or through other channels that they may choose to use the be two examples, we have over 1000 brands using the platform.
Omer Khan [7:21]  
So, the company was founded in 2007. Right, and so you're not a founder of Brughtpearl you joined in what was it 2016?
Derek O'Carroll [7:37]
Yeah, April May, actually 2016. So just over three years ago, yeah.
Omer Khan [7:41] 
So help us kind of understand, like, the sort of the story of Brightpearl and how it got started. And yeah, so maybe we just started that like, like it was founded by Chris Tanner?
Derek O'Carroll [7:53]  
Chris Tanner. Yes. Who still with the company actually had a bit of a sabbatical. But I brought him back when I just and Chris set up the company with one of his friends, Andrew Mulvenna. And there, Andrew was on the business side, Chris was on the technical side. And Chris had a skate shop store. So selling skateboards and surfboards. And he was very successful selling locally in the West of England. And then he quickly opened up an online shop as you do and back in the day, and then and then ran into the challenge of inventory management, distributed order management, looking after cash, reverse logistics, all of the good stuff that I'm sure your listeners are pretty familiar with those who are in that world. And we went out to market and said, Okay, what software or what services available for me to automate as much as possible what's in the back office, so I could serve and concentrate my time on the product promotion and the product development, and he could find anything. And he decided to leverage the fact that he was also a coder. And he said I with a vision of building a back-office manager, NetSuite to handle all of the aspects of order inventory, and accounting. And he actually built an integrated system for orders and accounting from day one. And that's actually one of the reasons why I subsequently joined but that was the original vision. They grew really quickly in the first sort of five years. And then they ran into a number of scaling challenges, which then introduced some problems into the business. And then I joined three years ago, but that that was the genesis of the business.
Omer Khan [9:30]  
And tell me about, like when you join, well, actually, before we talk about that, like, give us a little bit of background about yourself, like what were you doing before you joined by Brightpearl.
Derek O'Carroll [9:41]  
I was running sales and marketing for a brand called Norton, which is antivirus, owned by a company called Symantec. And I was on the team responsible for taking the go to market monetization of Norton, from CDs, to online subscription. That was a three-year project. Before that, I ran this Security Division in EMEA and then globally for a while in Symantec. And under the guidance of the CEO who was out there buying a lot of security companies, we were the landing pad for those acquisitions. And then we brought those acquisitions into the big mothership of Symantec, and then brought it to market did that for about five years, learned a ton about what makes a successful company because obviously, we were acquiring them. That was really interesting. And I used a lot of that later on. Before that, I was involved in a startup, which was I was the general manager and EMEA working with a gentleman by the name Francis deSouza, who's now the CEO of Illumina, and a couple of other really good guys. And we were bought by Symantec. And that was a pure belts and braces, startup out of the stage, and still very close with unlogic Illumina and then before that, I did a startup myself, Vordel, that was a early cloud broker that was sold to Axway afraid company. And then before that, I did a startup called Adnet, which was an online agency building websites, database-driven websites. And before that was a chemist. But for my sense, I wasn't a very good chemist, but that's what I was, wow. An applied chemist, not a pharmacist. Yeah, yeah. So I wasn't very good. That's what I did. I did that for a number of years, and then met a guy who was looking at a black and white certain page. And then we said, Wow, we got to set up a company. And that was Adnet that was one of our what it was Arlen's first digital advertising agency is how we paid ourselves, we great fun during those years. They were awesome.
Omer Khan [11:37]  
So you were in the startup world, you moved into the corporate world. And even then you were still kind of involved in acquiring startups, and then you kind of went back to doing
Derek O'Carroll [11:50]  
Yeah, it was it was, you know, you know, and you have the segway of the family and the work and I'm always trying to have my cake and eat it. But uh, when we were bought by Symantec, I had my first kid, then she reached a certain age when I said to my wife, is it okay, if I go back out into startup world, but Brightpearl wasn't really a startup. And that was the trade off with with the wife. She said, like, you know, find a company that isn't doing very well and just do what you do. Because when I was at Symantec, I had a posting in in that was sent to the German division of Symantec and very tasks at the time is about a five of the million dollar business wasn't doing very well. And they sent an Irish man over there to who didn't speak German to fix it, which I did. But that was a lot of learning and met some great people out there love me and actually, but my wife plays an important part in in sort of a green what I'm going to do, because when I take on a project, I'm, I'm pretty much all in as you need to be, but but not to the detriment of the family, otherwise, I get in trouble.
Omer Khan [12:43]  
That's funny about Munich, I have a lot of good memories about Munich as well. And I work for a company and they fired one of our guys out in Munich, which is not an easy thing to do.
Derek O'Carroll [12:56]  
It's not an easy thing to do, I had to do staff production out there and work with the I was engaged with all the workers' councils. And then we had five workers councils in Germany, and, and then we had to work with a, we had to make sure that we were successful with the oversight of a European workers council out of out of France. But for your American listeners, that's just an indication of some of the challenging nuances that exists in the European marketplace for when you're doing change management, which is tricky.
Omer Khan [13:21]  
So when you joined Brightpearl, in 2016, what was the state of the company? how healthy was it or not at the time,
Derek O'Carroll [13:30]  
I categorize it as being a distressed asset in the eyes of the investors, it was flash in terms of growth, it had extremely high churn in the high 20s, 28, 29%, it had very high degree of burn cash burn within the business, and only a few months of cash left in the tank, actually. So it was old and all and a very demoralized team. So yeah, it was not in a good shape.
Omer Khan [13:55]  
And so you went through a process of trying to do the health check and sort of figure out what the root causes of the problems were? And how did you go about doing that?
Derek O'Carroll [14:04]  
Well, so first, those two tracks that we needed to look at one was with an eye on the future, we had to make sure that the company before I joined was correctly valued. And because the company had raised money, it had a certain valuation, which was based on expectation or the reality. So that was one project work stream we have to engage with, which was when we put together a recovery plan, and we presented a plan back to the board, we got to make sure that we address the messy cap table, the preference stacks, and all the other stuff that you find in businesses that have been around for that number of years. So that was one track. And then the second track was really getting to the root of the issues around performance. And my approach, it's sort of a playbook and the sort of three main areas that I would focus on. One is the product market fit. What is that? Is it working? The second one, with a business of this type with existing customers? What's the go to market monetization strategy? So pricing? And how do we monetize the resources and investment? And then the third one is what's the organizational fitness levels to be able to execute, the people? So those are the three things that at a high level we drilled into.
Omer Khan [15:18]  
And you found some significant problems in all three areas?
Derek O'Carroll [15:20]  
Yes, we did. Yeah, now we sort of had an indication of them. But in order to be able to validate any go forward plan, we had to go and do quite a lot of discovery work. So the first activity is discovery. So I told the board, I would spend the first 60 days in listening mode. And that meant I personally interviewed every single person in the company. At that time, there was about 100 people in the company. And I had a set of questions for them, which are really about, do you have any ambiguity about your role in the business? What's your understanding of the strategy and the go forward plan in the business? What are the barriers that slow you down on a weekly basis? And where do you spend your time, they were in generally the categories that I would look at. And I told the team, I was going to do this discovery process right at the beginning, whilst I also introduce myself so and it's important that I gave them the message that you guys know what's wrong with the business, but no one's listened to you. So I'm going to go and listen to. And I did that with the employees with also the partners, which is crucial. The customers, obviously, and also the investors to a degree, but but those three categories were really important. And what came out of that then was a series of, you know, the top 42 areas in the business. And I know that sounds like a big list 30 to 42 areas that were identified. And I essentially did an all hands call to the team, which was a full afternoon. And I went through, and I shared with them all of the findings. And it was a pretty grim session. But I basically then segue that and said, okay, out of these issues, we have to form some projects to put in place a coalition of effort using your skills to address not 42. But 10. And here are the milestones that we're going to aim to. And one of those projects was, what are the three things we're going to do better than anyone else? That was one project. And I asked people to nominate themselves on a volunteer basis to participate in each project. The other one was pricing. So to undertake what's the perceived value of the jobs of work we do for customers. And that was another project. So we ended up picking 10 projects for the first six months out of the 42. And we agreed with the team, that as we knocked down the problems and came up with solutions, we would then take more projects from the backlist, there was a pretty intensive 18 months schedule to introduce the concept of fitness within the team. And obviously the other reason we did that was to test the team themselves. Because when you ask people to go beyond the call of duty to ask actually work on a project, which is outside of their day job, there's an expression when that when the tide goes out, you see his semi naked, I can't remember who came up with that. But essentially, that that's what that is. And you identify the rock stars that are the keepers. But you also identify the people who are there really good, but effectively there, they don't have the right skill set and maybe in the wrong job, or they're just tired. And you identify those guys, and then you identify all the bullshit is like it's if you ever went to a new school, you always had people come up to you to be your best friend on the first day. And they were the they were the ones that usually you ended up having to a full week later on. So that was essentially the the approach that we took.
Omer Khan [18:37]  
So you mentioned sort of three areas earlier, you talked about product-market fit, monetization, go to market, and then people. So let's kind of dig into those. So let's start with like product-market fit like what was wrong with that when you were after you sort of you know, looked closer at that.
Derek O'Carroll [18:54] 
So we looked at it internally, but I also engage the third party company called the Alexander Group in the valley that I'd worked with before. And I basically said, Okay, I had the product team described the product in simple terms using what are the jobs of work that we do for our customers in each area of the product. So it was a non-technical engagement. And I heard the Alexander group and I said, Okay, here's the type of customer, I'd love to sell two, which is very much you know, the ideas factory, I just picked a profile that I knew would be sustainable, so bigger customers effectively. And I asked him to go and interview those customers and say, Well, what would you pay for those jobs of work without mentioning the name Brightpearl. And what we found was, the bigger customers identified greatly with the jobs of work that we were doing. But they didn't know us. And we didn't sell to them because we sold too much smaller customers. So that was the first test. The next question then is, oh, well, that's interesting. But are we able to even support bigger customers. So that was the next stream was to go and analyze our own customer base. And it was interesting that the team, we're looking at the revenue they were getting from customers, but they weren't looking at the size of those customers. And what we found was a massive difference between the annual contract value per customer relative to the GMV of that customer. And we were taking point two 3% of the GMV when we should have been up at around 1%. But when we dug into it, we found we had very big customers. And I remember one customer of ours that I found a company called Charlotte Tilbury, which are a big makeup brand, now a global makeup brand. And they had grown on Brightpearl. But they had because of the pricing structure, they were paying us a very, very small amount of money for access to a full suite of products. And unfortunately for me, they left the company and move to a big enterprise solution month after I joined. But they were a great example of a whole cohort of customers that I found that we're using the platform getting value from it, but not being charged correctly. So that was the other part part of the triangulation with says, You know what, guys, this product needs to be positioned at a bigger customer, and more importantly, the jobs work will be able to sustain that vision. So that's the really important thing for an established company, you got to be able to prove that your existing customer base is a reflection of where you want to go, if that makes sense.
Omer Khan [21:18]  
Yeah. So how did you fix that product market fit issue.
Derek O'Carroll [21:21]  
So the follow on project was pricing. So when we went out and interviewed customers, we found well, customers buy a back office-solution, because they really want to be able to automate as much as possible. And they want to manage by exception. So they don't want people reviewing all the orders as they come in. They just want to have a system that will do that automatically, all the way through and fulfill so they can manage by exception. And so once we understood that, we then looked at the pricing, and we said okay, well, how do we charge for this product. And bro bro had a classic number of users approach. And then also the nickel and diamond approach, no bunch of features that you can buy on. So it was complex as hell, and very difficult for a customer to really understand pricing, which is another topic for discussion. But that's probably a podcast in itself.
Omer Khan [22:10]  
Okay, so let me just get this straight. So the pricing model at the time was you pay monthly or annually per user. And then you get a base set of features for that. And if you want to have additional features, then you pay incrementally more per user to get.
Derek O'Carroll [22:29]  
Correct, correct. And the problem with that is the we know that the industry is moving to automation. So we know we have to roll out more and more automation. And when you do that, you're going to have less users. So that in itself was one driver, which said we have to change our pricing. But the other key approach is that when you're developing any pricing strategy, you have to look at three things, you have to look at the cost of the service, you have to look at the cost of the alternative. And you have to look at the perceived value that your target customer places against those jobs at work, can you do that with blind testing? You're going to triangulate those three data points, you come up with a target price that you should aim for. And that's what we did. And we came up with a target price, which was around the virus in year 1, 0.72. It was actually point seven, two from memory of ACD relative to the GMV of the customers. And then we obviously sense checked out with the traditional ERP market, where companies expect to spend about a percent on back office solutions excluding warehousing and excluding accounting and excluding technology in the store. And then that led us to change pricing. And then that was a key part of our approach. Because I said earlier on, I didn't know if I did, but when I joined, the company was pretty distressed didn't have much cash in the tank. So we really needed to show value to customers, but monetize them quickly. And the other problem and source of churn was product market fit was wrong, we were selling to very small customers. And we were allowing customers to install that technology themselves. And that's a very difficult thing to do. If you're going to do self service, your product needs to be simple. And it needs to be configurable. And you need to have a very sort of low level of skill required to be an expert on the system. And all of those characteristics did not exist within Brightpearl, because it was so powerful, you needed to implement it by an expert, so that you were up and running really quickly. And you saw value in a short period of time. And they were the changes we made, we moved to a GMV pricing model. And we stopped people being able to implement it themselves. And we deployed professional services. So we got that sort of impact on churn, and then we stopped selling to small customers, because that was the other main driver of churn was small customers under million dollars in our target market, they turn at a very high rate through corporate bankruptcy, they go bust a lot. And that was not sustainable.
Omer Khan [25:02]  
So for people who aren't familiar with the term GMV, that's gross merchandise volume, right? Can you just explain that, like, what does that actually mean?
Derek O'Carroll [25:10]  
So it's essentially turnover? It's the amount of dollars they book, it's not margin, it's how much money did I turn over in a period? That's essentially what it is.
Omer Khan [25:19]  
Okay. And so your pricing was based on a percentage of that number?
Derek O'Carroll [25:24]  
Correct what it actually is, it's tiered pricing. So if you're a $2 million GMV company, you're probably going to be paying about 0.6-0.8% of that in terms of an annual license. Oh, and incidentally, the other thing that we removed was monthly charges. So Brightpearl used to onboard small companies, and then allow them to pay monthly. And that's just that's very difficult to run in a product that is so capable, and then one in which you need to do professional services. So we moved to annual contracts. And then we partnered with a finance company to be able to offer monthly, but Brightpearl would receive the money up front. And then therefore the account is now profitable. And we took all the resources added to make sure they're up and running. And that funds the post contract care, which is another huge area of change that we put in Brightpearl. Remember what I said that Brightpearl use to allow people to deploy it themselves. Now we mandate they have to buy pro serve to deploy. But once it's deployed, we've also followed up with a team of technical account managers that are x support people that really know the product. And they do health checks on account and say, Hey, Mr. Customer, we noticed that your invoicing latency is not where it should be at against the bench, we recommend you make these following changes, or we recommend some training. So we're much more focused on the customer now. Whereas before, the team were completely focused on growth, as it was dictated by the investors and the board. But they weren't organized around the customer lifecycle, if that makes sense.
Omer Khan [26:59]  
Yeah, I want to talk about the like the customer lifecycle piece. But just to kind of recap on the pricing, you moved from a per user model, to taking a percentage of this, it's a utility model. Yeah. And you also started charging, you switch from like, a monthly to an annual contract. And then you also charge them a services fee in terms of helping onboard
Derek O'Carroll [27:24]  
Correct professional services. Because most clients that we speak to they they're going through significant business change. It's one thing buying software, but it's another thing, getting your team to adopt different workflows and different working practices. And you can't do that unless you've got someone who's got experience on. Here's the best practice for reverse logistics, for example, you know, sorry, how to do a return in your business. So it was not only about monetization, it was a realization that I really core part of Bry, pearls strength will be to focus on non-functional differentiation against the people we're going to compete with, because they're going to have a much bigger pots of cash around r&d, that we will. So we decided that our differentiation, one of the main areas was going to be non-functional. So that's post-contract care for the support, expert lead deployments, fixed price implementations, these are all the things we offer today, that we're just knowing that they were just not on the agenda three years ago, how much
Omer Khan [28:20]  
of a pain was it to switch the pricing model with existing customers,
Derek O'Carroll [28:24]
it was challenging, it was all about managing expectation of all stakeholders. So first, we had to go to the board and say, This is the right thing to do. And when we do it, it'll have the following impact on turn. And, you know, we'll, we'll be keeping the right type of customers that will have less corporate churn. But we also will run the risk of having a spike in churn. But we should make that up in the following year. So we, we had to put a lot of work on ensuring that the outcomes were well thought through and plans and presented to the Board, we told him that it was going to be very, I think I called it the valley of death that we were going to go through to get to the other aside, not only the board, but also the team. And then we put a lot of communications into educating the customers why we were doing it. So we were very open about Brightpearl is on a mission to be profitable, invest in a single solution that will do hybrid business support business hybrid business models. But in order to do that, we have to be profitable, we're not a charity. And we have to have the community represented by you, our customers sharing an equal load. And at the moment, we've got very big customers paying very little and very small customers probably paying beyond what they should be paying. And that's why we're moving to utility model. And we did it. And we saw churn spike as a result of pricing, retain revenue and growth in year one, they basically doubled our dollar returning revenue, and our revenue from the customer base doubled. So we lost think from memory, when I started, there was 1400 brands using the planet form, I brought it down to 872. Now it's coming back up over 1000. But so we increase the revenue from last customers. And then we turned a lot of the micro retailers that we were just unfortunate, just not profitable for a system as capable. And therefore as you can be complex. For smaller companies, they don't even have enough time in the day to understand the value of the platform. So that's essentially why we needed to work on the product market fit and sell to bigger customers.
Omer Khan [30:29]  
Okay, did you also change your go to market strategy? So now you've got a different pricing model, but you're also going after different types of customers? So did you change the way that you were approaching sales?
Derek O'Carroll [30:40]  
Yes, so the cost of acquisition was very high, because the team were dependent on one main channel for finding new business. And that essentially was inbound. So PPC, so paid advertising, and SEO, to optimize search. And that was where working very well for the company. But the problem with only having one channel is you are exposed to the market pressures in terms of buying those leads with BBC. And you're also exposed to seasonality. So what we wanted to do was to set up an outbound team, and also a partner team. But our average order value back then was $4,000. We're now at $32,000, that subscription, our average order value. So the economics of deploying an outbound team, which is people on the phone, identifying ideal customer profile at scale, and then calling them and engaging them, that doesn't work economically, you know, with an AOV and forth that has a dollars, so we needed to get the AOV up. And that's what we focused on through the pricing changes in year one. And then once that was done, we were then in a position to set up an outbound team in the USA, in our Austin office last year actually, and then a partner team as well as the because it could pay for itself. But also the relevance factor was there for partners because the average order value had increased. And so in the first half of this year, 40% of my pipeline came from outbound and partner, and 60% inbound, and we have seen a 5x improvement in our cost of acquisition over the last two years. It just gives your listeners an idea that it's there's usually prerequisites you've got to deliver first before you get to your rain go. And ours was we had to get the AOV up before we could deploy outbound right. And that's how we get our customers today now. And then the last one is advocacy. So we spend a lot of money on customer success, and really promoting people from support who had the right skills to go and work on customer utilization. And that's beginning now to create advocates. So if you look at Brightpearl reviews on trust pod, for example, we're getting pretty good reviews, which interests me always named a member of staff a Brightpearl, not always but in the majority. And that's a because the passion, but he'd be because the expertise. And the fact that we do our own implementations, we don't let partners do that. And that's an area whereby we expect to get contribution to pipeline at a higher degree over the next 12 months through advocates, because bigger customers buy in different ways. They don't necessarily go online to search and look for a demo. They bought in more sophisticated way. So we're moving the dial towards that buying pattern. That makes sense?
Omer Khan [33:30]  
Yeah, got it. So how have things changed it you know, when you said when you joined revenue was pretty flat. And I think it was like just a little over 5 million, but it wasn't really going anywhere. You had our high churn problem. Before we start recording, you kind of tell me about this sort of it was basically a leaky bucket, whatever was going in there was coming out pretty quickly. How does that change? So where are you with revenue today.
Derek O'Carroll [33:54] 
So new business growth in the first half is 122%, which is phenomenal churn is at 12%. And the reason it's at 12%, is we still do have smaller customers that are on the books, and they still go bust at a higher degree than our larger customers would. And we'll have that issue until the middle of next year. And at that point, our projections show that we'll have more larger customers who have less statistical chance of going bust in the revenue stream. So we'll get to about 9% by next year. And then average order value has on CAC, so CAC is improved by a factor of five and average order values gone from $4,000 to 32, and a half for $32,000. And that doesn't include professional services. That's just the subscription, average order value. Yeah, and we're very excited about the rate of growth. Now within the business, I would say as well, half our businesses now in the USA, whereas when I joined, I was about 20%, our offices were in San Francisco, I moved that whole operation over to Austin, Texas. And that office now is foundational to our success and the team we've hired, we took a long time getting the right people in, and we really sort of took the approach of going slow to go fast. And and that's driving a lot of our growth now. So yeah, it's a very different different operation now.
Omer Khan [35:20] 
And then what's your ARR right now?
Derek O'Carroll [35:23]  
Just under 13 million, and then bookings and other 3 million?
Omer Khan [35:27] 
So when we kind of look at this, and we say okay, well, the business was not in a great position three years ago, revenue was flat, churn was way too high, didn't really have product market fit figured out, and a whole bunch of other issues. And the business was basically about to run out of money. Yeah. So and then over the last three years, you have more than double the revenue. How is that growing a year on year, what are you seeing with with revenue?
Derek O'Carroll [35:56]  
Well, only annual recurring revenues stack will be at 45% growth by the end of this year.
Omer Khan [36:03]  
Okay. And then churn wise, you've pretty much in from the high 20s down to, you know, you're almost getting into single-digit churn.
Derek O'Carroll [36:15]  
We need to be at nine, that's the targets, but we got to get rid of the legacy of the small guys. But also, as you start to bigger customers, you know, we should get to 6% over the next two to three years. And that's, that'll be that would be the target of the team. But at the moment, it's 12. But we should get tonight.
Omer Khan [36:32] 
Yeah. So I mean, it's been a great story in terms of, you know, the last three years and the turnaround and where you guys are today.
Derek O'Carroll [36:39]  
Yeah
Omer Khan [36:39]  
But what's been the hardest thing for you? Over the last few years? Like if you could go back to 2016? What advice would you give yourself? What would you do differently?
Derek O'Carroll [36:50]  
I would have moved quicker on people. So as I said earlier on, we set up a series of continuous improvement projects, I was new to ERP as an industry. So I had a double learning curve. So my first advice to myself is don't get involved in an industry that's complex that you don't know. Because that that was quite a learning curve. From security to ERP that's one piece of advice, which means I probably wouldn't have done the project. And the second piece of advice is stick to the approach of once your strategy is defined, and you build a structure that you want to build, drive that strategy, be very focused on filling that structure with the skills you need, don't lapse into the well, this person's good and they've got the right disposition, you know, you've got to be pretty brutal with regard to the team that you put in place. And I wish I was maybe six months faster on on on making some of the people changes. And I'm sort of six months behind where I wanted to be in my own mind. I've got a great team now, but I didn't put them in place quickly enough. I think because I didn't understand the bit the business as much as I should have. I was on alert major the learning curve myself,
Omer Khan [38:02]  
you know, I was looking at the bright pOH website earlier. And this is not a simple product or solution in the sense that, you know, you can you can kind of look at CRM, and you can say, Okay, great, I get CRM you, you have contacts in there, you have deals in there, and you see what's going on. But with this, it was like, Well, actually, there's sales order management, there's inventory management, there's shipping and fulfillment, warehouse management and a whole bunch of other things that make this it's a complex area.
Derek O'Carroll [38:34]  
It's super complex. And that's what my wife jokes too much good. Like, you know, you could have chosen something that wasn't so complex, but extremely complex. And as, as you know, the key to growth is you've got to create empathy with your prospects by sharing with them your expertise. But the great the empathy in the first place, you've got to simplify that complexity in a very compelling message. And what we do is, we essentially, say we tick the boxes for back office automation. But why we're different is, we're single throat to choke. In other words, we do the deployment. So you not only get the software, but you also get the service, there's no third parties involved. And we gave you absolute pricing visibility because of our pricing structure that I shared with you earlier on. And we own the technology. So we're not only distributed order management, we also have our own warehouse management solution and our own point of sale. And that's really important in today's world of serving customers in the same way in a highly personalized fashion across multiple channels. And you can only do that with a single platform. And then the three things that make us different to the market.
Omer Khan [39:40]  
Yeah, that's great. Okay, let's wrap up. I'm going to go to the lightning round and ask you seven quickfire questions. So are you ready for that? All right, what's the best piece of business advice you've ever received?
Derek O'Carroll [39:55]  
Never accept VC money and a tranche?
Omer Khan [39:59]  
What book would you recommend to our audience and why?
Derek O'Carroll [40:02]  
I'm not a fan of business book. So because I always think that it could be summarized to two pages. But I would recommend a book I recently read called “The Glass Castle” by Jeannette Walls. And it's an amazing story that really signifies human spirit and resilience. It's a novel. Ready, good.
Omer Khan [40:20]  
Cool. What's one attribute or characteristic in your mind of a successful founder or entrepreneur?
Derek O'Carroll [40:28]  
I think curiosity? Is there. Obviously an entrepreneur has drive but curiosity is is the key to me. So yeah, I would say that's the characteristic I really admire.
Omer Khan [40:40]  
What's your favorite personal productivity tool or habit?
Derek O'Carroll [40:44]  
I love Slack.
Omer Khan [40:45]  
What's a new or crazy business idea you'd love to pursue if you had the extra time.
Derek O'Carroll [40:49] 
Oh, there's a cool company open source called Farm Boss at West Coast, the USA and it's a kit that you can buy, put it on your garden plot, and it will allow allow you to use software for the plant, and it will plant and harvest and manage your crops for you and provide vegetables for the home. I'd love to get involved into that space. I think it's very topical and no way. Yeah, very cool. Very cool. Check it out. Farm boss, you buy them that really good. I'm just gonna check that out.
Omer Khan [41:17]  
What's interesting or fun fact about you that most people don't know
Derek O'Carroll [41:21]  
What I told you. I was a chemist. I lived in a bubble for six months after heart operation when I was a kid. Wow, I'm fine now. But it makes me move fast in life.
Omer Khan [41:31]  
Like literally a bubble.
Derek O'Carroll [41:32]
Lived in a bubble. Yeah, I was in the 70s. So now you can get it with keyhole surgery was a hole in the heart. But back then it was. It was open heart surgery. And afterwards, they put me in a bubble, which I think later on life just gave me a real appetite for cracking on and using every hour for fun purpose. So I've got high energy. I don't know what they put into me. But uh, it's definitely drives my wife crazy.
Omer Khan [41:55] 
Wasn't there movie in the 70s? Like the boy in the plastic bubble or something like that?
Derek O'Carroll [41:59]
God I haven't seen it. But yeah, but I was I was in a bubble. You asked me for something that people don't know. So I've told you NASA secret.
Omer Khan [42:06]  
The secret is out. And finally, what's one of your most important passions outside of your work?
Derek O'Carroll [42:10]
I I basically say I love my family and my kids I really love. I'm pretty good at switching off the weekend and just hanging out with them. And I love cooking. I find it very getting on the barbie and distressing hanging out with the kids. So yes, I'm not a golfer or anything like that.
Omer Khan [42:28]  
Love it. Hey, if I'd probably give the same answer to so we're in the same boat. Good stuff. All right, great. Awesome. This has been really good. So you know. Thanks for joining me, Derek. It's been a pleasure. You know, it's been great to kind of hear about what you have been through the last three years and how you've helped to turn around the business and get it to where it is today. If people want to find out more about Brightpearl, they can go to brightpearl.com.
Derek O'Carroll [42:55]  
Yep.
Omer Khan [42:56] 
And if people want to get in touch with you, what's the best way for them to do that?
Derek O'Carroll [43:00] 
Just drop me an email derekocarroll[at]brightoearl[dot]com or ping me on Twitter.
Omer Khan [43:05]  
Okay, we'll include a link to that in the show notes. Great. Well, I wish you all the best and great. Yeah, I think you know, you spend a lot of time out in Austin and I've got buddies trying to get me to go down to Austin at least to visit so we
Derek O'Carroll [43:18]  
Come down with host you will have we'll go have a beer
Omer Khan [43:21] 
It'll be fun. It'd be like it'd be good to get down there and see what all the fuss about. Austin is all about. So a great way to do that.
Derek O'Carroll [43:29]  
Okay
Omer Khan [43:30]  
Thanks a lot. I wish you all the best. Take care. Cheers.
Omer Khan [43:32] 
Bye bye.
Omer Khan [43:33]
All right. Thanks for listening. I hope you enjoyed the interview. You can get to the show notes for this episode by going to thesaaspodcast.com, where you'll find a summary of the episode and a link to all the resources we discussed. If you enjoyed the episode, then make sure to subscribe to the podcast. And if you're in a good mood, consider leaving a rating and review to show your support for the show.
Omer Khan [43:54]
I want to give a shout out to Michael Harvey from Australia, who left the following iTunes review. He says I've listened to over 65 episodes of The SaaS Podcast over the past three months over the host has access to world-class SaaS entrepreneurs that he interviews and brings their entrepreneurial journeys to light. Not only the success, but the failures and the hard lessons learned as an entrepreneur building a SaaS startup business. This podcast is for anyone thinking of starting a SaaS business. Anyone who wants to scale an existing SaaS business, or anyone interested in the entrepreneurial journey. The SaaS Podcast provides marketing insights on what is working and what isn't. in context to the entrepreneur being interviewed. I was so impressed with the quality of this podcast, I joined owners SaaS Club Plus community to gain further insights into what makes a successful entrepreneur and develop the skills and tools required to grow my SaaS startup. I highly recommend this podcast as you won't be disappointed.
Omer Khan [44:57]  
Thank you very much Michael for leaving that review. Over the past month or so I've got a chance to know Michael a little bit more. He's the founder of Digiclip.io, a checklist and inspection software for small and large scale commercial enterprises that report on vehicles, equipment, facilities and safety. So you can check out his product at digiclip.io, thanks for listening. Until next time, take care.

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Omer Khan

Hi, I'm Omer, the founder of SaaS Club and host of The SaaS Podcast. I help early stage founders and entrepreneurs to build, launch and grow successful SaaS businesses. Join me on this journey.