Audio transcription
00:00:41 (Alastair)
Today on the pod, we have Jonathan Gaunt, co founder of Xavier, which later sold to Dext and became Dext Precision. Jonathan, welcome to the show.
00:00:51 (Jonathan)
Thank you, Alastair. It's good to be here.
00:00:53 (Alastair)
Great to have you Jonathan, I'm really excited to hear about your story of… your very short story of Xavier or Dext Precision. What do you want us to call it, Xavier or Dext Precision? Which holds its most in your heart?
00:01:07 (Jonathan)
It's kind of bizarre because I think there's still a lot of early adopters who will still refer to it as Xavier. So I was in a meeting yesterday and someone was going, Dext, sorry, Xavier. So your choice.
00:01:20 (Alastair)
Okay, cool. Well, we'll probably mix it up throughout the show, but I think what's fascinating here is that you built a product and sold it, bootstrapped it, and sold it within 24 months, or there, or thereabouts is kind of my understanding. But before we get into that, Jonathan, I'd love to hear an elevator pitch, or actually maybe introduce yourself properly as well. And then I'd love to hear an elevator pitch on Xavier.
00:01:46 (Jonathan)
Okay, perfect. So who's Jonathan Gaunt? So, my background is, I'm a chartered management accountant, I spent 20 years in industry where I kind of say I learnt about business. I was very fortunate that I worked with some really great people, some kind of leaders who really pushed me out of comfort zone. So 15 years, Lloyd's banking group. During that time, I guess the key thing that I did is I was Finance Director in the Middle East. So it was a real kind of eye opener of trying to understand how a business worked. And actually, the big thing that stood out for me is the ability to be able to make change happen very, very quickly, which is quite unusual in a corporate environment. Came back to the UK in 2010, and then I really struggled to fit back into that large corporate and be an expert and seeing things take time. And so that was really then the catalyst of, I want to do something different I want to work for myself. And then one of my friends tricked me into helping him to understand his business. And I realised that there was a massive opportunity for small businesses. And at the same time, the same friend also introduced me to a dragon, a guy called Richard Farleigh. And he challenged me one day, and he said, tell me not why I can't do this, but tell me what I need to do different in order to make this happen. And so, for me, that was like a real eye opener, and it enabled me to be a creative accountant. And that was the start of FD works.
00:03:32 (Alastair)
Tell us a bit about Xavier and how Xavier came along, or in fact, actually tell us... give us the elevator pitch on Xavier.
00:03:38 (Jonathan)
Okay, so the elevator pitch on Xavier analytics or Dext Precision is really around kind of like data quality, essentially, and consistency approach. And it's that pre-reporting kind of workflow as you kind of business scale, you know what you want to do for one client, but actually, when you start to have 30, 40, 50, or even more, you start to kind of want that consistency. And Xavier was all around. How can we spot those insights very quickly, and how can we start to kind of bring some creativity into the accounting space?
00:04:19 (Alastair)
Because I know it wasn't the start of the journey… that product itself wasn't the start of the journey. There was a different destination you were on, and then you highlighted, or you kind of came across this gap in the market that you wanted a product, or you needed a product to fill in order to get to where you wanted to go with a different product, about Magic Brian, I think, right? So maybe it'd be great to hear the start of Xavier and where this kind of opportunistic idea came from.
00:04:47 (Jonathan)
So I guess part of it comes back to, I've always had a passion for data. I've always kind of had an excitement of trying to kind of codify things. And I guess, in some respects, am I lazy? I don't know. I get bored quite quickly. And so if I look back at my CV, it was always that bit of understand a problem, and then I would kind of go into a bit of a spreadsheet mode of, how can I start to kind of create something that makes it easier?
00:06:17 (Jonathan)
Very fortunate that one of our clients Hatch Apps, Rich, James and Helen, they were developers. And so every time we would catch up to talk about their business, I kept on saying, I wish I could code. And one day, Rich called me out on it, he said, well, what would you code? And I thought that the answer was around a forecasting tool. And that was really kind of a bit of an experiment in terms of could we work together? Was there an opportunity? And that was the start of Magic Brian. So we built a forecasting tool. We thought it was, again, the classic, it was going to be different. And then we started to test it. And very, very quickly, we realised that actually what we thought was going to happen, we weren't getting those results, and the reasons we weren't getting those results was down to data quality. So myself and Simon would frantically be tidying up the data in order to kind of make it work. And it's simple things like how things were labelled within Xero. So, for example, was the supplier one word? Were you using capitals? Were you using lowercase, etc. create duplications? So we were going in there and saying, okay, let's do a find and let's do a merge, kind of bring it all together. And we kept on kind of going through all of these different things in order to kind of tidy it up. And then that was really kind of like the realisation there of actually, is there a bigger problem here in terms of the world doesn't need another forecasting app. It needs something to help you spot all of those things that are wrong very, very quickly. And that was really the start of Xavier analytics.
00:08:22 (Alastair)
So, Magic Brian, how far through that journey did you got before you realised, actually there's a bigger problem or a bigger input problem here that you can't, that needs fixing before you can get to find a solution.
00:08:33 (Jonathan)
So we had a working prototype, so it was quite far along. We'd spent money kind of getting there, and it was almost that bit of us just... I guess part of it was being brave, and it's that bit of we couldn't develop the product further and further because of the data quality. So everything kept on kind of coming back to, you'd load a new client in and it'd be, this doesn't work. We’ve got to start again from scratch. So we were quite far along. We didn't have paying customers, but it was a tough call in terms of actually, we've got to throw something away. And we literally did almost kind of throw it away. We ditched it, we switched it off, and we've never turned it back on again.
00:09:27 (Alastair)
So at this point, how many months, time, value had you invested into Magic Brian?
00:09:32 (Jonathan)
I'm guessing we'd probably spent £15,000.
00:09:37 (Alastair)
Okay.
00:09:39 (Jonathan)
Again, this was us kind of experimenting and doing things on a bit of kind of mates rates to see whether it worked. And it would have been two or three months, but again, we'd bootstrapped it. So it was our cash. It was almost like we hadn't raised money. It was almost like it was our cash. And in some ways, it was almost that bit of, we either invested it in doing something a bit different, creative or otherwise it would have been on people to grow the business.
00:10:14 (Alastair)
So I think it's quite interesting on that decision, how did you go about making that decision going, actually, what were the criteria around going, actually, we're going to can this and we're going to do it quickly and move on to something else. Because I think a lot of the time you see founders continuing down a path which goes on for too long, and they don't make that bold decision quick enough because they're on that path. So, what were the criteria and how hard was that decision?
00:10:42 (Jonathan)
I don't think there was ever. We didn't sit down and kind of go through a bit of a checklist. It just seemed glaringly obvious that there was this bit that there was this friction that we consistently had to kind of go through. And it was then that bit of, well, Rich is very, very good at asking you questions. And at times you're kind of sat there going, why is he asking another question? Why is he asking another question? And I think some of it was almost that bit of someone not understanding... I think sometimes you make too many assumptions, and I think we were very, very kind of fortunate that at the time Rich, James and Helen didn't really kind of understand what an accountant did, and so they were being really inquisitive and asking lots of questions. And I think it was just through those series of kind of asking the questions that it was almost like it was a strong light bulb moment.
00:11:48 (Alastair)
So for clarity's sake, you understand the market really well. You've been accountant for many years in terms of Rich, Helen and James, and you also mentioned Simon before. You may not have had titles and tags and you were all co-founders I believe, but what were the roles or what were the specialisms that they brought to the mix?
00:12:10 (Jonathan)
So Simon's background is he's a chartered accountant from PwC.
00:12:17 (Alastair)
Right, okay. What an awesome guy he must be.
00:12:20 (Jonathan)
Yeah. So Simon worked in the business, FD works, and then Rich, James and Helen were all developers. Helen is very, very creative, a brilliant designer, and then Rich and James are both very kind of technical. Rich is a little bit more on a product side. So we all had very, very different skills. And I think for me, it's probably the first team that I've ever genuinely worked in where we didn't have roles, but we worked incredibly well together. We were real experts. And I think, for me, that was a pivotal point in terms of what I've done beyond working in other teams, is almost trying to work with the very best people you can and being experts in what you do.
00:13:19 (Alastair)
So you got five co-founders, all bringing different skills, specialisms, not really stepping on the toes of each other, but complement each other as a founding team. Five is actually quite a lot in a founder team. So it's quite interesting to hear some dynamics as we go through this. Spent 15k, bootstrapped your own cash, built a product, ditched it, right? Decided that actually, there's a bigger problem here, and that is the cleanliness, data quality. So where does that take you next, then?
00:13:53 (Jonathan)
So, picking up on one of your points in terms of, like, we've bootstrapped everything, even down to things like founders agreements, and we've kind of stopped at times and sort of said, if this happens, what will we do? And so we did some simple things up front of almost just getting a Google Doc and just writing down, well, if this happens we'll do this, if this happens, we'll do that. And those types of things have always stood us in good stead, because if anything happened, we always kind of hoped that we'd be able to come back to this document, and there was a bit of a gentleman's agreement in terms of, well, we agreed this, and that would kind of roll forward. So that's what we've always kind of done, is we've always kind of come back to that point. Your other question?
00:14:44 (Alastair)
Well, the other question was, where'd you go after identifying that? The bigger pain point is data quality, and you've got this mix of five people that worked together for three months or so, sunk some cash in, you binned that and you go, actually, data quality is the big challenge here.
00:14:59 (Jonathan)
Yeah. So I think very quickly we realised that we were kind of onto something. And this is probably even within the first couple of releases we were starting to kind of talk to other accountants about what we'd kind of found. And there was a definite excitement there of this being something kind of completely different.
00:15:27 (Alastair)
So testing the market with the Xavier concept or with the Magic Brian concept?
00:15:31 (Jonathan)
So we pretty much dropped the Magic Brian concept and we pushed forward with the Xavier kind of approach, and I guess there's an element of fate here. Someone looked at my LinkedIn profile from their background was they worked for a London based university. And I was just kind of intrigued in terms of, well, what are they looking at my LinkedIn profile? And it's almost that kind of moment of madness of I just kind of, ah, so you looked at my profile.
00:16:08 (Alastair)
Who are you?
00:16:10 (Jonathan)
What's going on? And it was then he kind of came back and said, oh, we're running an innovate competition. And around, like, forecasting in the kind of accounting sector. Saw your profile and didn't think it was relevant. And I'm kind of like, you know when someone says to you don't think it's quite relevant to you and you sit there and go, fuck you, yeah, fuck you. I'll show you it's relevant. And so that it was almost this kind of bit of, well actually, what we're trying to do here is if we can get this data from small businesses there is a massive underserved part of the UK economy that no one really understands what's going on. And so actually, we kind of thought there was this massive opportunity. If we can start to kind of get that data out from ledgers like Xero, then there's a massive opportunity in terms of, okay, what can we do with it? If we can start to kind of clean it up and get consistency, then there's a massive opportunity of doing benchmarking. And that was then almost this then double whammy of going, hey, we could possibly get some funding here. Which was, we had to match fund with 30%. So it's just kind of like, well, let's try it. And again, you get those people going, oh, you realise it's really difficult, you got to write these technical documents. And so that's pretty much the bit where we rolled up our sleeves and said, well, we can do this.
00:17:46 (Alastair)
So you did the grant application, was it technically a grant then?
00:17:50 (Jonathan)
Yeah.
00:17:51 (Alastair)
You wrote the grant application yourself?
00:17:53 (Jonathan)
Yeah. So within the team, that's where we kind of got down and kind of wrote…
00:17:58 (Alastair)
The skill sets that you had across the five of you, you've got all the skills needed there.
00:18:04 (Jonathan)
Yeah, no, and I think this is it. It's almost that bit if we really kind of imagine what we could do. And so it was almost kind of painting that kind of vision in terms of, well, this is what it could look like. And that really kind of got us excited, so really kind of got the fire in our bellies. And we were lucky we won the competition.
00:18:30 (Alastair)
Congrats, and how much did you win?
00:18:32 (Jonathan)
I can't remember off the top of my head.
00:18:33 (Alastair)
What sort of ballpark was it?
00:18:35 (Jonathan)
So it would have kept us going for 18 months, couple hundred thousand?
00:18:44 (Alastair)
Couple hundred k, wow. And how did you match it? Was it founders?
00:18:50 (Jonathan)
I put some money in it, I guess at the time, against the better judgment of my wife, there was an element of, what are you doing? What are you doing? And it was kind of like, no, trust me, trust me.
00:19:03 (Alastair)
Founders belief.
00:19:04 (Jonathan)
Yeah, and it paid off, it paid off.
00:19:07 (Alastair)
Nice, very nice. And so no other funds raised after that initial bit of self funded, and the grant itself got you to an exit, basically built the technology and exited. But when you started building it, I think one of the things we've chatted about before is you always had an intention or one eye on what it could look like. So you built it to sell, basically for want of stealing the phrase of another podcast.
00:19:37 (Jonathan)
Yeah, I guess in some respects, we built it for one. So all along we've been trying to solve a problem which existed for ourselves. So we've not gone out there and thought, we've not gone out and tried to build something in a sector we didn't understand. Our thought was, let's go out there and build it for one, and then kind of expand.
00:20:04 (Alastair)
So one being yourself and your firm?
00:20:06 (Jonathan)
Yeah. So we've always kind of come back to this kind of bit of, let's build something that we want because we understand that problem and we know how we've hacked that problem. So again, we've done things in spreadsheets. We know our way around the kind of the data, we know how to solve the problems. The bit is we just couldn't scale it. We couldn't scale it across the clients in our business, let alone across different kind of businesses.
00:20:35 (Alastair)
So it's the whole founder product market fit venn diagram that you kind of sit nicely in the middle there with Xavier. So when you set it up, did you have in your mind what you wanted as an outcome and who could potentially buy it? Or kind of where did that… at what point during the journey did you think about it? Because just to repeat again, you went from no product to selling within 24 months.
00:21:03 (Jonathan)
Yeah.
00:21:05 (Alastair)
Which is very quick to build a product, get market fit, get paying customers and sell.
00:21:09 (Jonathan)
Yeah. So we went to Xerocon, where they announced the purchase of Instafile. So we went there, and this is kind of shortly after we'd really kind of started working with the Hatch team. And so the idea was that we would go to Xerocon and it would be an opportunity for everyone to kind of immerse themselves in the accounting kind of world. So we went there and there was an announcement that Instafile had been acquired by Xero, and that was pretty much it. Then we wanted to be the next purchase from Xero, so that was kind of like set the scene a little bit. And then twelve months later, we came back to exhibit at Xerocon. And so a lot of kind of water had passed under the bridge then that we had paying customers, we had some real kind of early adopters, but it was that time where we kind of really sat in front of our target audience and it was amazing. Literally for two days, we had three or four people kind of deep queuing up to have a demo and just kind of see what we'd kind of built. Yeah, it was amazing.
00:22:37 (Alastair)
That sounds awesome, great validation. Twelve months in, great validation to have that product market fit and have people lining up and looking at what effectively was a new category that you developed. And maybe we'll get onto that in a short while as well. But if go back to twelve months prior to that, you were at your first Xerocon and you were thinking, okay, we could be the next Instafile, where in the time horizon did you have that? Was it in 24 months to three years, four or five years? Where in your mind were you thinking, actually, we could exit this at?
00:23:17 (Jonathan)
I remember sitting in kind of Bristol, and we kind of realised that we thought through what the various kind of scenarios were. And I think there was a sense of excitement there of, we've got it this far, let's try and bootstrap it as far as we kind of can. And then it's almost like that bit of, we realised there was kind of traction and then it was almost this point of, right, okay, if we really want to seize the opportunity, which we think is available, we might need to get some kind of funding. But we always had a fallback whereby we thought that this could kind of turn into a bit of a lifestyle business. And we kind of sat down one day of almost kind of going, right okay, if we all want ten grand a month, we’ve got to get to 50 because actually, yeah, you've got some overheads, etc. etc. But it was almost this bit of, actually, we could build something quite lean.
00:24:21 (Alastair)
Cos of course, you got no outside capital driving an agenda there.
00:24:23 (Jonathan)
No.
00:24:24 (Alastair)
So really is down to you five, as stakeholders, shareholders of the business, to agree between yourselves the direction, whether you want an exit or to have, as you say, that lifestyle business.
00:24:36 (Jonathan)
The only stakeholder that we had was Innovate, and so we would have quarterly meetings, so we'd kind of agreed the direction, the scope we were going in, and then we would have quarterly meetings. And they were brilliant because it felt as though we had to report progress back to someone. And so it was a very good way of keeping on track. And again, what we did quite a lot of was almost regular releases. So every quarter we were trying to kind of push out progress. We were trying to kind of push out a new feature, and it was all around kind of creating this excitement with our clients.
00:25:23 (Alastair)
You said traction a few sentences ago that you got traction, and it was kind of looking at the next step. What, for you, was traction in those days?
00:25:34 (Jonathan)
I guess there's two things. We almost kind of see it as land and expand. So it was the bit of, how can we land a client? And then how can we expand that? So how can we get them using it more and more across more of their kind of portfolio? So that was the whole kind of approach here. And that's how we were kind of measuring success, of can we get a foot in the door? And then once we've gotten a foot in the door, can we start to see that kind of traction? And ultimately, we wanted every single one of their portfolio on the tool and them using it on a regular basis.
00:26:16 (Alastair)
What was easier, was it getting in there or was it expanding?
00:26:21 (Jonathan)
It's kind of a really interesting one, because I think there was a real buzz around it that we only needed a very small kind of in. We just needed someone to give us time because we could explain the problem. And it was one of those where people would just turn around and go ah…
00:26:45 (Alastair)
Yeah, I have that problem too.
00:26:47 (Jonathan)
I've got that problem too, but I didn't realise it was a problem. So I think that there's always this kind of bit of…
00:26:56 (Alastair)
Is it not? I didn't realise it was a problem, it was. Well, it's always been, it's always been a problem. There's nothing, no solution other than human being to do something about.
00:27:03 (Jonathan)
It's always been a problem, exactly that. It was almost a bit of they didn't realise that there was a solution out there and they just kind of accepted it. It's almost like a tax, yeah, you've got to deal with it, yeah. Everyone gets that wrong, okay. So, yeah, we were almost solving problems that people didn't think existed.
00:27:31 (Alastair)
If you look at kind of from very early days, you wanted to, and it was Xero was kind of your obvious acquirer in your minds early on, and ultimately you were sold to Receipt Bank bought you that, rebranded to Dext around about the same time. So you were always looking at selling? What would you say… if you had one eye on that sale, what would you say was like the most important thing or few things that you started doing early on to make yourself sellable all the way along that journey, rather than just kind of at the 11th hour, what sort of good practices or things did you put in place from day one, knowing that you wanted that as an option?
00:28:12 (Jonathan)
So I guess there's always been this bit around the scalability of the tech. So we've always built and we've done this in Socket our new business in the sense that we've spent time setting up the technology so it's kind of scalable so that we know that if someone comes in and looks at it, we knew that we could tick the boxes of this being an enterprise kind of ready solution. So we did cut some corners that we then had to kind of come back and kind of fix. But it was always that bit of, how do we build something that's kind of scalable? Quality was very important right way through.
00:28:59 (Alastair)
So it's interesting. So one of the things you said earlier was that on some of the shareholder documents or founder agreements, you kind of, in my words, these aren't yours, cobbled it together almost in a bootstrapped way. You use a document you could find and so you kind of save time and energy there, but focused more time and energy on, say, the technology being scalable because ultimately you weren't going to necessarily get outside investment. So actually among five of you, that was sufficient, but actually really focused time and energy on what matters for a sale and what someone will come along and look for.
00:29:34 (Jonathan)
Yeah. It's an interesting one, though, because when through the sale process, a few of the sticky moments were where we had cut corners and the lawyers..
00:29:44 (Alastair)
In legals?
00:29:46 (Jonathan)
Yeah. Things like where we hadn't quite ticked the box from a company's house kind of perspective or we didn't have kind of official minutes going along. So that did kind of create a few challenges along the way that given if I was going to do it again, you would perhaps make sure.
00:30:12 (Alastair)
You talked about Socket. What would be one of those that you do differently now?
00:30:18 (Jonathan)
So we started off with a data room.
00:30:20 (Alastair)
Yeah, okay.
00:30:22 (Jonathan)
So again, when we do something, we document it and we put it in one place. So something simple like that, rather than having to kind of chase through historic…
00:30:35 (Alastair)
Emails, documents, find all these.
00:30:37 (Jonathan)
Yeah, it's very simple, let's get it and then let's just put it in that one place so we know exactly where it is.
00:30:43 (Alastair)
Okay, that's sensible. We can see quite often there's a lot of time and effort and energy from teams spending trying to find documents and put it, collate a data room. What are you using for a data room then? Some like a Google Drive at the moment?
00:30:58 (Jonathan)
Google Drive. Yeah. I don't think it needs to be complicated.
00:31:01 (Alastair)
No.
00:31:02 (Jonathan)
It's the bit of just making sure that everything is accessible in one place.
00:31:07 (Alastair)
Yeah. Let's talk about the revenue model, if you don't mind. So maybe tell us about that. So it's subscription model, which is the holy grail, obviously, monthly recurring revenue. But maybe tell us about how much the price point, what you landed on and why?
00:31:24 (Jonathan)
It's almost a bit of a comedy story and everything kind of comes back to even now we sort of say, I don't know, £5 a month? And in some ways it was kind of that bit of what you charge for it because it's completely different. What will someone pay? Is it per organisation? Is it per user? So we settled on per organisation and the real kind of challenge was, well, what do you charge for this? From a value perspective, we felt as though you could save hours, which meant that you could charge more for it. But there was always this bit where it kind of came back to the main tool that every one of our customers will be using will be zero and they're probably going to be spending £20/£25 pound for the Xero license. So it's then that bit of, is that the top? They'll never pay more than £20, will they? And then you start to kind of talk yourself down a little bit and we just kept them coming back to what, about £5?
00:32:30 (Alastair)
And did you do any user price testing?
00:32:32 (Jonathan)
No, no. That would have been sensible. We'll do that next time, we'll do that next time.
00:32:39 (Alastair)
So it came back to cheaper than Xero as kind of the main product that it was cleaning up. Cost of a coffee, round number?
00:32:48 (Jonathan)
Yeah. And I think it's always that bit of… what was also really interesting is that this was a cost that accountants and bookkeepers couldn't pass on to their kind of clients. So it's almost in some respects, if they had been able to pass it on to their clients, they perhaps would have paid more. But when it was this bit of that's five pound out of my pocket, there were some real kind of challenges around it. So it's really, really kind of interesting when you get into the kind of the psyche of pricing.
00:33:25 (Alastair)
And did you get into the psyche of pricing at all?
00:33:28 (Jonathan)
No, no.
00:33:31 (Alastair)
Did you consider a premium model at all? I guess, did you discount other pricing models?
00:33:42 (Jonathan)
There was one kind of element, so one thing we did take into consideration is it was quite a processing heavy kind of tool, because effectively what we were doing is we're pulling all of the data out of Xero on a daily basis, so we're checking for kind of changes on a daily basis and then we'd got all of these kind of processes that we go through. So there was quite a kind of a hefty cost from a data perspective. Again, we didn't have the volumes, so we didn't get the huge kind of discounts. So that was kind of a big part of what we were doing, is we just… it's going to cost us that. We've got that at the top end - boom.
00:34:22 (Alastair)
We need a bit of a margin in between.
00:34:23 (Jonathan)
Yeah.
00:34:25 (Alastair)
So can you give listeners a proxy or a feel of how big Xavier got to before it was sold in just two years? And actually what was the time period from starting to sale?
00:34:38 (Jonathan)
So I guess you're probably talking about two, two and a half years across the whole kind of time period. At the point of sale, we had 200 plus clients. So again, we got quite a bit of kind of traction in that relationship in a short space of time.
00:34:57 (Alastair)
And a client being… this one to many relationship where you've got a client as an accounting firm, and they use your product in multiple entities?.
00:35:07 (Jonathan)
Yeah, and I think along the kind of way of we were able to demonstrate how we could make other kind of products out there stickier. So I'll give you some examples of, so with Xero, how could we make Xero stickier? Go proposal. How could we get people to kind of use Xavier precision in order to be able to understand the volumes which would make their pricing kind of better? So one of the things that we realised quite early on is that we just didn't have the budget to kind of be able to go out there and market to kind of our target audience. So it was that bit of how do we play nicely and how do we kind of complement those tools that are out there so we can use some of their existing customers. You then get in, and then they help to kind of sit…
00:36:05 (Alastair)
Because you're not only bootstrapping, so your marketing spend is tighter, you're also creating and defining a new category, which is this kind of general ledger, data quality cleanliness as well. So you got to highlight the problem, then the solution, not just the solution, which has been created, this category that's been created elsewhere or by regulation or whatever. So essentially, the way you did that was jumping in in partnerships with other complementary products.
00:36:34 (Jonathan)
And I think this is a really interesting one of do you try and work with an existing marketplace? And I think if you look at Xero, Xero has got an app store, if you look at some of the kind of the marketing tool sets, they've all got kind of app stores. And I think there's this element of, what's the approach? Do you kind of go out there and try and inquire someone from scratch? Or actually, do you go out there and kind of, you provide a benefit to someone and you know where that target audience is?
00:37:12 (Alastair)
What do you think was the biggest game changer for you in that whole kind of defining or creating the category and marketing, what was the biggest thing that kind of gave you that traction?
00:37:22 (Jonathan)
I think it was, we were very narrow, so we only worked with Xero. We didn't work with Quickbooks, we didn't work with Sage. And so I think that there was an element of, because of that, I think we got some kudos from Xero. We also knew lots of other people like us, and so we were able to kind of go there and say, look, we've built this, what do you think? That's great, but. And then we would do some very kind of quick on-the-fly developments in order to start building out from being a tool which worked for FD Works, for a tool to work with other firms out there.
00:38:09 (Alastair)
So 200 customers, any other kind of proxy for size that you're allowed to divulge? What was your average selling price?
00:38:19 (Jonathan)
I guess anyone could look in Receipt Bank’s accounts and see what the kind of the purchase price was, but no, it was just an absolute kind of whirlwind and I would say an absolute success story that I haven't seen anyone else do yet.
00:38:41 (Alastair)
Yeah. Do you find that hard to process, the fact that it was so quick? And actually, you built and sold a technology company or software company in such a short space of time to, like, actually, what is a major player in the technology market, not just in the UK but…
00:38:56 (Jonathan)
No no, it is really weird and it's still kind of like there are a few moments where you kind of pinch yourself. So yesterday, I was with a group of kind of accountants yesterday and someone sort of said exactly that, of like wow, you founded Xavier didn't you? And it's just, yeah, I did. That's cool.
00:39:25 (Alastair)
Were there multiple parties involved at the end of… when you sold ultimately to Receipt Bank and you thought you'd sell to Xero? Were there other parties involved in that at the time?
00:39:35 (Jonathan)
No, and I think this is probably some of the kind of the lessons there of did we bootstrap too much? Should we have got someone from a corporate finance background kind of involved because they…
00:39:52 (Alastair)
So you didn't have an independent corporate finance party involved? You had the negotiations yourself, did you?
00:40:00 (Jonathan)
We bootstrapped everything. If we didn't have to spend money, we didn't spend it. And I think that's possibly the one thing that you might do differently next time of should we have gone out there to build a bit of kind of a beauty parade? But again, that costs you money of almost a bit of going out there and kind of having those conversations. You've got to put some money up front. And maybe we didn't believe in ourselves as much, but I think that's the bit that maybe next time create the interest, create multiple kind of parties. And I know people have since we kind of sold, I think there's a number of people who've kind of gone along that approach, had multiple…
00:40:51 (Alastair)
In the same sector?
00:40:52 (Jonathan)
I the same sector. And again, you can see that their corporate finance person was involved in these transactions.
00:40:59 (Alastair)
Playing the go between and playing that role. What sort of valuation method was it in the end?
00:41:07 (Jonathan)
Revenue
00:41:08 (Alastair)
With Receipt Rank, revenue multiple?
00:41:08 (Jonathan)
Yeah, revenue multiple. But there was also an element of forecasted revenue multiple.
00:41:17 (Alastair)
Yeah cos you're only two years old.
00:41:18 (Jonathan)
Only two years old, yeah, yeah
00:41:20 (Alastair)
And at that point, were you EBITDA profitable or still EBITDA loss making?
00:41:28 (Jonathan)
We were bootstrapping it in a real kind of sense, so we weren't living the dream on it. So I think it's that bit of we were, kind of making it, making kind of ends meet. We had that complete clarity as to where we were kind of going. The next thing would have been, right, okay, let's go and raise some money, but that was at the beginning of COVID.
00:42:00 (Alastair)
Yeah, so if you hadn't has sold at that point, you had gone to raise money, is that international expansion bearing in mind that you were kind of Xero predominant, or would it be onto different platforms or feature development? What would that have been?
00:42:14 (Jonathan)
So we had a really clear plan, we knew exactly what we were doing. So UK centric, first of all. And it was this bit of how can we solve as many jobs to be done within the accounting kind of space as possible? Because that's where we were kind of the experts. So we were going to stay on Xero and then we were just going to kind of go nail as much as we can. Then the plan was Australia and New Zealand, but again, stay in blue. So staying with Xero, because that's what we understood. Australia, New Zealand, we were then going across to North America. Once we'd solved the world from a Xero perspective, we were then going to…
00:43:03 (Alastair)
Look at shade of green?
00:43:05 (Jonathan)
Yeah, green. But that was kind of the plan of, we played to our strengths, and our strengths were predominantly accounting in the UK. Our strength was depth of knowledge of Xero as a ledger, and so that's the way we were going to kind of play it. It just felt as though least resistance, plus it would have got me to Australia and New Zealand, which is still on the bucket list of places to go.
00:43:37 (Alastair)
It's a shame you don't have more mountains out there. Well, New Zealand does, we could get skiing out there, couldn't we? How hard… arduous was the fact you were negotiating for yourselves? Was the process, was it negotiation process with Receipt Bank? And kind of, was there a one point person within your co-founder team nominated for that? So you've got a party there of five people. How does that work?
00:43:58 (Jonathan)
So I think Rich played the role incredibly well, and I guess what we'd also done is we'd also had in our minds what the price was. So we all had in our kind of mind if someone came almost, almost like a conversation over a beer or something, where if someone says to you, what would you sell out for in your mind? You've got an idea.
00:44:27 (Alastair)
And you’d locked out… that was common across all of you rather than you individually had that in your mind. You kind of locked in between the five of you.
00:44:35 (Jonathan)
It's the kind of things I think all founder groups probably kind of have these conversations of, well, what would it need? What would you need? What would you need? So we always had that kind of bit of what we would need. And I think that's the bit where we got a flattering offer and it felt a really good team to kind of go and work for. It was someone we hadn't kind of considered, but when we met them, we could see that it was a real kind of fit. And it's like, actually, yeah, this can work.
00:45:17 (Alastair)
So it sounds like you went to work in Receipt Bank or Dext, which, where you had an earn out. What was that earn out period? What was it like? What did it involve?
00:45:28 (Jonathan)
So it was over two year period. We had clear targets around…
00:45:31 (Alastair)
Revenue targets or product releases?
00:45:34 (Jonathan)
Mixture of both and yeah, we smashed them in that kind of period. What we needed to deliver, we delivered. We helped take it from Receipt Bank, which was a single product, to a multi product brand. So it's great to be kind of part of that, I think also we started to kind of introduce this kind of real concept of understanding your experts and being kind of domain experts within the kind of space. And there becomes a point with all of this, we worked beyond our requirements of the deal and it just felt one like time to move aside because in terms of really growing, growing Dext Precision to achieve its real kind of full potential, we're slightly outside of comfort zones, expertise. And I think that's the bit of I get really excited for getting my hands dirty, playing around with the kind of ideas. I guess I turned my back on that kind of corporate career a number of years ago and so I wanted to get my hands dirty again.
00:46:55 (Alastair)
So it's the ideation side of things.
00:46:57 (Jonathan)
Yeah.
00:46:59 (Alastair)
I guess kind of, you mentioned before Socket that you're going to get and now you kind of get excited at the early stage, maybe just briefly, what is Socket or what you're trying to achieve with Socket? And then also what will you really do differently? If you look at that bootstrapping journey in 24 months, 36, 30 months, what will you do differently from that experience to the Socket experience? And what would you recommend for others that are thinking about bootstrapping as opposed to raising venture capital?
00:47:30 (Jonathan)
So I think there's always this bit of, when you bootstrap, I think you really, really value every single kind of penny, every single pound. And I'll give you an example., so we worked with a business that raised over $10million, and there was almost a joke in there of going, oh, shit, let's see how quickly we can spend a million. And it was almost like that kind of bit of, it was chocolate money that you never really... Whereas when you bootstrap it, I think you really kind of fight for every pound and you fight for, am I getting value? Can I get value here? So I think for me, that's the bit of, even if you raise money, treat it like you bootstrapped it.
00:48:13 (Alastair)
Really conscious of every pound.
00:48:14 (Jonathan)
Really kind of conscious of it. Again, it's that bit of bringing the right people in, spending wisely, growing it. I think sometimes if you've got too much cash, you go out there and hire too many people and then you've got challenges of how'd you bring together a team. So we've kept it… I think there's this element of keep it small. If you keep it small, keep it nimble, keep close to the clients as well. Keep close to your customers is a really kind of key thing, I guess.
00:48:46 (Alastair)
Lastly, for me, obviously, I love data, love metrics myself. As you kind of went through that journey, what was your favourite metric? Financial, operational, blend of the two, whatever it might be. What was your favourite metric that you tracked?
00:49:00 (Jonathan)
I think it's got to be acquisition. I think it's got to be that kind of acquisition of a new customer and probably that bit of going beyond it, just being a customer and then starting to kind of then look at that customer and look at their websites. That, for me, is almost like the bit that kind of blew my mind is some of the names behind the customers that got me really excited.
00:49:27 (Alastair)
Amazing. So the customer growth, but also logo growth, but also actually who they are.
00:49:35 (Jonathan)
Yeah. I think it's that bit of knowing some of the kind of the people behind it. It's that bit of, there is a sense of kind of satisfaction when you've got people that you respect are using a tool that you've kind of built. For me, that's a real kind of like validation point.
00:50:00 (Alastair)
Jonathan, thanks so much for coming on the show and huge congratulations with Xavier, and I look forward to hearing what Socket does next.
00:50:07 (Jonathan)
Thanks, Alastair.