How Flowhub CEO Kyle Sherman grew to $18M revenue and 500 customers in 2024.

hello everybody my guest today is Kyle Sherman he's the founder and CEO of flow hub and serves on the board of and director directors as chairman a legalization advocate nakamora kyle is finding ways to use technology to help drive cannabis legal legalization for responsibly in the United States Kyle are you ready to take us to the top I'm ready to do it let's go so I have to start with some that's gonna make you cringe you know everyone thinks we're doing like a cannabis interview or something everyone's probably high on the interview I just want to say I know smoking on my end we're good to go we're gonna talk a lot about the industry and what you're doing to legalize hey you know what I'm loaded on caffeine this morning do people always option they just assume you're always like smoking or high no you know it's funny early on CNN Money did a story that talked about us doing that consuming edibles during brainstorming sessions and you know as a team sometimes we do you know will responsibly consume as a group and we'll you know certain departments will sit down and talk and brainstorm of things at five o'clock it's kind of our version of the bar cards but you know during the day we're productive professionals right now I mean if I was stoned I think I'd probably be on a couch I was I think I have two kinds of friends the kinds of friends that like they get tired and they pass out other kind of friends they are most creative with the responsible kind of edible in their system or something like that so let's jump into flow up what do you guys do and how do you make money yeah sure so we created basically a point-of-sale Compliance platform for cannabis dispensaries and we're a SAS platform that means we charge monthly for our services and yeah it's gets pretty much how we make money today we know we're getting the payments to you which is really exciting so when you really look at us holistically we're a point-of-sale service that offers payment solutions for for the citizens what's the customer pay on average per month you know look our ACV years around $8,000 today some go as high as $45,000 it kind of depends on the size of the dispensary but you can break that down we typically do a minimum of a 12-month contract so we look at these contracts in kind of a 12 month view but eight grand a cv is a fair average yeah I would say for our single locations it's probably around 8 8 grand okay today and it grows every and are you you have a partner for the sounds like if there's a point - point of sale system are you building hardware yourself we have a partner for that know so we partnered with HP earlier this year to provide an all-in-one solution so these systems shipped from HP over to our customers with our platform installed on it however you can install flow hub on a Mac a PC you know a tablet any type of hardware Hardware agnostic truly but for those who just want an all-in-one out-of-the-box solution they're opening their dispensary you can get that from HP it works really well it's a very cool system you're socializing that for them you're paying for it for them or they're having to pay extra for that know they're buying that okay and what's that cost all-in-one HP solution always be solution I think it kind of depends on all the hardware options they buy and what state they're in because various states need various you know hardware packages you know some states you could print labels others you don't so I want to say it's anywhere between like two grand and 3500 bucks for an entire set up it's all your printers and everything something along those lines and how many custo will actually put us on a time line for me first so when did you launch company what year January 2015 we founded the company we raised some money and then really started cranking in April okay and so how much have you raised to date about eight million dollars eight million and was this through like traditional VCS or did you have to get creative considering the you know the industry now a great question you know interestingly there's actually some B C's that are specific to the space and so early on our seed round was led by a group called Poseidon out of San Francisco and they're kind of one of the premier early-stage hedge funds I guess I would consider more of a VC actually rather than a hedge fund but there were early-stage gotta first a market in the space and so they've been very supportive after that final partners green lion partners you know folks like that jam10 altitude these are kind of groups that are really focused on the space most both west coast East Coast and then of course filling it with angels mentors of mine folks like that frozen family did you pitch Brad and David Cohen no you didn't beautiful they're big obviously they're in Denver I was curious if they got in with you yeah what group were they Brad Brad Feld and David Cohen Kanako's by the textures funny oh no of course you know actually I talked to Ryan McCann top really or so rhymes Brad's partner but I found at that that foundry early on it found her I think they were really curious in the space but you know they were looking at going well we can't invest as a fund maybe we can do it individually but you know that's kind of the problem with our industry right like you like people are kind of on the fringe can we do it as a fun do we have to do it individually yeah I think they were kind of debating that internally early on got it okay so launch 2015 got crank and you got cranking in April this year April 2015 April 2015 okay yeah okay I'd say and then how many customers have you scaled to over the past three years gosh we're over probably at just under five hundred at this point and all across the it's only us-based are all around the world all us face so we're in ten states to that okay very good now if I take 500 times that a CV you gave me earlier it puts you at about 300 grand per month in revenue is that fairly accurate yeah we're right around 300 K and and what's growth look like so take me back a year what were you doing in August 2017 August 2017 we were at about 1.6 million dollar run rate I want to say so that's added that's about a hundred and twenty grand a month so healthy but more than 3xd over here that's pretty healthy oh it's great I mean the year before that we were doing a hundred eighty K so we're what we're growing quick where is the growth coming from is it literally just adding new dispensaries or is it expanding the revenue from dispensaries you already had both you know so what we did early on is we kind of started at the top down we said hey let's go serve these consolidators the folks who are growing really rapidly maybe they have 6 plus locations no now there are over 20 for example right a lot of these customers of ours and so those guys are kind of our expansion opportunities right but when you look at the industry holistically there's a lot of boutique stores popping up everywhere we can serve that part of the market as well so we've got to worked our way down right we started at the top sort of the big guys built our system so that it can support kind of that scalability and then you know worked our way down to the boutiques you are also probably looking the scale over time but maybe not as aggressively as the bigger folks what do you notice a boutiques and just be clear there they're actually sound what are they actually selling like the tools around the industry or the actual the I mean the actual edible is the actual things you consume these are cannabis infused products flour products you know bait pens these are C infused goods ok and when I say I really mean this is a concern like a microbrew brewery right at some small store maybe owner-operated maybe only a couple terminals right this is a small boutique stores maybe they're a little more pricey than your chain store but you're getting really high quality goods typically you get a lot more personalized service the bigger you go right you have a lot more standards so you know you kind of know what to expect right some of these stores like the Green Dragons the native roots is you're gonna find these guys all over the mountain range down here in the foothills you know expanding nationwide and that retail experience is similar across the board so you know it's akin to a Starbucks experience versus maybe your local coffee shop and talk to me about retention what's net revenue retention annually at today we rotated about 98 percent of our customers here in years so I you know really great retention we have very little churn really excited about that so anything well this is a sticky platform by Nature right because you're running their business so I mean once you're on the system it's why you're gonna switch it's been 98 percent that's 98 percent logo retention annually yes okay if you look at it on on a money basis though on a revenue basis so obviously you churn some revenue but if you expand revenue as well are you above 100 percent that's revenue retention we're right yes we're right around a hundred out of hundred okay that's great that's really great now if people - if people churn why do they churn you know typically it's a small mom-and-pop store that maybe you know dasn't figured out how to optimize their margins and so they close so that's kind of that's a big one another one is you know look a lot of these kind of business owners they don't fully know what they want do it's kind of like maybe they don't understand what software really means then so they're gonna switch software providers every year you know they just they're constantly trying to grow their business maybe ownership has change or there's kind of variable but I kind of go into why customers would churn alive by the majority is truly because they shut down though they just think they can't maintain the license and you know 80 90 percent of SMBs fail in the first year so I mean I get that it turns actually good considering that space walk me through how you're acquiring these customers well what's what's your CAC how are you getting them yeah so the big one is actually just word of mouth because we were first a market in in Colorado in this newly regulated environment we basically connected our software to the state regulators so we could push data to and from the state right and pushed it and pull data down from the state on behalf of our customers which is required by law back then it was being done manually so we kind of came out and said look we're gonna automate all of this and so literally all word-of-mouth that's how we were getting logos early on we just started building our sales organization this year if you can believe it so it's a you know it's really at this point now it's just about scaling out the the sales or in doing more outbound rather than just kind of relying on our inbound leads so what's your team size today we're about 40 40 people all based there in Denver no so we have an office in San Francisco and Los Angeles and then our headquarters is in Denver okay so 40 people one of those 40 how many of them are focused on like content or marketing or onboarding or sales we've got seem about six at this point between marketing and and our sales org okay so that's six people but but you do you feel like you haven't yet bammel to kind of successfully forecast kak you know it's tough right like I think we're figuring that I'll have a good answer for you in about a month and a half yeah no I mean the reason I ask let me ask you you you've raised capital you said eight million to date when was the last round it was earlier this year at the beginning of the year we closed another another small round okay whether it's a good question or not I'm sure it came up I know when you're raising I'm sure the cat question LTV like your typical SAS metrics came up what did you tell these investors when they said what's your CAC how can you spend money to get more customers your sorrow through these five years about $44,000 okay it's the same question though right if they ask you like okay we're gonna give you a million bucks how we're gonna use that to go essentially buy more customers where would you spend that money how do you how do you answer that question yeah I mean look I think you know I don't even I've no idea do they ask did they ask you that question no I haven't talked about ratios like we're about a three to one in terms of LTV to CAC ratio right yeah okay well the only way you can get a ratio though still is to figure out what the so if your left hand I use 44 brand and you know your ratios three-to-one then you take 44 grand divided by three so you still have stuff to have Kaptur do that ratio about 40 of course right now I'm sorry I'll stop my head right now I don't know that exact number I'm like I'm dealing with a ton of other things with the boat so I like I just don't know it off no I'm more just interested in trying to understand how you're thinking about customer acquisition with the capital that you've raised so I've heard you say sales people any other channels you want to open up yeah I'm a deluxe sales and marketing is key right so our marketing team existed with one person right now we're gonna scale that out again you know really really invested in outbound and not relying so much on their inbound we just started doing this like literally the last probably about five months yeah yeah very good okay let's wrap up here right I guess just to be clear like a lot of this stuff's brand new this year so like we're just now focusing on a lot of these things you know makes good sense Kyle I get it let's say let's wrap up here with the famous five number one what's your favorite business book ooh the hard things about hard things I love bold I think bold is a great way to to think about the future I know if you've read that one stealing fire is another great one by a c-collar zero to one is a good one you know one of my favorites is not a business book but that gives you a really high-level way to look at the world as sapiens I think it's just an amazing look at humanity and how we got to where we are today and how humans work together which is helpful in building teams right yeah number two is their CEO you're following or studying so I'm sorry a CEO you're following or studying am i following or stuck like somebody are you asking yeah is there a CEO that you're following or so is there a CEO that I am yeah look I think you know I have a mentor did Chris Duggan and I think he absolutely slays it when it comes to leadership I think he does a great job and Woody's life he's a couple companies badge Vil better works he just founded a new company called Luna I think it's get Luna comm or try lynda.com something like that but it's really it's really nice he's a savvy he's awesome at sales marketing he's just a very savvy dude number three what's your favorite online tool for building your business Kyle you know it's a good question I think something I rely on every day I mean is Google Apps actually like it's such a collaborative environment and then also slack I think slacks incredible for team communication it allows our remote teams right our team in San Francisco team in LA and our team in Denver to feel like we're in the same office consistently it's actually the weirdest thing right like these people will fly around come into our office here we have a couple in town right now from San Francisco and it's like men it's like no difference really between being in the office and being remote and then what an amazing thing that we'll be living today they use these tools and and make it feel that way so I like number four how many hours will sleep for you and every night about five I have three kids so that contributes to that three kids in married I assume married yep okay married three kids at four two four two and five months men grazie way and how are you she's turned 31 this year there anyone why you're got your hands full last question what he was your 20 year old self new man you know I I wish I knew back then that you know I should probably be reading like a book a week you know I think I I think I was probably spending more time on the internet read reddit than I was reading books and I'll tell you I I read about a book a week now and it's absolutely changed my life guys read more there you have it from Kyle founded flow up in 2015 helping folks in the cannabis industry in a legal compliant and regulatory way can process payments on location they're there working part we're currently right now it's about 500 different locations paying on average called eight thousand bucks per year so doing about three hundred thirty grand per month right now that's up from 120 grand per month back in August 2017 so almost three extra with you over a year they raised about eight million bucks team of 40 people between Denver San Fran and LA economics healthy ninety percent local retention annually net revenue retention annually over a hundred percent they're just nuts trying to figure out and scale their marketing team to get into things like hack payback period lifetime value super healthy with low chair Kyle thank you for taking us to the top thanks to having me really appreciate it man