Scaling Childcare with Tech: Winnie.com’s Blueprint for Growing with Purpose & Profit | E2005

0:00 I think there's room for lots of payers in this market I would like to see more support from the government I would like to see more support from employers I would pick any other Market if I just wanted to like get rich this is not the one to just get rich in necessarily it's not a really sexy Market but I'm in this because I want to improve the child care industry I want to make things better for the next generation of parents the next generation of children this week in startup is brought to you by Brave if you're building Ai and search-based applications train your models with the brave search API get started for free at brave.com Jason CLA Innovation takes balance cla's

0:46 CPAs consultants and wealth advisors can get you from startup to where you want to end up get started now at clac connect.com slte and sprig the product experience platform that generates AI powerered opportunities to continuously improve your product at scale visit spri.com twist to book a demo and get a $75 gift card welcome back to this week in startups my name is Alex I am Alex over on X we are joined today on the show by another person with a very good very short Twitter handle her name is Sarah moscov she's the co-founder and CEO over at Winnie and Sarah if memory serves your Twitter handle is just s and m yeah well when you say it like that it

1:31 sounds inappropriate but yes SM yes just no and needed just SM if you want to follow her over on Twitter she's fantastic I've known Sarah for a long time I've known her company Winnie for a long time and actually I got to interview you Sarah back on Equity with tech runch but you're back because your company is once again on the Inc 5000 ranking very high which means that it's growing very quickly and I want to get into that but people might not know what Winnie does so if you could just rewind the clock back to 2016 when you founded the company initial idea learnings pivot and then today in a nutshell what's winning yeah so I wish I could like go back in time and delete like the old Tech crunch post from when we first

2:17 launched because we are nothing like we were back in 2016 we actually started out trying to build an app for parents to find places to go with their kids and we were trying to like boil the ocean into do a bunch of things that didn't have product Market fit but what Winnie is today is we are a Child Care Marketplace we help parents find daycare preschool after care camp and uh we're all across the United States we have hundreds of thousands of child care providers on Winnie and that is is what we've been doing for the last eight and a half years now okay but I want to go back to that 2016 point you made because one place you said that you built a quote comprehensive directory of licensed childcare providers across the US and so to me like when you eventually began to offer marketing Services

3:03 Business Services to those childcare providers and so forth you would already built the database and had people coming to to look at it so to me that early work you did helped build a foundation or kind of one half of the marketplace That You Now operate today am I being too generous though or is that what yeah yeah I mean we spent a long time not making any money and not you know selling anything because we were just building the platform and the platform was you know this huge massive directory of all this information about dayc carees and preschools and and even our early foundational thing which was not dayc carees and preschools but helping parents find places to go with their kids was sort of building that platform of collecting a lot of data about places I in many ways joke about like oh I wish I could turn back the clock and have

3:49 made money sooner but at the same time like we had to build the thing that had value and that would rank in search results to be able to sell to our customers today which child care providers use Winnie to you know help fill their Open Spaces ah that was the Nuance that I forgot because Winnie started off with a non-child care specific Focus yes okay then you moved into Child Care built a database and therefore one half of the market place and then you began to offer Business Services okay that makes a lot of sense it's been a journey well all startups are a journey but how painful was that pivot back in the day when you decided to kind of Niche down and focus on just kind of the childcare segment of the time and to stop doing some stuff that you had been doing how hard was that as a Founder having done all that work that

4:35 you then had to partially walk away from yeah I think that was the big challenge for me was like I was kind of married to this initial idea and even when kind of we saw the data that no one was using our product and that instead they were coming to Winnie and they were literally typing in daycare preschool or child care and looking for just that and only that um we were still like well we'll just build that too and it'll still do all the things and it was only once we really focused on just child care that things started to take off and started working and I I just wish I would have not been you know lying to myself all all that time and just been willing to go where the data and you know frankly the customers were telling me to go all

5:22 right so so when founders come up to you and take you out for coffee or whatever it does we do these days and you tell them that story what's what's the takeaway about how they can avoid that mistake is it just trusting the data sooner and being more willing to go back on your prior plans or is there a nugget of wisdom there that you Dole out in those conversations yeah I mean definitely like just because you built something doesn't mean you have to stick with it it's a it's a sunk cost you've already built that thing and spent that money in that time so you can move on to the next thing but also like I think product Market fit you don't necessarily know when you don't have it but you know when you have it and it was I was lying to myself and saying well we're growing so we must have product Market fit and that wasn't true we were growing because

6:08 well from a small base it's very easy to grow right um and we were doing a lot of these like growth hacks and our app was getting featured in the App Store and we were getting growth but it was a lot of effort to get that growth versus now we just grow like I can take a vacation and we'll still grow and so it's you you kind of have to be honest that you don't have product Market fit if you have to you know if you go away for a week and then things tank because you weren't working that's not product Market fit actually I like that definition of product Market fit a lot the other one that always comes to mind is product Market fit is when the customers are ripping the product out of your hands right but if you can go away for a week come back and everything's still on the ascent that's kind of the same thing and

6:55 it's probably impossible to miss if you're growing that way you can't not notice so maybe product Market fit is just when your business is doing so well you're always slightly positively surprised by the growth and results thereof or like now you know I'll go away and like things will break and customers might be angry about certain stuff but there's still growth the business is still growing even as stuff breaks and I'm angry that this deadline was missed versus like we literally just didn't grow at all because I took my eyes off something so you know we've talked a lot about on the show the data scraping question and I don't know if you can answer this but when you built out the win database of the as you said hundreds of thousands of of child care providers in the country did you do that all by hand or did you use some Machine

7:41 Tools to help accelerate that process we embarrassingly did a lot of stuff with humans um we would literally call daycares we would find information from their websites now um we have a lot more automated systems that get information from providers at scale so you know we send them like one-click emails that ask if they have open spaces that don't even require them to log in to give us that data oh that's great and we've built Integrations with all the licensing databases so we actually know when a provider stops being licensed we take them off the Winn site when new providers are created and you know new child care businesses get licensed they get automatically pulled in and Pages get created for them so we've built a lot of that over time but we did so much

8:27 with humans um expensive human in the beginning I also wish we could take all of that back that was a lot of money that we spent but you know we had to we had to do that to realize like what systems we should be building that actually scale oh man I just realized because you know when is a startup it's been you've raised Capital but if you spend money less efficiently than you might later want to you're essentially taking shares of your company and then throwing them out the window because you don't get that the cash is gone the equity is sold you use the money damn that's that's brutal I would stay up at night crying about their shares this is why I'm not a Founder to be clear yeah it's it's hard to look back and be like oh we spent money on that I mean when we used to have an office we spent money on

9:12 rent and fresh fruit delivery every week so we did all kinds of things I you know wish I could go back in time and not have spent money on but it got us to where we are today where now we're you know profitable and we're making money and so that's good I'll just be more careful in the future okay so I was on Twitter saw that you guys made the Inc 5000 again I want to talk about the results but first the context of it so I used to read Inc magazine when it came out and I would read the Inc 5000 and look at these quickly growing companies and I was always very impressed by the numbers that we were talking about here and just so people know in the 2024 Inc 5000 when he ranked number 275 posting 135% growth in a three-year time frame all right are you building the next

9:57 great AI product well if you're doing that you know how expensive all these apis can be for model training data obviously and training AI is very expensive that's a fact we all know that so you have to try Brave's new search API yes I'm talking about Brave the Privacy browser that I use everyday and on my mobile phone Braves browser has 65 million users and that drives a lot of data into the brave search engine which is the only global scale independent search index outside of big Tech and that index is Ava ailable to anyone with a brave search API so you're going to be able to use the brave search API to power your chatbot or train models inform answers to real-time queries and serve images web results even Rich Text Snippets the brave search API features

10:44 an easy to use intuitive data structure so you're going to be able to get things done quickly and its data is populated by real human interaction not web crawlers that's critical and it's all done at a fraction of the cost of the major players free for up to 2,000 GR per month so you can try it on play with it really sort of brainstorming and then PL start as little as $3 CPM so here you go if you're building NextGen AI apps or chat booots you've got to try the brave search API get started today at brave.com Jason so I'm curious about the process how long did it take to get the data together how much did they did they vet it tuck me behind the scenes about how you get onto this list yeah so the reason I like this list as opposed to like you know all the others you can apply for like the best workplaces which

11:30 we used to apply for that one and the most Innovative companies and things like that is that this is just a purely numbers driven list so you send them your financials like your pnl and your balance sheet and stuff like that and then I believe only if you have the growth that they might be looking for to make the list they ask for audited financials oh okay so we actually don't get official audits of our financials so we had to basically like do that we had to get our accountant to file our taxes get that all done early so that we could uh you know submit them so it's it's less fraudulent than I feel like some of these other lists where you can just make up stats and growth and things like that because you're sending your

12:16 financials you're you know providing some kind of proof or accounting these we provide our actual tax filings and so it it's more legit in terms of they're picking just based on a formula so somewhere over at Inc there is the most valuable database of information on the hottest and coolest private companies I'm not saying someone should leak that because that would be hard on people like you but someone should definitely leak that because I would love to see everyone's numbers because that would be like 5,000 IPOs at once in terms of getting the actual the actual information but I'm sorry I'm dreaming about disclosures that are not going to happen okay so you're on the list I also wish like more companies like private companies publish their financials so you would just have a sense for these things like what is a good benchmark for how much advertising Bend you should

13:02 have as a percent of Revenue like I'm I'm very curious how other companies do this that's usually my line but I'm very glad that that in this case you said it for me oh yes please leak all the financials of everyone I want to see them so I mean I I've had this conversation with dozens and dozens of companies over the years hundreds probably I say hey guys why don't you just tell me more stuff because if you tell me more stuff about your cool growing business I'll print it and then people will know more about your business they'll care more people will learn to me there's like no real downside and people look me in the eyes and they say well we're a private company we don't have to yes I know but think about the benefits so I don't know s you're um you're a CEO why don't more of your peers do this is it powered us the reason we don't share all of our private financials is because investors

13:49 have advised me that that's you know not a great business practice essentially like you're setting what your revenue is at today and what your growth rate is at today and if you know one day you go out and you try to raise money or you try to sell the company everyone will know kind of exactly how much you grew in that time period or you know how much you didn't grow if you didn't grow as much as expected so they're always like the the less you share the better so you can kind of when you do go out and raise or try to sell you can kind of frame the story then knowing everything you know now so you can say oh yes this you know smaller growth rate then was intentional because of this trend that happened and now we're growing this versus like if I came to you now and said we're going to get to this million by this time and

14:34 then we didn't you would not trust me with my future predictions if you were going to buy my company or invest in my company that's the rationale I've been given okay so I hear that it makes no sense to me I need you to tell me why I why I'm wrong because if you are going to go raise the next round of money which I think for you guys would be a series B you would have to provide your results to people who were coming to look at your company and I presume you're providing multiple years of results they can see but I guess you're kind of like framing them with the context of what they are at that time versus like oh I'm definitely going to get to 20 million in revenue and then you only get to 18 and they're like you know I'm not going to trust what she says next but you know I've kind of split the difference like when I'm going out and talking to folks I'm like look

15:19 we're in the double digit millions in ARR and kind of give them a sense of where we are because I just feel like it's helpful some people won't talk to you until you're 100 million in revenue and other people are like oh that's too far we only invest at the seed round and so I always find it's helpful to just give some context of where the business is at when talking to anyone that could be a potential investor okay so taking the VC's argument and the fact that you do have investors and you did the Inc 5000 list disclosing very quick growth do they think that doing the list was sharing too much because now I expect 1,5 1 35% growth every three-year period until the end of time yeah I didn't actually ask permission I I you know I

16:06 ask investors advise something but I generally just run the business how I want to run it I found the list really helpful also with our customers like there's actually a number of child care businesses on the list as well and that's who we sell to and so it's kind of nice to be like hey you know you made the list we made the list we should either talk or if they're already our customers we can kind of both be excited for each other so you know that's also part of the reason we do it yeah well it's an excuse to make noise about your company it's an excuse to talk about your growth and also it's a really good signal you know it strikes me as almost like when a company goes public they are then very visible people can look at their numbers make sure they have enough cash that they're going to survive and then you might feel more confident picking a vendor that you know is going to be stable and so forth not go away

16:52 you know when I see Winnie on this thing you guys haven't raised a big splashy round in a while so you you know slowly begin to recede from my attention because that's what people make noise about but here you are showing a proof point on the other side of just growth and I don't know it seems to be the best of all worlds I wish there was a dollar figure attached to it but I'll take the growth rate from audited financials because I know it's not that that's that's Lovely by itself now you declined though from 177 on the list to 275 and I'm curious how you managed to hold on to your CEO chair which is a dramatic deceleration in your ranking inist well I I do feel like you know making the list year after year is going to get you know harder as our numbers get larger um to kind of maintain this really fast growth rate especially

17:39 because we are not really trying to spend a lot more money we're trying to keep our expenses pretty stable we have been growing a bit of headcount as we've grown Revenue but for the most part we are trying not to go spend all our profits and want to build a war chest um and so I think it will get tougher to maintain this growth rate and it's something that you know that's when it becomes maybe time to think about do you take investment how do you think about the next phase of growth if you don't want to dig into your reserves I guess then the question is are you going to apply again next year or is this going to be the last time that we see Winnie applying for and then landing on the uh the ink list well if we keep growing like we're growing we'll apply we still have a lot of Market to grow into I mean

18:27 the really nice thing about our business is it's not Capital intensive and it's a massive Market I mean Child Care is a $60 billion Market in the us alone and that's just daycare and preschool for kids ages zero to five so it's huge we are not a $ 660 billion doll company right now so we have a lot of room to grow into that market without really even expanding in very different ways like we don't have to go outside the US we don't have to go past daycare and preschool even even though we have started to do that so you know that's the nice thing is there's a lot of kind of Green Field and we don't really have much in the way of competition no one's really doing exactly what we're doing there's other people in the child care space but they're not really in direct

19:12 competition with us our our competition is really like Google I guess um yeah so yeah I think we could be on this list for a while all right everybody welcome back to the program Sten Estus is with us again he's a principal at cla a professional services provider they specialize in CPA tax Consulting and wealth advisory his areas of expertise lie in VCB startups VC funds high growth startups with complex tax issues in multi-state and international filings welcome back to the program Stephen hey thanks Jason appreciate it what's the best way to pick Professional Services firms in your opinion and and what should you avoid it's difficult for founder to know just how great or bad their CPA is sometimes when they come over to CLA I look at it and I just go wow this was missed this was missed this

19:57 was missed and like wow had no idea I thought I was with a good provider it can become difficult to find first and foremost look for a firm that specializes by industry I don't work on construction companies I will miss opportunities there and ultimately not serve them well I work with Venture Capital back tech companies and I really know this area super well the more you can find a firm that specializes in what you guys do and your size and that can be tough for tech companies because one thing that's inherent about them is that they grow really quickly and so it's almost like buying clothes for a toddler you don't want to buy the clothes that fit them because you'll be needing new clothes in two months so if you buy them a little bit too big and you let them grow into it that's kind of Ideal but you're shopping not only for today but you know for a firm that can help you for the next three four five years all right you need a trusted adviser taxes

20:43 accounting you don't want to play games with this stuff get it right get a great partner like CLA go to clac connect.com and let him know your boy jcal senta once again CLA connect.com te aren't you tempting fate to some degree because using Google as the example when Google been public some people actually retrospectively criticized them because they told the world how great of a business search was you know and everyone's like oh you're making that much money doing this and so I kind of feel like when Winnie you know gets the dust off his shoulder and says that in 2023 we were ranked number one in consumer services and number 34 fastest growing private company in California aren't you kind of like painting a big old Target on your forehead that says like come after us because we're growing like heck in a huge market and Rec crushing it I mean I I want more people to innovate in child care I first of all

21:29 I think this market like a rising tide lifts All Ships kind of thing we've seen when other child care businesses get funded I mean even Procare was just bought recently that's a huge company used as like a backend software for a lot of child care businesses we got a lot more interest from folks of like oh maybe Child Care is the market we should care about so we are far from like too much competition we need more competition I want to see more people innovating in this space even if they want to compete head-on with Winnie I welcome it so essentially there's so much Tam that even if you had a handful of competitors doing the same thing there would be plenty of room for everyone to grow for years to come yeah there's so much time there's so much opportunity I mean like at the end of the day like I am in this because I

22:14 would pick any other Market if I just wanted to like get rich this is not the one to just get rich in necessarily it's not a really sexy Market but I'm in this because I want to improve the child care industry I want to make things better for the next generation of parents the next generation of children the next generation of caregivers and so like I would welcome someone crushing us if they're actually innovating and and making this better that I think that would be a great outcome too well anything that makes it easier to take care of kids and have a life because you and I joke about parenting from time to time it's a lot of time it's a lot of time during the day during the night oh my God I'm just a little disappointed that we don't have a better National system but maybe maybe Winnie is just

23:00 going to kind have to fill the gap for everyone out there who wants to work and have a place to have their children that are young I I don't know we we've all looked at other nations and how they approach this and this is the way that we're going to do it I suppose well I think there's room for lots of payers in this market I would like to see more support from the government I would like to see more support from employers obviously parents are are shouldering a lot of this responsibility today and a lot of the cost so I think there's there's plenty of room for there to be lots of participants in the child care industry and also why I like to kind of shout from the rooftops that this is a huge Market come on in like let's innovate here let's build stuff here lots of money to go around and lots of Tam to be had you founded Winnie with another woman yeah yes and you're

23:46 looking at a $60 billion market and your asset light growing quickly and we're going to get to the profitability point in a second it just seems like such a right place for there to be a handful of companies chasing you like you know ramp Chase brecks for a while and now they're both doing very well I wonder if the skewed founder demographics yield a Founder pool that is missing something here because you would think in a different Market if this was like Ai copyrighting and you would seen the success there would be 15 companies all chasing you so it's it's almost surreal that you don't have more direct competition so far yeah and like some of the child care businesses that have raised more money than Winnie are founded by men but we won't get into that um no I think I think they're you know

24:31 doing cool things and that's great and I'm happy that men are participating too but I do think there's you know a little bit of a penalty that I don't know what it would be like to go out there and raise as a man but I do know what the numbers say that women get 2% of the venture capital or maybe it's less now so I think we certainly aren't like rolling in the investor interest yeah um funding to companies with all female founding teams slight increase in year-over-year funding in Q2 of this year to 1.1 billion that's the second best number since Q2 of 2022 but it's still a a very small fraction and mixed gender teams aren't doing incredibly well in the current market either but again like there's so much Tam it just seems like a misallocation of venture funds to not go after some of these

25:16 markets where there's less competition and such clear need and all you have to do is go talk to somebody who takes care of a child it's not that hard turns out there's a lot of people out there who have kids I learned that once I had one and then it turns out I met every single parent Providence in like yes about 30 minutes okay on the on the money front though I was going to ask about why you hadn't raised venture capital in a while and if you were profitable but to get there we have to talk about a small convertible note that you raised after your a that I wasn't aware of before so talk us through the post a Winnie funding history yeah so we raised our series a in 2019 um and then the market got really frothy I think it was like 2021 um people are just like throwing money around I I kind of had like a we

26:02 weren't going out in fundraising at the time um but we were just like you know maybe we should take some money it seems to be really easy to come by it has never been easy for us to raise I think now would be a good time to take a little bit of money so we we did go out then and raise money on a convertible note I'm probably going to get the math wrong I think it was another like $8 million so we've raised a little over 20 million in total funding to date you know I'm really glad we did because after that there was everything turned and we had to quickly get profitable which wasn't that hard for us as it was for other companies but we did have to like whip ourselves into shape and get profitable why well we we kind of saw in

26:48 2022 2023 that like it was going to be very very hard to raise money and I guess we didn't try um because we felt like it would be much easier for us to just get profitable than to spend quarters out trying to raise further diluting ourselves when we could just literally raise money from our customers by selling to them harder and that's that's what we did like we we raised from our customers and it was so much easier and it it made our business bigger and better and expanded Us in New Directions and so once we realized like that was such an easier path than going out and trying to rais from investors who didn't the the stuff they were looking for was also less aligned with the stuff we wanted to build we wanted

27:34 to build the things customers needed and investors wanted us to build like totally different things that didn't make sense for our business okay I'll bite very curious now what did investors want you to build that wasn't too align with your business please say it was an AI chop but well yeah I'm sure that would have gotten us a higher valuation and I'm not talking about our existing investors I'm talking about like the market it seemed like you know we have a usage based Revenue model so when Child Care businesses want to fill more spaces they pay us more money and when they don't have a lot of spaces to fill they pay us less money that works really well for them it allows them to kind of ramp up and down depending on their needs it's kind of how the market Works investors hate that they hate usage based Revenue they wanted flat fee

28:21 subscription Revenue ah okay and only that that's just one example of like the many and we do have a subscription it's just you can kind of dial it up and down depending on your needs yeah versus you know investors we talk to kind of frowned on our usage based model you know all sorts of things like they want us to compete more directly with the businesses they know that exist in the market that are big like a pro care or a bright wheel or something like that whereas that's not our business we feel like that's kind of a solve problem or there's lot it's a crowded space we want to kind of focus on helping childcare bus businesses attract customers and enroll those customers so a number of things like you know investors love like selling to employers

29:07 we saw the writing on the wall was selling to employers employers are paying for fewer and fewer things including child care services it just wasn't you know they would point to other businesses many of them now out of business and they were like why is this business selling to employers so well and we were like I don't know but I don't know if they are um so just a bunch of stuff like that we saw like if we wanted to go raise we kind of had to pick one of those like investor L Theses and we instead wanted to just build our thesis which is like let's just do what our customers want and they'll pay us for it okay we all want to build products that users love and we all understand in the startup game it's product Market fit that is the goal but

29:53 increasing conversions and boosting engagement well you got to really understand your users in order to do that that right and that's something you're not going to get just from analytics well let me tell you about sprig it's a product experience platform that generates AI powered opportunities to continuously improve your product at scale here's how it works sprig captures your product experience in real time and they do this with heat Maps replays surveys and feedback studies so you put all that together right you're seeing where people are clicking you're watching how they're using your app or your product then sprigs industry-leading AI instantly analyzes all of your product experience data to generate real-time insights providing actionable product recommendations that's going to allow you to drive Revenue increase retention whatever your

30:38 goals are and most of all improve user satisfaction with your product so Cy top product teams at figma and notion are already using sprigs AI to unlock new opportunities at scale visit spri.com twist to book a demo and get a $75 gift card that's spri.com twist so on the flat SAS versus variable pricing I guess we now know what the first move that private Equity would do with Winnie if they ever bought you so I guess that means you now can't sell to private Equity because you don't approve good that means you have to go public yes well I think private Equity you know I don't know a ton about it but like my impression of private Equity investors is they just like what makes money and they just like cash flow positive businesses and like if you can prove

31:25 you're doing something that works and is growing and you have a model like they'll buy whatever it is they don't care if it's AI they doesn't need to be AI it can be a brick-and-mortar child care business for all they care it just needs to generate cash and so like I kind of feel like eventually our outcome might actually be more aligned with private Equity that just looking at the numbers now I think private equity's downside is they don't give particularly High valuation so my dream for Winnie is to just keep running it as an independent company forever and ever and that's you know what we've been doing for the last Almost a decade yeah no I was I was just joking about private Equity because I was just thinking about the you know what is the Vista Equity Playbook that they're going to drop on the table and Page one's going to be flat subscription pricing or whatever

32:11 I'm glad you've uh stood up that but going back to the convertible round just because I'm a brat was the cap on that convertible note higher than your series a valuation yes it was much higher which you know at the time like you could ask for whatever you wanted and you would get it um this was 2021 it's interesting now because we have not converted that note like we didn't raise the next round of funding and like if we go to those investors and say you want to convert it that cap you know they're not particularly itching to convert it that it was quite high and so basically a convertible note just acrs more equity in the business or more debt now we also got like a better interest rate than the interest rate now so I'm not like super it's not that worrying and it wasn't

32:57 that that much money that it's like stressing me out that much but it's not it's not the best so there is a downside to like these high you know you love a high valuation at the time a high cap but has a downside yeah well I was gonna ask about the interest rate because you know we've talked a lot about how rates have changed I know convertible notes were incredibly popular and still are but they always made sense to me when the rate attached to them was going to be predicated on Zer you know and then there's today so yeah just poking my head one more time into the the Winnie um Financial history box did the the convertible Note have a variable rate or was it set at a certain ah nice so not a variable rate not a zero interest rate though so there's definitely interest happening you know we could pay it back

33:42 one day I think those investors though really invested on the premise of they're going to get equity in the company so I think it will just eventually convert whether that because there's some kind of fundraise or you know event or you know maybe at some point we can just say like look it's very clear winie is this valuation we should convert the note yeah okay so looking at the history of the company 2021 raise $8 million more very generous terms great time to do so Market falls apart Winnie gets profitable now the reason why I'm curious about the profitability point is you manag to grow very very quickly and I'm curious about how you managed to keep costs and headcount low as you've expanded because in my experience working at startups

34:27 talking to Founders is that as revenue or fundraising grows so too does the cost base so how have you managed to find profitability discipline so quickly to your L Capital rates we have always you know been pretty Thrifty and creative about our our spend now like we did have an office that we no longer have we did do things that other startups did at the time where we got fresh fruit delivered and you know spent too much money on nice office furniture and things like that so we don't do any of those things but I think the biggest cost for us was and still is headcount you know one of the things we have found I think to my surprise is like with a smaller team we kind of get more done now there are certain like big things

35:14 that we would just love to do that are like really meaty and we just can't do like we just can't do them without a clear customer use case or if you know we would have to go raise money to do it so there's a tradeoff but as far as like just executing on our road map and growing like I love our team this you know the 22 people it is now we work hard and we don't have any bureaucracy and there's no politics and we just just make it happen everyone is a is a contributor 22 people like you said earlier that when he's in the double digit AR range if we just take that at the most minimal number which is 10 million 22 people call it 20 that's what like a half to half million AR per that means that when is if you're at 20 million you're generating roughly a

36:00 million dollars in AR per you must be nice and profitable damn no no well we have other costs our second biggest cost is marketing we have a sizable marketing budget and we do have to do that for our SEO kind of driven business so we have lots of parents who find Winnie by typing into Google things like daycare near me or preschool near me but we also have an sem operation and so we will pay to rank for a lot of those terms in markets or areas or niches where we don't have the organic search or as the organic search is is building so that's also a key component to our business and why we don't we're not just rolling in cash so essentially Google is taking all your hard earned profitability this

36:45 raises a pet topic of mine which is I don't Google search is not what it once was for sinding traffic out to the web Publishers have noticed this businesses have noticed this do you feel you're like there's a rising need for greater search engine marketing spend as organic declines in value or is this more of a organic stady but we just want to grow faster so we'll put more money into the we are seeing a rise our organic growth is growing because we now have other ways of getting organic users besides SEO so we now have a really large user base we Market to those same users who have multiple kids and need to find new child care options so we big kind of email marketing operation we now have brand um which was a thing we didn't

37:33 have before so people will just type in win.com or they will download our app in the app store um and that is something we think is really important to invest in because there's actually a lot of kind of branded Child Care searches in the market it like people typing in things like care.com into web browser so people going directly to the brand um so we're we're growing that a bunch with Winnie and doing more Bey you know we're now doing video advertising kind of trying to grow our brand a bit that's kind of a really untapped opportunity for us the SCM and Google search traffic declining has so far really helped our business in that child care businesses are really hurt by this like way more than you know it's impacted us oh so you're the aggregator so as individual

38:20 people struggle to find their own audience themselves they're coming to any so essentially Google oh and Google has become a lot more pay to play in terms of like its local business listings so all the businesses that got organic traffic from Google are not getting that anymore like Google has cut them off um so if you're not like pay to playay showing up in the local business listings you're not getting traffic from that wow so we we are and and these businesses don't have time to like figure out the latest and greatest tricks with how to rank for SEO and sem especially the kind of smaller ones but even the bigger ones and so they're just happy to come to us and have us get them their families does the rising pay-to-play element of Google which

39:05 definitely tracks with what I'm seeing and hearing out there does that give you guys more pricing leverage um yeah I mean just more and more child care providers using Winnie has made Winnie more competitive because if we have hundreds of paying customers in San Francisco we have to you know we have a limited audience of parents in San Francisco so like people are willing to pay more money to get in front of that audience of parents so yeah we have customers that are like I was getting so much traffic from you guys before and now it's you know I'm not seeing as much in this region it's like well now we have like 50 other customers in that region sorry that you were here first you got it good but now everyone else is going up so the challenge of running a Marketplace is like you constantly have to keep supply and demand in Balance our supply are the child care providers and

39:52 the demand or the parents seeking care and we have to grow both of those constantly yeah make sure they keep up how's the demand side looking I was going through some data about child care employment and labor participation and so forth and I'm trying to kind of sort out how remote work has impacted the overall child care I don't know like data set because yeah I tried to work and have a child nearby and I discovered that you end up with a crying child and no work done no one's happy but it does seem that some people have found a way to maybe work from home some of the time reduce the childcare inputs so does that show up on the demand side of the Winnie Marketplace equation yes so we see increasing searches for things like

40:38 part-time care dropin care kind of odd hours of care only wanting care certain days of the week and not others and we are you know constantly helping the child care businesses adjust to this like changing landscape of parents not just wanting full-time 9 to5 Monday through Friday but trying to get by with less um I don't know if it's so much remote work as the economy and people trying to spend less and so they you know maybe remote work or some kind of hybrid work structure is an option and so they're figuring out how they can have friends and family watch the kid on Friday or they're working from home on Friday and they can kind of make it work people are just trying to get by with less paid hours of child care as much as possible whether that's a good thing you

41:24 know I'd argue like you said you need child care really focus at work and so you know you shouldn't skimp on that but parents can't necessarily afford full-time pair 9 to five every day and so they have to kind of figure out if there's a solution they can make work yeah that's that's the thing that I want I want everyone to be able to pursue their life as they see fit without it being an impossibility at the same time I'm looking at um some recent data from the uh from BLS from our government and one thing that caught my eye when I was looking at how many people are working remotely is that the Gap from men to women in remote work is larger than I thought in July of this year women aged 25 to 34 um are 28% remote women 35 to

42:10 44 are 30% remote and those are 7.8 and 8.1% higher than men at the same demographic which to me Sarah is people trying to balance things just because we throw childcare onto women in this country so I presume that's driving that that Gap yeah and I think that's you know worrying because what you don't want is like now that remote work or hybrid work is an option it's women kind of stepping back from the workforce and doing less you know less work uh because they're doing more of the caregiving that was one of the biggest reasons we wanted to build Winnie in the first place is we saw that when there are caregiving needs or when Child Care is hard to come by it is predominantly women that are kind of taking the hit to

42:56 their earnings to their working hours all of that stuff and you know that's that's not great no it's not great I'm I'm in I'm one of the rare couples that's actually the other way around because my wife commutes to work and I work from home so whenever there is a transperson delivery dog grooming whatever is going on like the nanny has to leave I pick it up and let me let me tell you freaking sucks it's so disruptive like like the other day we had recordings the groomers were here the housekeeper was here and I was NE negotiating the whole household while trying to get the script ready for the show and I was like oh my God I I I felt like I was a complete failure every single thing that this is why my husband won't let me have a fourth child cuz he's like you're just going to pop this baby out and go back to work and I'm

43:42 going to have to be the one that's picking up all the all the slack even if we have child care you know there's a million days that it falls through yes yes man's got a point because children oh my God yeah if you had never argued with a toddler about how she can't go up the stairs while holding a bottle and her lovey CU she's going to fall and then been yelled at you don't know what we're talking about but it's a good experience everyone should have it yes one thing that Winnie isn't doing is working to reduce the overall cost of child care because I don't think that's your remit but is there anything in the future of the company that could help with the kind of cost of child care crisis that we're seeing yes so we are but indirectly indirectly um and one of

44:27 the biggest expenses for child care businesses is not running at capacity because it's all kind of fixed cost so if you're not running a capacity all the time you are just losing money and that hurts you even more of your small business but it hurts everyone and the the best businesses in child care are the ones that have many locations those locations are like close together because they're like always running a capacity and as soon as they have too many kids they're like overflowing into the next one they're opening more classrooms and so that's what we're you know aiming to do is is help these businesses always run a capacity not just you know have their classrooms be full but make sure that they can offer part-time care and then fill those Extra Spaces with other part-time students

45:14 offer extra services like before care and after care that are just pure profit plays um offer things like camps and you know break camps and homework health for older kids those things make a center more money but they don't make sense if you can't Market them and fill them and so we are aiming to make these businesses as profitable as possible we see that because the businesses that we work with open more centers because they're growing and they have lots of demand and then that's what makes the prices eventually affordable it's not that like these child care centers are just like trying to rip off parents many of them are in this work because they really want to help families like that's yeah why you do this work it's kind of like thankless work and so they don't

46:01 want to charge more than they have to you know we even work with businesses that are not turning a profit and we're trying to get them profitable but you know you'd be surprised at how little profit margin they have for how expensive the services and so we're trying to kind of make that more so that they don't have to just pass along the cost to parents well one thing that I heard was that um a lot of the costs for a childcare business are essentially their facility they're they're they're rent if you will and some people are trying to get around that by having smaller more homebased child care offerings does wi he work with people all the way down to the I run a part-time child care for three kids in my house we work only with licensed businesses so yes we work with home dayc carees but they have to be licensed so in every state there are some regulations around at what point you

46:48 have to get licensed and so you know sometimes you can have a tiny home daycare with like one or two families and you don't have to be licensed you can still legally operate we don't work with them we typically work with a home daycare that's taking at least eight kids in their program who um and so they're like a legit business they're a really small business but they're a business and that just is you know for safety purposes we want to only work with the folks who've been vetted by their state and are kind of in good standing that just helps us make sure that we're not giving recommendations that are not safe does that lower your overall legal risk if you are leaning on state accreditation as a quality lower threshold I think so I mean I I think it's also the businesses

47:35 that only take a couple kids generally don't need Winnie like they don't need to Market so there's also not a lot of upside they're not full they're not I mean they're full they're not growing there're you know there's really no need for them to put their services online anyway um and so it's lower risk for us it's you know lower risk for our families most important and we don't feel like there's a huge need in the market for us to help those folks okay so I want to go back to the money question though because you mentioned things like even like sports I think earlier about things you're adding on as as as kids get older you can camps yeah camps after care in Oregon growing up we were just kicked out of the house we didn't go to camps per se but it's a big thing on the East Coast yeah so many there can be sports themed camps um

48:22 there can also be in the Bay Area we do all kinds of crazy coding camps or all sorts of fun stuff but um you know it's it's Child Care during the summer essentially and also during school breaks and it's a huge need for working parents is like you you have these three months of the year where you need child care yes that's not provided by the school and sometimes even not provided by your daycare preschool and so we've started kind of working with providers that offer hair during the summer months or during these breaks but as you expand into more more things you will need more resources eventually inside your company which means that you may want to break into your budding Minature Fort Knox you're building in your checking account so at what point do you say okay we're

49:09 going to stop trying to be more profitable or maybe just get back to break even invest more and grow and go into more markets because 22 people won't scale forever right I mean for us we just have to see the revenue use case um and generally that's been a good practice practice for us because it's kind of forced us to really sell it in advance of building it and we've thought a few things could be really big opportunities and then we went out and like talked to customers and tried to sell it and like there was no opportunity there and then there's other stuff that we are working on that it's clear people will pay us for it they're ready to write the check now if we have it and so it's just been I think a good practice for any company to to go out and try to sell your thing and see if

49:55 there are really paying customers there before building it and and it's also meant that we kind of know exactly what the investment will be before we start making money and can kind of choose the things that are going to pay off then do you ever have to raise money again or are you just done with that we talk a lot about venture capital on the show but you just seem to be I mean sitting pretty seems like a too cute of a phrase but that's what it seems like yeah so if we were like a bootstrap company no we would never have to do anything again we could just be really happy unfortunately like I don't own the business like I own a small percentage of Winnie at this point because I've sold it to investors for and and employees um and so I have like other shareholders to think about and so I think we just have to think

50:41 about what's best for the company what's best for our shareholders it's not just like you know I wish we were bootstrapped and that I owned 100% of this thing or me and my co-founder owned 100% of this thing and we could just take all the profit and use it to reinvest and pay ourselves well and all of that but that's not the reality of where we're at and that's you know something that I always advise Founders to think about when raising venture capital is like you now are not you know the only shareholder here but are you and your cender um amongst the larger shareholders or have you been put more towards the middle um combined we're the largest shareholder but we're uh you know there's lots of

51:28 folks now on the cap table that have an interest and have been with us for the long run and you know we have a board that my co-founder and I are both on but we always try to think about like what's in the best interest of the company in the long term and then you know think about all the folks around the table and what kind of outcome they're looking for yeah and because we're dancing around this according to Crunch base investors in Winnie include Homebrew BBG reach capital a four Capital unusual rethink and others quite a list actually including some angels and I think April Underwood was in there as well yes she was one of our original Angel Investors but now has her own fund she does April April and Jess adverb Ventures they're awesome adverb there you go so adverb is not an entity on our cap table but I wish they were I wish they they were

52:14 around when we got started well I mean if you do eventually raise more then you know who to call you put Hunter walk to one side and you grab adver adventures and put it in there you go yeah and I love I love all our we have just the seriously the most amazing set of investors I think because we self- selected into this group like the people that invest in child care similar to the people that work in child care like actually have an interest in doing good for families and children and so I mean I just seriously like for all the crap people say about Venture capitalists uh raising money like we just really lucked out with good people well this is why going back to the private Equity thing about they only see cash flow which is to me is is it's an accountability sync in a way like people will say like oh you

53:00 know we have a fiduciary responsibility to our shareholders I'm like yes for sure but if you're working in let's say long-term senior care I think you also have a moral responsibility yeah to the people you're caring for and whenever I read a story about private Equity buying you know a chain of hospitals or you know senior citizen facilities and then gutting the staff and everyone sitting rolling around in their own filth I'm like I don't know if you're uh actually doing the right capitalism here you're I wish we had a different convers about responsibilities in the business World especially as it relates to private Equity but um that's true I may be biased because I was my last job owned by private Equity so yeah I think that's something something I definitely like have been so lucky not to have to worry about because whenever there's anything that comes up like you know should we do what's right for our users or our

53:46 customers or should we do this other thing that's going to make us a lot of money like it's always do what's right for our users and our customers and like our investors have not given that a second thought and that's obviously first nature to you know my co-founder and I well I mean it's yielded company that made the top um 5% of the in 5,000 two years in a row so that you can be focused on the product and still make money but Sarah before we let you go we're gonna do a quick lightning round and we're going to start with well we're just gonna do two of your tweets because I gotta get your takes on these this by the way is how not to treat your customers I think so Sarah writes HubSpot automatically upgraded my account to an additional 16 $100 a month and then doesn't let you downgrade without booking a sales call really cool

54:32 grift um did HubSpot reach out to you after you did this tweet they did so they did let me downgrade and apparently it was in the contract that I signed that if I went over the number of like marketing contacts that they do automatically upgrade you for the rest of your term so I did actually agree to this so I guess it's on me um but uh I will say like when they reached out out they were very straightforward about the contract and what's going to happen if I do this again and so I appreciate that like that's their business like I just wish they would have told me before I did it the first time but now I know yeah a warning like I think I presume that 1,600 bucks a month is a reasonable chunk of your existing hubs spot spend yeah I mean I think also like look we're a tiny customer in their book but for us

55:18 like this a lot of our we don't spend a lot of money we just went over so we just we have to fight for like every dollar um and it's a lot for us it's not a lot for them yeah I I I brought up this tweet not just so we could all take a a quick uh run around poking the HubSpot but are you seeing from other service providers an increasingly stringent or strict application of SAS pricing negotiation contracts and I'm just curious about how you're approaching that as a founder and a customer of other tech companies oh my God everyone has raised their prices you just have to be so careful right now because you know everyone's facing the same challenges and needs to make money and I get it like we we raised our prices too it's all it's all happening but like if you're not careful this

56:04 stuff can balloon out of control so we've just had to be super careful about what we spend money on if we can build something ourselves for cheaper we will and we've cut out like entire services that we use that way so you're on the build versus buy side of things now just because you have Engineers you can just make your own stuff yeah or like maybe we don't actually even need it we're like oh that we thought it was but we're not using it enough to justify it like forget it you know if you ask my co-founder she might be like it's fine like we can but I just feel like it adds up and so if you're not careful and you don't look through every line item you can quickly be paying for more stuff than you actually need to run your business well this is the thing about people talking about AWS like make sure to keep tabs of your S3 buckets or whatever because you can make a mistake

56:49 and spend yes a ton of money but I I hadn't heard that quite as much applied to standard SAS but it sounds like everything now is a a potential um I don't know bottom line Exploder if you will yeah I mean all these like tools that you use to track your metrics too like especially as we've been growing we're like blowing all of our usage out of the water and then it's like they want to raise you to the new tier and we're like okay we're just not going to track that metric then because yeah we don't need to to run our business and it's like blowing up our usage of these kind of analytics tools yeah people were joking that you could build like um an 80% of an existing SAS product for like 20% of the cost and so if you don't need that top tier you can just kind of make it yourself I wonder if that idea plus AI accelerated programming is going to

57:36 eventually yield people going back to like homegrown Services more often than going out to get traditional SAS products just because who wants to pay that much you know right it's just too expensive all right uh we have one last tweet from Sarah to go through so I brought this one because you're qu putting Jason calanus my co-host who did an all caps tweet which is always indication that someone needs to take his coffee out of his hand and put it somewhere else and I know that because that's also true with me so this is not a disc more of an observation anyways this is the DPI chart we talked about on the show a couple weeks back essentially a great number of inter Capital firms even with a longer vintage haven't returned cash yet and he says that lenina Khan who runs the FTC has to go because she's blocking too many deals then Sarah moscov she weighs in she says Jason is Right whoever is our next president needs to replace lenina KH con the future of innovation in the US is at

58:22 stake not clear where the candidates stand on this okay Sarah how much m&a from the biggest tech companies would it take until you were worried about the largest tech companies becoming too large and too able to just snap up the competition so the other side of this argument I think the like the challenge is they're not really going after the

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