3000 Hotels Are Paying Them to Optimize Pricing, Investors Put in $50m

Patrick Bosworth

In Episode #737, Nathan interviews Patrick Bosworth. They launched in 2012 with 3 co-founders with now a 105 people. They help hotels, specifically hotel locations better optimize their pricing. They raised $51 million serving over 3000 individual hotel locations paying on average 17 grand per year so they will very soon be doing about a $50 million run rate, 75% gross margin which they tripled over the recent future which is incredible how they worked that fixed cause structure to drive more growth and bring the margin up over time. Additionally spending about $20,000 on CAC, so super healthy payback period at about 14 months in basing in San Francisco and Vegas.

Famous Five:

  • Favorite Book? – Crossing the Chasm
  • What CEO do you follow? – Matthew Prince
  • Favorite online tool? — Gnome
  • How many hours of sleep do you get?— trying to get 8 but is getting 7 hours
  • If you could let your 20-year old self, know one thing, what would it be? – I wish that I had believed that it was okay for me to be happy back then

Time Stamped Show Notes:

  • 00:44 – Nathan introduces Patrick Bosworth to the show
  • 01:23 – Patrick is the co-founder and CEO of Duetto Research, his focus is driving vision and growth at a company
  • 01:50 – Patrick thinks his MBA from Harvard is crucial in the building of the company. It started thru a section mate of Patrick convincing him of the opportunity to build a tech business and introduced him to co-founder Craig Weissman who was at Sales Force at the time
  • 02:15 – In the fund raising process, his MBA created credibility as well as his co-founder’s MBA from Cornell. Another co-founder also went to Harvard and they were all able to maximize their networks
  • 03:01 – Patrick did the two-year program and it helped him get a grounding in business terminology considering his background was in the arts and in politics
  • 03:37 – If the network is the main concern, there are short term programs but they are expensive
  • 04:02 – Nathan says he is willing to spend money for people to enter the program to get access to the network
  • 04:23 – Duetto is a hotel software company leveraging on medium data to help hotel managers make smarter decisions on pricing optimization
  • 04:47 – Duetto gets the demand from a particular hotel and picks the price for each customer segment, channel and room type for the next 13 months
  • 04:57 – This has increased the revenue of the hotels from 6.5 to 8.5% which increases their profit from 75 to 100%
  • 05:15 – Duetto gets revenue from the subscription payment that is paid annually based on the product they are buying and number of rooms in the hotel
  • 05:42 – Patrick is surprised that companies are not availing of the performance kicker as this puts Duetto at the same or higher risk level as their company but due to the nature of the hotel industry, companies are more inclined at fixed price contracts rather than variable
  • 06:41 – Last month, 5% of the revenue came from the flat SaaS model
  • 07:10 – The target customer varies – if it is a strong brand like the Marriott, they need to go directly to them rather than the real estate owner; in smaller brands including independent hotels, they need to go to the management company
  • 08:32 – On a per property basis, they are getting $17,000 to $18,000 per hotel per year and it varies on the number of rooms and products they are buying
  • 08:50 – The company was founded in 2012
  • 09:17 – Patrick and Marco worked on the business idea for about a year and met with Craig on September 2011 and it took them 5 months to court him
  • 09:52 – While Patrick and Marco were fundraising, they were only getting $1 – $2 million valuations but when Craig joined, it jumped up to $10 million
  • 10:49 – Craig has more equity than Patrick
  • 10:58 – They have raised four rounds of capital amounting to $58.3 million
  • 11:33 – The payback period is 14 months and they are spending around $20,000 to acquire new customers
  • 11:51 – They have literally not lost a customer in 5 years
  • 12:55 – Selling to the lodging market is difficult because it has a fragment of value chain and it is an old school industry that does not embrace technology quickly
  • 13:17 – The company tried to spend more on additional sales reps or demand gen but the cash got spent inefficiently
  • 14:12 – Companies have fixed impediments and this is an obstacle in growing the business for Duetto but they found that they can grow by expanding their reach geographically
  • 14:31 – By the end of the quarter they are close to 3000 hotels in 98 countries
  • 15:04 – There is a lag in gross and deferred bookings but the current run rate is a fraction of Nathan’s computation of $50 million
  • 16:10 – The company has a larger services organization than most and they grew from 30% to 70% gross margin in the past year
  • 17:06 – They staffed up sales globally and the services organization with the platform growth margin north of 95% but the blended gross margin including the onboarding services dips down in the 70s
  • 18:26 – They had a fixed cost structure
  • 18:41 – Patrick says they did spend a million bucks a month during the early years and it was partly due to naiveté
  • 19:56 – The investors have big expectations and does pattern recognitions and they were the ones that reassured Patrick about the capital and growth
  • 20:34 – In the last round in 2015, they were able to raise $30 million and valuation of cash burn and growth changed
  • 21:55 – The investors have a changed mindset in 2015 and in 2017
  • 22:06 – They currently have 105 people based in San Francisco and Vegas
  • 23:14 – The Famous Five

3 Key Points:

  1. There is value in having an MBA degree.
  2. Know your market well including its idiosyncrasies.
  3. Study the changes in your investors’ expectations and work with them.

Resources Mentioned:

  • The Top Inbox – The site Nathan uses to schedule emails to be sent later, set reminders in inbox, track opens, and follow-up with email sequences
  • GetLatka – Database of all B2B SaaS companies who have been on my show including their revenue, CAC, churn, ARPU and more
  • Klipfolio – Track your business performance across all departments for FREE
  • Hotjar – Nathan uses Hotjar to track what you’re doing on this site. He gets a video of each user visit like where they clicked and scrolled to make the site a better experience
  • Acuity Scheduling – Nathan uses Acuity to schedule his podcast interviews and appointments
  • Host Gator– The site Nathan uses to buy his domain names and hosting for the cheapest price possible
  • Audible– Nathan uses Audible when he’s driving from Austin to San Antonio (1.5-hour drive) to listen to audio books
  • Show Notes provided by Mallard Creatives