The Subscription App Industry Rebound — Eric Crowley, GP Bullhound

David Barnard:
Welcome to the Sub Club Podcast, a show dedicated to the best practices for building and growing app businesses. We sit down with the entrepreneurs, investors, and builders behind the most successful apps in the world to learn from their successes and failures. Sub Club is brought to you by RevenueCat. Thousands of the world's best apps trust RevenueCat to power in-app purchases, manage customers, and grow revenue across iOS, Android, and the web. You can learn more at revenuecat.com. Let's get into the show.
Hello, I'm your host, David Barnard and with me today RevenueCat CEO, Jacob Eiting. Our guest today is Eric Crowley, a tech investment banker with GP Bullhound where he provides transaction advice and capital to top companies in the consumer subscription software space. On the podcast we talk with Eric about the rebound of consumer subscription valuations and investor interest, how to generate net revenue retention in consumer, and why you should pinpoint where your app sits on Maslow's hierarchy of needs.
Hey Eric, thanks so much for joining us on the podcast today.

Eric Crowley:
Thanks guys. Always great to be here. Really appreciate you having me back.

David Barnard:
Fifth time on the podcast. You're our most seasoned guest.

Eric Crowley:
It is quite an honor. This is probably one of the things I look forward to every year to do.

Jacob Eiting:
Is this why you do the report now? You're like, if I don't do the report, I'm not going to get on Sub Club and that would just ruin my year.

Eric Crowley:
You guys are so popular these days. I have to keep my game up in order to get on the docket.

Jacob Eiting:
You've got to keep up.

David Barnard:
And Jacob nice to be talking to you today as well.

Jacob Eiting:
I'm here. I'm good. I'm underprepared. Which is great because Eric is overprepared. But it's good. I don't know, we live the macro at RevenueCat, dealing with customers every day, but it's nice to get a chance to zoom out and look at the industry a little bit more broadly and make sure it's still here and still growing.

David Barnard:
Yeah, and that's actually exactly where I wanted to start is that we produce the State of Subscription Apps Report every year now. Done the second, already planning the third for 2025. This is your fifth or fourth CSS report, and I feel like your report in the fall is always this nice kind of state of the industry. You take a much broader look at the industry than we do in our report, and so it's kind of a nice balance. And reading through a draft of your report this week, I found a lot of really interesting stuff that I hadn't been thinking as deeply about. But I did want to kick it off just kind of talking what is the state of the subscription app industry, how are things going from your point of view on financing and M&A, all those kinds of things?

Eric Crowley:
Yeah. Well thanks for having us guys. I think for the people that haven't seen our report before, we are an investment bank in venture capital fund, so we come at the CSS industry as kind of from a transactional industry. We're not builders like a lot of your listeners are, but we are advisors or investors into businesses in the consumer subscription, or as we call it CSS industry. So our report comes at it from that angle, which is how do you invest or buy or sell companies in this space?
And then you guys know this from seeing the data at a micro level. The industry went through a huge boom in 2021. Tons of capital came flying in, which meant tons of capital got spent on marketing and growth and new ideas, and then some of that capital got put to waste unfortunately. So '22, '23 was a rough year for a lot of these companies. They over-hired, their marketing returns went down. They weren't able to scale nearly as fast as they were hoping. And so you saw a lot of pain happen in '22 and '23 with some companies going out of business, a lot scaling down, switching models, pivoting to B2B e-commerce for subscription.
But what I can tell you now in 2024 is things have probably never been better. A lot of companies took their medicine, a lot of really great founders and builders kept their head down and they kept doing exactly what their mission was, which is serving their customers, and we're seeing better opportunities and better companies now than we even have in 2021. So companies are growing quickly, they're growing profitably, they have retention rates that are just fantastic.
And so as an M&A advisor, what we see are companies coming to market when they're ready to do something, and they'll give us a call. And so we've got this window, usually six to nine months before a transaction happens, with, "Hey, we know what great businesses are coming to market." And so we've probably never been busier, which is obviously exciting for me, but hopefully it's exciting for the industry over the next six to 12 months.

David Barnard:
As you share in the report that's not only the case in these private conversations that you're having with apps looking to sell or raise or whatever, but we see that in the public valuations as well. Like Duolingo is trading I think at an all time, well, not an all time revenue multiple high compared to the 2021 bubble, but it's certainly rebounded quite a bit since the drop.

Eric Crowley:
Yeah, I think you see that across the board with some exceptions. There are some businesses that had huge COVID booms, like some of the dating services, that just weren't able to keep that level of growth up. They've said, "Hey, we've probably overhired, overspent and we're focusing on profitability." Which means their growth slowed and their revenue multiples come down, but they're still fantastic businesses trading at good revenue multiples and great EBITDA multiples. So I think you're just seeing that shift. But that's also happening across B2B software, it's happening across technology, where if you're not one of the magnificent seven, you are evaluated on your financial performance. And so revenue growth and EBITDA margins are becoming like how the market evaluates CSS business, just as they evaluate B2B SaaS businesses.

David Barnard:
Yeah, in your report, you mentioned this idea of exceeding the Rule of 40. I didn't quite grok what you meant by that in the report.

Jacob Eiting:
I would love to finally learn the Rule of 40 because I've pretended to know it on occasion.

Eric Crowley:
It's bantered around a ton in the investment universe and it's almost starting to be debunked. But for listeners that haven't spent time on this, and hopefully they haven't, they're building code. Rule of 40 is an investment term. So you take your year-over-year growth rate, let's just say your year-over-year growth rate's 30%, and then if you have an EBITDA margin, or cash flow margin of 10%, so the dollars of your cash flow you have divided by your revenue, when you add those two together, you take 30% plus 10%, that's 40.

Jacob Eiting:
At least 40, right? The higher, the better.

Eric Crowley:
Yeah. The goal is higher and you can grow 60% and lose 10% on EBITDA margins, so you have Rule of 50, that still means you're doing well. And so in the public markets, I think there's a slide in the report for people to see, there's a really high correlation on what multiple you trade on, a revenue multiple, with what your Rule of 40 score is. And that's been really intriguing.
But there's even another data point that'll be in the report, which is the Rule of X. So once you guys understand Rule of 40, which we just did a quick intro on, now there's a Rule of X, which effectively there's a higher correlation with companies that are growing faster. So if you take the math and say, instead of just doing one revenue growth rate plus the EBITDA margin, now if you do the revenue growth rate times two and add it to the EBITDA margin, so you're having overweighting the revenue growth rate, that's actually even a higher correlation. It correlates to about 60, 70% of the stock price. Versus the other one, the Rule of 40 is closer to about 56.

Jacob Eiting:
And so basically that's just a heuristic. Is that something you guys came up with?

Eric Crowley:
We definitely didn't come up with it. I think one of the investment funds, Bessemer, I think started it. Bessemer did Rule of X, which is pretty cool.

Jacob Eiting:
They're just coming up with a better model to match trading values with growth rate and profitability?

Eric Crowley:
It's just rules of thumb.

Jacob Eiting:
Yeah, somebody just said at some point 40 is good, above that is good and below that is bad. Well, first of all, it's mathematically heinous to add your growth rate to your EBITDA margin. They are both percentages, but they're apples and oranges. It's a weird thing, but it does happen to kind of give you some information. And with the number 40 at least, and if I say this wrong, Eric, correct me, but essentially if you're growing more than 40% a year, it's okay if you're not profitable because you're growing 40% a year. That's fine. For every point you're over 40% growth rate, if you're losing that percent on your cash flow margins, that's okay. But if you're below that, if you're sub 40, probably you should be cash flowing or at least be profitable. But again, that 40 number was some number some investment person put on the board at some point, but it's notionally correct and interesting.

David Barnard:
But it's also telling if you're growing at 60 and losing 40, then you're not hitting the Rule of 40 too. So it's like you can't also just be lighting cash on fire like it was 2021.

Jacob Eiting:
For RevenueCat, we've gone above and below for different reasons. We've had years where our growth rate is really high, but our burn was really high and we actually were below the line. And then we've had years where our growth rate stayed high, but we actually got a little more fit fiscally. Still losing money, but in a more responsible way. I don't know. This is a thing that probably doesn't concern any SaaS company under 5 or 10 million in revenue. I don't think you should be looking at this. But when you're at the growth and scale stages, it can be a helpful way to look at your business.

Eric Crowley:
It's a rule of thumb. It's like walking 10,000 steps a day. I mean, if you're not looking to exit, focus on building your business. Build the right thing for your customers. These heuristics, these rule of thumbs, they'll work themselves out. And then to Jacob's point, it's a data point in a moment of time. A company's not a data point, it's a linear progression. Step one, step two, step three, step four. So there may be years where, "Yeah, I'm going to spend a crap load of money because there's just huge opportunity."

Jacob Eiting:
And often that's when you need to. Like if the top of that number, your growth rate, starts to flag, you might need to burn a lot more money to change the product or figure out a new growth thing.

Eric Crowley:
[inaudible 00:09:51], it's just investors like simple analogies to help them narrow down investment opportunities. And this is one they use. So we report on that.

David Barnard:
Yeah, super handy for folks in the audience. So I think we'll probably have folks doing tens of million dollars a year listening to this podcast, thinking about when the right exit opportunity is and what kind of multiples. So yeah, a great rule to optimize toward if you are looking for some kind of exit or funding or otherwise in the short term.

Eric Crowley:
You should at least know what your metric is. That's the best way to think about it.

David Barnard:
It seems like M&A has also been hot this year. A lot of CSS businesses on the move.

Eric Crowley:
Yeah, it's been good. I mean, I think it's still early days. There's a lot more coming. I think we've been working on a few, there's a bunch of other ones, like the 7NXT just bought BuddyFit in Italy, which is fitness. If you think about fitness apps still doing deals, that's pretty exciting. Outside just bought MapMyFitness, which is from Under Armour, which is a cool deal. That was actually a founder buying back his own company.
They're seeing a bunch of other cool stuff that's happening and I think we expect a lot more to come. So Bending Spoons has been busy. Francisco Partners bought The Weather Company, which is pretty cool. We helped TeamSnap buy MOJO, that business in the youth sports space. We're really excited about that. And then there's been some financing that's been really exciting. We were fortunate enough to work with Flo Health. You guys know the female health business. They're just an absolute phenomenal business and we helped them raise a really nice round from General Atlantic. So it's been really exciting.

David Barnard:
I know you can't go super deep on Flo, but I did want to go a little deeper and you talk about it some in the report, but what is the investment thesis? I mean, what was announced publicly is that they raised 200 million at an over billion dollar valuation, and then in the report you even share that they went out looking for a hundred million and ended up in a very competitive situation where they raised it to 200. So what you can share publicly, I'd love to hear a little more color on how that happened and what the investment thesis was behind such a high valuation, and then the competition to get in on it.

Eric Crowley:
So Flo's been around for a long time. It was founded by Dimitry years and years ago, and I've known him since 2019 since I started in the industry. So Flo is a female health focused business. It has a freemium model. So I think we've disclosed this, but there's north of 60 million MAUs and then a fraction of that are actually paid subscribers. And so Flo does a great job of providing females, and now their partners, with information around reproductive cycles, menstrual health, and now they're moving into perimenopause and menopause, which is just really, really exciting. And so the thing about this space, and you'll talk about this when we get to other consumer subscription areas, it's super crowded. You can use Oura, you could use Apple Health, and those are big names that everyone knows. And then there's tons of other female health focused or period tracking apps.
What we really like about Flo is that they will work with females early on, when they're in the very beginning of their health journey, 15, 16, 17, and they'll provide a free product. And they kind of create this data layer between when they're 18 all the way until they're when they're 35, 40, 50 moving into perimenopause. And then what you do is you can provide free services to that individual as much as they need. And then when they do need to move into a paid program, there's modules effectively that you could subscribe to. You get all the services of Flo premium, but you can maybe only use one or two, or maybe use all of them, but the cool thing is they're just there when you need them.
And so then what I think the thesis from GA was is you can just continue to stitch and add new offerings to the Flo data layer, and then that just increases the surface area for where their 60 million MAUs will find a reason to subscribe. And even if you capture 1, 2, 3% of those with each new module, that's hundreds of millions in revenue. And so we were really excited about it. I think the thesis was borne out, a lot of investors saw that potential. We do think this is probably a public company at some point. We're really excited about that. And it's just going to be another great CSS business that's in the public market. So yeah, happy to answer any questions, but obviously I have to keep most stuff confidential.

Jacob Eiting:
Yeah, I mean, I'll do some analysis. 60 million. There's a lot of people, there's billions of potential users on the planet, so that's a very good thesis. And then I think we've seen this play out multiple times, that data generates retention. Or the more somebody invests in an app and the more time horizontally it has with you, the higher your retention is going to be. It's not a debate we have so much anymore, but I used to get a lot of people asking me like, "Oh, should I make this a subscription app and how do I structure an app that's worth adding a subscription to?" And I think I always counseled, and I still believe this, that something that gets better over time, well, one, it'll justify a subscription because it's something people use for years and years, but then also the value goes up, it compounds over time.
And so yeah, I think this is a very natural, large human need, large TAM. It's a competitive space so it's interesting that there would be one to emerge. I mean that does seem to be kind of how markets develop over time, is once somebody has kind of figured out the optimal combination of current available technologies, there will be a small oligopoly. So that doesn't surprise me. But yeah, it's interesting to think there's probably other categories that haven't developed as much as Flo, and I think it still speaks to the maturation. 60 million, that's like nobody, you know what I mean? I don't know what the total number of customers, because there's some slices on that from 8 billion people down, but obviously we've barely began.

Eric Crowley:
Yeah, you're hitting on the concept that we call category killers, Jacob, and we talked about it a little bit in the last report, where consumers flock to best of breed. And they learn and decide what best of breed is because other consumers tell them.

Jacob Eiting:
Word-of-mouth is such a dominating channel.

Eric Crowley:
And so Flo's really special. I think Dmitri's talked about this, where over 50% of their users are organic. They've got great App Store rankings. Moms now are telling their daughters. Friends, girls in school tell each other about it. So it's really a powerful flywheel. And so we kind of saw this in youth sports, where we think there'll be two, maybe three winners in youth sports. We think TeamSnap's one of those. We have a couple predictions around financial services, AI news. A big one in family health or family management, we call it the chief household officer. We think there's going to be a unicorn there too. And I think that's what our CSS practice is oriented around, which is helping find those unicorns early on, helping them get to the next level and then hopefully seeing them go public. But we think there's a lot more to come. So we think Flo's a perfect example of what will be a lot of future public companies.

David Barnard:
Well, things you mentioned in there about Flo, and then also have a whole slide in the report about, is finding ways to generate net revenue retention in consumer subscription. And those two acronyms don't usually go together, CSS and NRR.

Jacob Eiting:
Well, it's positive NRR.

David Barnard:
Yeah, exactly.

Jacob Eiting:
Net's can be positive or negative.

David Barnard:
But yeah, I'd love for you to walk us through your thinking, and you kind of already talked a little bit about it with Flo and kind of expanding the product, but what are some of the other ways that consumer subscription businesses can start thinking about NRR being a possibility, instead of just always being a kind of net negative with all the turn going on?

Eric Crowley:
Yeah, so when we started the CSS practice, the biggest thing we had to overcome was people were like, "Well, this isn't B2B SaaS. The big thing that people love about B2B SaaS is once you land a customer, hypothetically you could sell them more seats over time. So that you start with 10 seats, then you go to 20 seats, then you go to 30 seats. So like Sales Source sells a customer, they can gradually grow with that customer. And that's really exciting because the cost of landing them takes one time and then you add more revenue and it becomes an extremely profitable business model. The issue people think they see with consumer is that you sell the consumer once and then that price is capped. You sell them for 29.99, for example, for a year, that's all the money you'll make from an individual best case. And then there's such high churn that you never get this positive net revenue retention.
And the answer is that's not true. It's not common, but in the best of breed CSS businesses, the way to think about this is every consumer subscription business has churn and most of them are high churn. The question is, when does that churn stabilize? When do you find, what we call in our GPB CSS report, the locals versus the tourists? To use an example, if you start with a hundred users and you churned 50 in your first year, all on annual subscriptions, you're down to 50 users. Then the second year you keep 45 of those 50, so now you're at 40%. But then the third year you keep 43, and in the fourth year you keep 42. So now all of a sudden that parabola has just flatlined, and so effectively your dollar revenue retention's equal.
But then here's where the NRR can start to play in, is CSS businesses have figured out you can do price increases. So we have this on our report, which we kind of graph Amazon's, prime subscription, Netflix's cost, and Hulu's costs because those are all mostly public, and they go up every two years. And so all of a sudden now you're seeing pricing expansion, which is David, you asked how do you get NRR? So now if you have a flat cohort, number of users, you're just adding price increases, which can overcome-

Jacob Eiting:
Double-digit, compounded inflation will help drive the market to being accepting of-

Eric Crowley:
... [inaudible 00:19:12] to get away with, that's for sure. But then you see other ways to monetize, like Spotify, Duolingo, they launched family plans. So now they acquired the mom and then the mom brought it in-app for the dad and the family, so now there's a family plan. So you had user expansion with that same one customer. And you could upsell new features. Like Quicken, onX. onX launched global maps versus just your state maps, so you can upgrade to a higher tier. Quicken's adding estate planning tools. Really cool. So if you're already on their financial management software now you could do wills and trusts and have a locker to store important documents. That's an easy upgrade for users.
And so we're seeing some really cool ways that CSS business are generating net revenue retention, but it does require you to really dig deep in the data and understand how do these businesses work, what do consumers value? And then once again, back to the point, how do you bring more value to that same subscription, which may justify a price increase or just keep them subscribing. Both of those things could be useful.

Jacob Eiting:
It's really not a lever worth pulling in CSS until you've compounded a handful of years and you've got a base of sturdy, long-term subscribers that you can then risk to churn them a little bit, but then also just to have a body of long-termers that you can actually either offer something to or even a price increase. I don't think the price increase thing is... Yeah, I think Netflix and Disney did a good job of paving the expectation for that from a consumer perspective, simultaneously with their price increases in pretty much everything everywhere. I used to be very against this because I thought, I don't know, I just thought it was like not worth doing, not worth the negative press. Which again, I think for most scaling early stage it's not, but when you're late stage, when you've got a very mature subscriber base and you're starting, that 40 doesn't add up itself. You know what I mean? You got to find each point. I think there's a case to be made that it's an okay thing to do.

Eric Crowley:
You have to justify it to your users. You can't sneak it in. You send an email, you say, "Hey guys, we're going from 29.99 to 35.99, and here's why. Here's all the benefits you're getting for that extra six bucks." Once again, if they're truly your users, if they're truly people that have been subscribing for two to three years, and they're like, "Yeah, I use this product every month." or "I use it once a year for my big camping trip." or, "Hey, I log into this every day." They're not churning.

Jacob Eiting:
Just send them a link to the inflation report for less.

Eric Crowley:
You can A/B test this stuff. A lot of companies A/B test, they try a little bit, see what the retention is. But generally what I've found with most of my clients is that if you're a best of breed and you're producing a good quality service, people are going to get it.

Jacob Eiting:
Yeah, well, you have uncaptured margin, basically. That's what you're leaving on the table. It's not just trying to get a fair price. And I don't know, I think there's some argument that you can have an asymmetric power there, like if you've captured people's data, and I don't know, I think there's some amount of balance you want to do there, but I don't know, ideally we're finding the optimums of pricing.

Eric Crowley:
The value capture thing. I don't ever buy into that because there's just a lot of options for consumers. So if you offend someone, if you personally offend them with however you message it, or like, "Hey, you can't churn because I've got your information." they'll be a little pissed, and so then you're creating this desire to get back at you. So you don't want that. You just want like, "Hey guys, we're doing the best for you, but this is what's best for us, so let's just meet in the middle." And I think consumers are totally fine with that.

Jacob Eiting:
I think founders typically, depending on how close you are to the product, probably once you're talking about Rule of 40, this is no longer a concern. But when it's like an auteur person who remembers not charging anything for their product, it can be very, very uncomfortable. Because somebody will be pissed and you just have to be okay with that.

Eric Crowley:
For sure. It's going to happen.

Jacob Eiting:
If you aren't okay with one person being pissed, you probably shouldn't have started a company or built an app. Because it just comes to the territory a little bit.

David Barnard:
We haven't talked about it yet, and I don't think you explicitly mentioned in the report, but a lot of CSS businesses are also cracking the code on one-time purchases as well, of like add-ons. Duolingo being a great example of that. I don't think in their numbers they're showing, because they do still have pretty high trends, so I don't think they're anywhere close to NRR positive yet, but they're driving that direction with the buying, I forget what all the little things are, like streak recovery and things like that. It's definitely something apps can and should be exploring.

Eric Crowley:
For sure. I mean Tinder's been doing this for years. You could buy baskets of Super Likes. They're not a subscription, but it enhances your ability to use the product. I think we're going to see more and more of that with CSS, especially as you can do more and more targeted customization around offers, around the products you're actually selling with some of these AI tools. You could do one-off maps, you could do specific layers. I think you see this in a lot of the prosumer tools. If you want to create your own personal template, or email template, or something like that, that's a one-time purchase.
So there's a lot of cool stuff coming and I think it's just going to get more interesting. So I think David, to your point, stick to the subscription, that's where the vast amount of money is, but if there is something you could offer your users without taking your eye off the ball on the subscription, I think it's something to think through.

David Barnard:
We've kind of been talking mostly about the upside, but there also are a lot of threats in the industry and one of which directly applies to Flo, and we're going to have the founder Dimitry on the podcast soon, and so I've actually already spoken to him. So a little preview of that episode. But he had some interesting thoughts around when Apple Health came into their space, they introduced period tracking as a default part of the OS. AllTrails is facing that with iOS 18 adding hiking maps right into the built-in map. So how do you think about the threat of platform owners expanding into these product spaces?

Eric Crowley:
Most of these services rely on Apple and Google for some level of either customer acquisition, some features using the hardware that Apple and Google, I'm kind of focusing on those two, but you could expand this to Oura, you could expand it to Whoop, are generating. And so you're at risk there. And I think Atlas just kind of focus on Apple because they generally get most of the slings and arrows tossed at them, because they're a really valuable participant in this ecosystem. You can't knock that. But I think they're starting to get a little pressure because they charge pretty high fees, the 30% fee.
And then they also, they have a history of this term "sherlocking", which is coming from a historical thing they've done with another app called Watson, where they'll kind of copy features that are highly used in some of their main apps and kind of just continue to build the Apple service ecosystem. So I mean you guys probably see this from their public reports. Their hardware sales are slowing, but their services sales are growing like wildfire, and so a lot of stuff they're offering for free. Like maps, they'll put the hiking maps into the map services, but that's just to get more people to use maps because they can start to sell more and more ads off that. The adding more data into health that helps them sell watches, that's a value-add service for them.
So if you're a founder and you're building, I think one of the people I always talk about is, Apple Demo Day is Startup Death Day. You just never know when Apple releases something if that is perfectly designed to what you were trying to solve for. And so yeah, it's a competitive threat. There's no denying it, there's no papering over it. But the silver lining is Apple is a big juggernaut, they bring a lot of people-awareness to the category. So the certain thing they add to it, people now become aware of that feature. They'll look for best of breed. So if you're a top 20% app, this could be a benefit for you. But you to constantly keep innovating. You can't just build an app, to use AllTrails as an example, they can't just stop doing stuff and say, "Well, we're good." They always have to be 10 x better than whatever Apple's offering is. More photos, more reviews. Now they're doing social features. Apple doesn't do any of that.
What happens is, I think, we've kind of used Flo and AllTrails as an example. Apple may clip off a couple percentage of their free users, but what they don't do is they don't take the people that would pay for AllTrails and Flo. Those people do not just stay on Apple. They're trying to look for a premium experience, so they will go premium. But here's the negative side, if you're an app that hasn't innovated, you're kind of just a me-too app sitting at the bottom of the rankings in the app stores, that's hard. It's a hard spot to be. And so investors are pretty smart about that, so you have to be really knowledgeable and ability to overcome that challenge question, which is going to come up.

David Barnard:
I like the way you frame it in the report too, that there's broad and shallow, which is what the platforms do. It's like when they introduced period tracking in Apple Watch, they had to do it for the masses. It's broad and shallow. It's not a super deep feature. And then Flo is the exact opposite. And then the way you frame it in the report is verticalized and deep. Where they have so many other features and layered upon. Like to your point earlier, it's like the things that people are going to pay for in Flo are the things Apple is just never going to add to this mass market app. So the best defense against sherlocking is building a real moat with that depth and verticalized product offering, instead of doing that kind of me-too thing that puts you at huge risk.

Jacob Eiting:
Has there ever been any other app besides Watson that was sherlocked?

David Barnard:
Actually sherlocked, right? Yeah.

Jacob Eiting:
Yeah, I feel like it's something everybody talks about all the time, but it never actually... Who was it recently? 1Password. Because Apple upgraded all their password stuff and everybody's like, "Whoa, 1Password's over." And we use 1Password business syncing, all of that stuff, across platform. No, never in a million years they're going... Well, one, I think probably people are over tuned to the Apple ecosystem talkers, who think, "Oh, I'll just do everything through Apple." I don't know, I just don't think there's been actually that many cases.

David Barnard:
Or nothing meaningful. Kind of Eric's point. It's like the me-too's. Yeah, sure, maybe they got dropped off, but nothing we care about.

Jacob Eiting:
I think maybe I would think twice if there was a great OS level solution already, I might think twice about starting something new in there. But if you're already in that space, and I guess, yeah, if you're not just nascent, like very beginning, if your product has any sort of differentiation whatsoever, Apple and Google or whoever they're building it because they're something there. They would not care unless it was substantial. And so I'm a believer in most of the time it's kind of a boon, or at least neutral, with the exception of maybe a few cases.

Eric Crowley:
If you're best to breed. So think about it from a note-taking standpoint. Notion's probably going to survive any AI tools that Apple integrates into notes. They'll probably survive. Now there's a bunch of other note-taking apps that may have a really rough time capturing customers. So Notion probably fine. And I don't know Notion, I have no inside information. But if you're someone else in there and AI, and Apple all of a sudden integrates a bunch of other tools, or starts to look a little more Google Docs within their notes platform, that could be a tough spot to be. I'm using some of the transcription services in Apple's voicemail. It's pretty good. So if you're using something, a separate product, it could be a problem. You can't stop growing in the space just because Apple exists. It's like what people used to do in social networks. Like, "Oh my God, Google's doing something. Facebook's dead. Well-

Jacob Eiting:
No. David, are there any? I can't think of one tool that I've switched to the OS level on.

David Barnard:
The Notes is a good example though, because as Apple added more and more to Notes, this was probably five years ago I stopped using a third-party Notes app.

Jacob Eiting:
It's true. Yeah, because they used to not have sync. Their sync is really good now and-

David Barnard:
It's a great app.

Jacob Eiting:
... Yeah.

David Barnard:
It really is a fantastic app. But I never used Evernote. I was using, actually it perfectly validates Eric's point, it's like I was using kind of a more bare bones me-too third-party Notes app that didn't even have super sophisticated syncing, wasn't super feature rich. And so moving to Apple's Notes just made a ton of sense as they've added all these features. But I wasn't an Evernote kind of power user.

Jacob Eiting:
Yeah. On the AI side though too, it's like the system level Notes app will now habituate users to some of those features and then Apple's not going to update them but once a year, if that. And so now everybody else who's building AI integrated has a warmup app that everybody uses. Then you're in class and you see somebody next to you using something crazier and you're like, "Oh, you don't use whatever?" And then it's like, "Well, I'm going to switch to that." So this stuff's so dynamic and so hard to fully characterize, like consumer behavior, that I think it's overblown.

David Barnard:
Now that's a fantastic point. Apple is unlikely to integrate AI features into the Notes app at the level that would kind of be meaningful for me. But now that you bring that up, I mean I have so many notes now going back five or six years since I started using it more in depth that it's hard to find.

Jacob Eiting:
It'd be hard to switch, right?

David Barnard:
No, no, no. But I'm saying it more incentive to switch. With AI, companies really get aggressive with better tooling and finding and RAG search and all that kind of stuff.

Eric Crowley:
Because with the AI piece [inaudible 00:32:12], we didn't put this in the report, but if you think about it, they're going to need access to data and so they will want specific requests, like access to your contacts, access to your calendar tools. Apple's going to be a little protective on that, but which one are the consumers going to trust to unleash an AI engine on their own personal information? So I think there's a double-edged sword there too. I think the builders, they'll integrate AI tools so much faster than Apple. Just factor of probably three X. Two to three years ahead of Apple. But if you want to trust someone with your data source, or your course data like contacts or calendar, Apple might have a slight advantage there. So you really have to connect with this premium offering or get that consumer buy-in, which is like, "Hey, what are my friends using? Do they love it? Cool. Then I'll use that app."

David Barnard:
I don't want to go super deep, because it's just been talked about a ton, but because it is being talked about a ton, I'd love to just get the read of the room on the DMA and all the regulatory overhang we have.

Jacob Eiting:
It's over. Thierry resigned. It's going away. I thought when he left, it's over. No, that's not how Europe works. Okay, I have to-

David Barnard:
But how is that being priced into acquisitions? How is it being priced into investments? How is the investment community thinking about regulation both positively and negatively?

Eric Crowley:
Yeah, I mean, so on the DMA side and focusing on Europe, for people that don't know what that is, it's the Digital Markets Act. So it's a legislation instituted by the EU. And I think what it's designed to do is to loosen the grip that some of the large platforms specifically like Apple, Google, have on independent developers. And there's a couple of areas. They kind of restrict payments for one, which everyone's very focused on, but they also restrict a lot of other stuff. Like how you do marketing, discounts, offerings, stuff like that. Customization.

David Barnard:
App review.

Eric Crowley:
App review, yeah, [inaudible 00:33:58].

David Barnard:
I just had a couple of run-ins with app review in my side project app. Ugh.

Jacob Eiting:
David's suddenly pro DMA.

Eric Crowley:
He's like, "I've never been more [inaudible 00:34:08] of French legislation than now." But I think this is something, like the EU generally has been on the forefront of privacy, what they do occasionally filters over here to the US. But it's pretty hot topic right now. It's really hard to price. So everyone's kind of saying, "Can I just assume Apple's 30% goes to 15, and the company gets 15% more profitable?" No. Can I tell you for sure every one of my clients is looking at some sort of a web subscription offering. For sure. And those are getting better and better. I think RevenueCat's working on some stuff. There's a bunch of other names that are thinking about how do we offer a web subscription tool that provides the same features that the App Store does, which is user management, taxes, payment, making sure that you're collecting taxes appropriately in every jurisdiction, but at a 5, 7% commission rate versus 30%.
And I think there's going to be some big changes once those products scale and they get really, really good, which the App Store's had a ten-year lead on doing something like that. I think consumers, you're going to be comfortable to take a 10 20% discount and sign into the web real quick, and then come back to an app. I think we're going to get trained on that just like we got trained on how we do subscriptions. But yeah, so hard to say what else will happen in the next couple of years but it's definitely a hot topic.

Jacob Eiting:
I mean there's been a lot of energy around the web funnel capture, and there's been some new tech, people are building tools for this. But none of that's driven by the DMA, a lot of that was allowed before. I will be interested to see if any of these stores reach any sort of escape velocity. I just think the size of the market is too restrictive for it to reach any sort of meaningful scale internationally.
And honestly, we're recording this the week after Thierry Breton, I think is his name, who was the head of DMA, resigned or was asked to resign. Which I do think marks a potential, I mean who knows, I don't know what the internal politics of the commission are, but I think marks potentially a seat change. I don't know if that means the DMA will change or at least maybe enforcement will not become a thing anymore. But he was pretty actively harassing Apple this last year on specific details. You can imagine a version of the DMA is out, Apple shipped their version and then the EC just shut up and that was it.
But we've gone through the last year where it's been tick and tack and back and forth and a big uncertain mess. Even if it just goes back to okay, the status quo, I mean maybe it's not the outcome everybody wanted, but I think that's good for the industry in terms of maybe we've got some stability. But yeah, I'm just hopeful maybe it'll be a little less exciting in the next year. That would be a dream for me.

Eric Crowley:
People like predictability and stability.

Jacob Eiting:
It's true. I mean it's cliche potentially, but hey. And if we want to build anything with these platforms for these changes or these openings, we need stability and we need time to be like, "Okay, how do we actually integrate this stuff?" But yeah, going back to your prediction and just there will be more people driving to the web. I just think that's generally going to be true.
I think experiences though will still stay an app. I'm still a big believer that the user experience delta between what can be provided in a web browser and what... I think there was a decade there where we thought the web browser would get developed enough that it was going to overtake, but the two biggest makers of web browsers are Apple and Google. So they have a big incentive to make sure the browser never gets too good. So I don't think we're going to see that anytime soon.

David Barnard:
This trend though is also kind of on Apple and so there is tools in their tool shed to reverse that trend a bit. There are ways that they can more strongly incentivize in-app purchase. And to your point earlier, Eric, the tools for doing these things aren't fully mature. Like Stripe just bought Lemon Squeezy, I saw a job posting for a manager of merchant of record. So it's like Stripe looks like they're building a Stripe branded merchant of record similar to what Paddle does. But it's like they're just now doing that, and so there's not... And then even Stripe today doesn't support all the countries and all the payment methods and all the things that the App Store does. And so there's potential here for Apple to innovate. And that's what you want in good regulation and good policy, is to force somebody like Apple to be more competitive versus just collecting the 30% and resting on their laurels. So I'm kind of curious to see what happens in the next couple of years if they kind of fight back a little.

Jacob Eiting:
None of this was DMA triggered though. Paddle and all of this stuff was happening already and Apple may or may not react. And actually that was what caused it, right?

David Barnard:
Right.

Jacob Eiting:
But I'm sure somebody will be like, "Well then there was the DMA and then Apple got better." And it's like, "Well no, I think they were going to do that anyway, but okay."

David Barnard:
Yeah, good point. But yeah, it's still going to be interesting to see what happens. And I'm especially curious to see what Apple does to kind of shift that, because there's definitely a trend toward it, like Eric was saying. There's a trend toward people trying to capture more and more on the web to avoid that 30%. So surely Apple had seen that and is trying to figure out what to do. And then surely Google, as the other half of the oligopoly, it will either follow suit or have their own innovative approach to trying to win some of that back.

Jacob Eiting:
In the report you talk a little bit about IPOs and CSS' relationship to IPOs. I think we're at a really interesting time right now in the public markets or lack thereof. I think what has there been, like four IPOs this year. I'm sure there's been more, but four that are on my radar. It's been probably one of the most intense droughts in public and that's in the B2B side even. So when you look at consumer, I have to assume it's been actually worse. So I'm curious, it seems like more deals that are less than going public, more like private equity acquisitions and stuff like this, but how do you see, I guess, the IPO market broadly and then how it applies to this segment?

Eric Crowley:
Yeah, I mean I think you're dead on Jacob. IPOs are down big from 2021 for sure. 2022. I don't think we're even at 2018, 2019 levels. So I think there's a lot of investors hungry for cash, but there's a lot of private deals happening. Like Stripe's a perfect example. You mentioned them earlier. They've done tons of secondary deals. So instead of going public, they're like, "Cool, we'll just collect a check and be able to pay out some of our investors."

Jacob Eiting:
Yeah, and the only loser is retail, right?

David Barnard:
Yeah.

Eric Crowley:
So they just go public later. So that's the risk.

Jacob Eiting:
So just to put quantifier on it, they're at billions of revenue. They're at an insane scale.

Eric Crowley:
And there's a lot of consumer businesses that went public, like an Allbirds, that went public during the [inaudible 00:40:35] timeframe, they went public with SPACs. It's super hard to be of subscale public company but doesn't have some level of predictability. Even Bumble, which is a household name, that's got billions of revenue, their stocks got pounded. Duolingo has done really well, so it's definitely a have and have-nots.

Jacob Eiting:
Do you think there's a world where somebody replicates Duolingo's success in the public markets on consumer's side?

Eric Crowley:
I think I might've worked with one recently. Yeah, so I definitely do. I think there's great CSS businesses that are starting to scale. If you start to get to 4 or 500 million in revenue and you're predictable, public markets like that. If they can see that path where hey, you're going public at 500 million and now you're on your way to 750 and profitable, own your own destiny, people buy that.

Jacob Eiting:
It's easy numbers to say, but when you talk about just to get to that scale is such an insane journey. And just numbers. How many subscription apps..." At least purely, if you just look at just iOS apps, there's maybe 15 even in that realm.

Eric Crowley:
I think there's some pretty good ones out there. I mean you can kind of start going down the line. Everyone knows Strava. It's a couple of hundred million. You've got Discord. All of a sudden that's a pretty big one. Oura, kind of a hardware manufacturer with a subscription offering. And they're probably someone that could go public and compete with a Garmin, with their health and wellness. There's a play there. I think there's more than you think. There's a lot of information I have that I probably can't chat through, and there's great companies out there that are at serious scale that just don't want to go public yet.

Jacob Eiting:
Is the constraint on the companies not wanting to do it because of the blood in the streets? Like it's gnarly out there? Or is it more on the buy side? That it's just public market investors aren't really interested?

Eric Crowley:
It's a little bit of both. If you're a founder and you're like, "Man, I'm still just trying. I'm growing and growing, and I've got a lot of things going on. I'm focusing on product." Do you want to go deal with the public markets and do quarterly projections?

Jacob Eiting:
No. Oh, you weren't asking me. That was-

Eric Crowley:
Maybe it's something you'll get at.

Jacob Eiting:
Not that I'm at the scale. Not that anybody thinks... But you got to, you know.

Eric Crowley:
So then you look at the public markets guys and a lot of those guys have taken a bloodbath.

Jacob Eiting:
Yeah, I don't know if I've ever met a founder whose public market stock is higher than their IPO price. That just might be a unique time in my life.

Eric Crowley:
There's a lot out there. There's a lot out there.

Jacob Eiting:
Presumably went IPO in 2002, or something, I'm guessing.

Eric Crowley:
If you IPO'd in '21, good chance you're underwater.

David Barnard:
Well, hey, as we record this, the Fed just dropped 50 basis points, so money's free again, right?

Jacob Eiting:
Yeah. Great, great. I should have IPO'd yesterday. Damn it.

Eric Crowley:
There's secondary available. The deals we've been seeing get done and we've done, there's a lot of secondary, so there's money out there slogging around that are not in the public markets, that are very happy to do secondary deals. And so if that exists, guys, that kind of solves the problem. It relieves the pressure from your employees or your investors, and then it also still gets money into your company. That's an easy answer. And so why go public until you really need that mark?

Jacob Eiting:
I just really want to deny private market investors their fees, Eric. Just 2 and 20, I can't suffer it. E-Trade's a lot more efficient.

Eric Crowley:
That's totally true. 2 and 20 is a hefty chunk, I'm not going to deny that.

Jacob Eiting:
Yeah, well it's an interesting time. We'll see. It is going to be one of two. One, we're just in a pretty heavy market depression on companies going public and it will turn to a healthier, more accessible final destination for companies. But I do worry about the broader macroeconomic impacts of the fact that only high net worth individuals and the folks that manage their money are the ones who are able to invest in small cap companies because that's where the most growth is. Which I think will have negative implications for wealth inequality and things like this. I mean, maybe it's not substantial, but I think it is a loss.
I think the world we had in some of the 2010s and going back to even the 2000s, where going public was just a thing you did once you had some amount of scale and some modicum of predictability, it's gone. But I think too though probably, as you were saying, it's a very rare situation to even find yourself considering now, and I think a lot more founders, if coming to an exit is something that you're interested in, I think there's much easier paths than aiming to public with much less work, frankly.

David Barnard:
Well, and that's what you covered in the report. I mean there's a whole slide on other good outcomes for CSS businesses, and I did want to actually talk through some of those. So other than striving for IPO, what are some of the outcomes you're seeing your clients look toward as great outcomes for their businesses?

Eric Crowley:
Yeah, I think we've covered though why IPOs are positives and negatives. But I mean the cool thing about CSS is there's a lot of people that want to own great CSS businesses. And so we sold a business called NutraCheck to a content company called Immediate Media. And so they were able to effectively say, "Hey, we have an ad-driven model with tons of MAUs, people looking at our content. We need a subscription offering for that." And so that was a home run deal. So it was a subscription business selling to a content business. And you put those two together and that just solves a lot of CAT questions. Private equity, actively looking at this space. So they're actively looking at great businesses that are cash flowing, just like they would a car wash business. They like growth businesses that have a bed of nice predictable revenue streams. CSS is literally the definition of that.
And then there's founder-owned businesses. We're seeing lots of people just be like, "Hey, I'm good to go." And they'll sit there in their collector dividend and it's a phenomenal outcome for them, and that is not a bad thing.
And then one area we're really excited about is the CSS aggregators. We kind of talked about this a while back, but there's a ton, there's like 5 million businesses in the app store that are generating money. That's a lot of companies. And most are small. There's very few that, to Jacob's point, are north of 500 million revenue. That's really rare. But there are a bunch that are doing 5, 10, 15 million in revenue profitably. I bet a lot of RevenueCat customers. And so what we start to see are the CSS aggregators, and there's a bunch, we'll name a bunch in our report, I won't do it here, that are buying these companies up for multiples in EBITDA. They're giving founders liquidity. They're taking over the app. Sometimes they bring the teams, sometimes they don't. It kind of depends on the buyer. And these are great sources of liquidity for founders.
And so we're seeing these guys really scale, they're raising institutional capital. And we're kind of saying they're like the Berkshire Hathaway of the App Store. As they're going through, they're valued fairly, but they're not getting revenue multiples. These guys buy off EBITDA multiples. So if you're generating EBITDA and you're saying, "Hey, I'm just done, I want to go off and do something else. I think I can get 20, 30 million in my pocket. Or I can go raise a VC round and then I have to sell for a hundred million." That's a pretty good option as a founder to think about. And so we're seeing that happen quite a bit right now. It's like Bending Spoons, for example, bought Evernote. Really good example. They bought WeTransfer as well. And there's a bunch of these coming in Europe specifically, and then a few here in the US.

Jacob Eiting:
Is there a theory of the case why they're more common in Europe than here? It might just be that Bending Spoons is in Europe. That could be part of it.

Eric Crowley:
For sure. Bending Spoons is definitely in Europe.

Jacob Eiting:
And they're the ones doing the most of it, it seems like.

Eric Crowley:
They're great. Yeah, they're really smart operators. But I think there's a couple of things. One, there's a little more affordable technical talent over in Europe. If you're not going to bring a team, someone's running the business for you, right?

Jacob Eiting:
Yeah. So just like high profit margin businesses. Like two businesses, everything else equal, is going to have a higher margin in a lower cost of living place. Yeah.

Eric Crowley:
Right. And if you can do the marketing correctly, still capture US consumers. So I think we've seen stuff like that really scale. But also some of the talent over there it's just phenomenal. And they really understand marketing. They know the best of breed practices. They're implementing AI left and right, and so they've been able to scale businesses. Like some names that we haven't heard of here in the TechCrunch world, if you will, that are used by hundreds of millions of people around the globe. They just don't happen to sit in Silicon Valley or Austin, so they don't get the press. But they're big, big businesses.

Jacob Eiting:
I think it's also worth pointing out that exits are only needed if you need an exit. I think it's good if you do want an exit, then you need to know these things and you should plan accordingly. And I think there are some choices you can make strategically as a business owner to plan for that and to give yourself optionality. But I'd also say if you don't see yourself needing a lot of liquidity in the short term and you're in it for the long haul, then you go back to the original algorithm Eric was saying, just focus on your business, keep your head down. Because if you're not going to sell for 10 years, or 15 years, or 20 years, the market's going to be completely in a different shape and a lot of this advice might be moot. The only thing that will probably stand the test of time is good businesses, that build good products, that do it efficiently. That will always be true.

Eric Crowley:
Yeah, and that last one, where you said, "Keep a cash cow." I know lots of founders in San Francisco and around the globe that have a nice business kicking out 3, 4 million of EBITDA to them. They takes some nice dividends and they're happy. It's a great life. So you don't need the TechCrunch article, you don't need to call me to sell your business for $50 million to have a phenomenal outcome situation. So I think that's becoming more and more common to people. And we give that advice all the time. Like, "Hey, we don't think this is going to sell for 50 million. So sit there, hold on it. Buy a nice second house. Live a good life."

David Barnard:
All right, the last thing I did want to talk as we wrap up is you have this slide called Maslow's Hierarchy of Subscription. And I thought this was a fun place, kind of an optimistic place to kind of end the episode here. What do you mean by that? And then where do you see the opportunities?

Eric Crowley:
So I think a lot of people are familiar with Maslow's hierarchy needs. And this is a psychology term effectively where it just kind of describes how do consumers focus their life and their goals, and how they orient their lives. And so starting from the bottom up, and there's no illustration here, but you focus on food, water, shelter first. The basics is to stay alive. And then you got safety, where are you happy, healthy? Is your family happy and healthy? But then it starts to get a little more esoteric, a little more personal self-fulfillment. You've got love and belonging. Do you have someone? You've got a partner? Are you part of a community that you really feel part of? Then you have esteem. Do you feel really good about who you are? You personally? Are you happy with your health, your looks, your fitness? And then you have self-actualization, which is, "I want to be better than I am today, so I'm doing something to improve myself."
And so we talked about this last year that if you're building a great CSS business, tying it to passion is a great way to enhance retention, and passion ties to identity. If you think about this, if I say, "Yeah, I'm a Strava user." Well what does that person think? Well, they're probably an athlete. They probably care about fitness. So it's an identity. If you're a Surfline user, you're a surfer. That's just who you are. It's who you identify as. If you use TeamSnap, you're probably a passionate coach of youth sports. Maybe your kid, son, daughter plays soccer somewhere, and you're like, "That's who I am. I like to use TeamSnap." If you're onX, you're a hunter. That's just who you are. You're an outdoors man, you're rough, you're rugged. That's just who you are.
And so we kind of took the pyramid and we laid out different CSS businesses that are building for those different needs. And the way we'd encourage founders to think about that is, and this is a little esoteric, but it's like which need are you targeting? If you're going to do love and belonging, well man, you should have a community function built into your app. Absolutely. If you're doing esteem, some sort of leaderboard is a great way for people to feel esteem by knowing where they are on that leaderboard. Self-actualization, you need to constantly putting new content in so people can get better and better at whatever they're trying to do. If it's a yoga app or mental health, there needs to be new content so they get better and better at their yoga practice.
So yeah, we think there's a lot to think through here. It's a new concept for us, a new framework we're trying out. But we always like to just think about not just stocks and graphs, like looking backwards, we want to look forwards. And seeing how do you think about building a new company or re-aiming an existing company towards where our market is or going to be.

David Barnard:
Yeah, the graph is really fun too. So we will provide a link to the full report in the show notes. So if you haven't already downloaded the report and weren't following along, you should definitely go check out this one graph in particular. I mean, there's so much great content, so they should definitely download it either way. But I love the way you sketch those out. And at the very top, with the self-actualization, are things like Reflectly, an AI-powered journal. And Audible, listening to audiobooks and learning. And Calm, working on your mental space.
Yeah, it's a fantastic chart and a great exercise for folks to kind of plot themselves on that chart. And if you don't find a spot to plot yourself on that chart, look for the opening in the chart where you should be aiming to fit on that chart. So I thought it was really good.
Another note that you put in there that I just hadn't thought of, and I feel like in every report there's one or two lines that just kind of blow my mind, and you said in there, consumers spend accounts for 70% of the US GDP. And of course a lot of that's going to mortgage and car payments, like the base needs of food, transportation, housing, those kinds of things. But when you think about, and as we talked about it last report, there's just a lot of money being spent on a lot of different areas. onX, which you just mentioned, people are spending tens of thousands of dollars a year as a hunter. These passions, self-actualization, the love and belonging, the community, there's a lot of money going toward these. And consumer subscription businesses building great products, have an opportunity to enter those markets and capture so much more of that spend than is currently captured in the existing products. And that excites me about where we're headed as an industry.

Eric Crowley:
Yeah, I think a lot of value that used to be analog is being captured digitally, or those analog or physical services are now being provided with digital subscriptions attached to them. And so we think that's a really exciting trend for us. You're seeing this at healthcare for sure. You're starting to see it like the Amazon buying One Medical. That's a medical subscription that now has a software tool drive that's hopefully going to benefit healthcare in the US, which is a heck of a challenge.
So these things that previously were offline. Health and safety, for example, is a good one. Like Life360, Citizen, these are safety needs that you wouldn't normally think about being software subscriptions, that people said like, "Man, there's a gap there in the market. I'm going to build something so I know where my kids are." I then we talk about screen time, that's kind of a safety issue. Who are your kids interacting with online? Those products are being built and they're good. And so I think there's just more and more of the world as it goes digital, we'll just need new solutions within that pyramid of needs. So we think it's a pretty wide open area.

David Barnard:
And finding places of value along this chart as well. There's a company called Bright Canary that I actually subscribed to. And it's one of those things you just wouldn't think this even necessarily could exist, but I pay whatever it is, 6, 8, 10 bucks a month and don't even think about it. Because what it does is it actually tracks my kids' YouTube watching and then flags any concerning content. And so as a parent I'm super concerned about what my kids are exposed to online. And so to that screen time point, as a parent, paying eight bucks a month to get a summary of what my kids are watching on YouTube, is like a no-brainer. No-brainer. And so there's so many opportunities like that to find things that people value and then build products around it. And something like Bright Canary, they're pretty unique in the market and that couldn't have existed a few years ago and now it's a whole new segment that they can go after of safety for kids online.

Eric Crowley:
Yeah, we're seeing, I mean there's stuff like birdwatching. There's a bird nest, now they have AI cameras enabled and they'll tell you exactly what showed up so you can learn which [inaudible 00:56:09]. BirdBuddy's a great business man.

Jacob Eiting:
Great product. I got my mom one this year. Shout-out. It's also an adjacent company.

Eric Crowley:
There's another business I love called Tractive, that's in the dog collar space. Dog collar, the most non-technological thing ever. But now they've added GPS and you're like, "Well that's cool. I live in a city, I don't need to know where my dog is. It lives in my apartment. It's a tiny little pup." But now they've added leaderboard functions. So you could see how much your pug walks versus other pugs. And do you want to be the parent that doesn't walk their dog? So all of a sudden now you're starting to add more features in it, which once again all designed to keep your dog healthy and safe, but they've added features that encourage you to go do that. And that was something that probably doesn't need to exist three or four years ago.

David Barnard:
It's freaking awesome. I actually bought a Fi Collar. A friend of the podcast, Gerald Stone, is I think a VP of product there now. Fantastic product. And then talking earlier about NRR and market expansion, I just got an ad in Fi. They're rolling out a supplement. Like, "Add this to your pet's dog food to keep them healthy, make their coat shinier and everything like that." Super compelling offer. Once you've got the attention with the value prop of the GPS enabled collar, which is super fun too. Seeing how many steps a dog has taken, seeing where they land on the leaderboard. Our whole family is super into it already. And they have massive market expansion opportunity into the pet market where we're spending $200 a month on our dang dog.

Eric Crowley:
David, you're not spending $200 a month in your dang dog, you're spending $200 on a family member.

David Barnard:
True, yes, of course.

Jacob Eiting:
Yeah. But it's probably your cheapest family member. If we want to start breaking out family members by line items, David, it's probably one of your cheaper members.

David Barnard:
It is by far the cheapest family member. And I love him to death. He's so sweet. But when I see the bills come in, and I'm a bit of a tight-

Jacob Eiting:
Yeah, they used not cost that much. They used to not cost that much. Lifestyle creep.

Eric Crowley:
No, for sure.

David Barnard:
... But anyways, that was a great place to end. I think as saturated as a market feels, there's just so much opportunity. Still opportunity for existing businesses to grow and find new layers of product market fit, opportunities to expand, there are NRR opportunities to grow into other markets. There's so much opportunity still in this space. And even opportunity for brand new businesses started in 2024 to become those IPO candidates in a few years. So really, really fun place to be playing in and really fun place to be working in. And really fun to talk to you about all of this today.

Eric Crowley:
We love what we do every day, we get meet these awesome and businesses. So yeah, thanks for having me again guys, it's always a pleasure.

David Barnard:
Yeah. Awesome. So we're going to link to your LinkedIn and the report and the GP Bullhound website. Anything else you want to share as we're wrapping up?

Eric Crowley:
Nope. The best thing, we love to talk, just reach out. I'll be at the RevenueCat Conference in San Francisco on the 26th. So if you're there, say hi. But also just reach out, email me. eric.crowley@gpbullhound.com. Even if you're not looking to sell, that's okay, we don't need to talk to you for that. We host CSS CEO dinners. We love just getting operators together to sit and talk and decide where their opportunities are, where we should build.

Jacob Eiting:
You all need to help Eric's deal flow, is what he's trying to say, because these pipelines don't build themselves baby.

Eric Crowley:
We're doing pretty well. I think we're pretty happy with the reputation we have and we get a lot of great companies that love to talk.

Jacob Eiting:
I joke a little. But you might not ever engage with anybody for a transaction, it's helpful to know people who can pin, see where you're at if you're ever thinking about maybe doing it someday. And then if you do ever want to work through a transaction with somebody, it's helped to have known them for more than the life of the transaction.

Eric Crowley:
No, we'll turn down people all the time if they just kind of call us out of the blue. We'd like to know you for two to three years. Know what your goals are. What's your objectives? Where the weaknesses are, where are the strengths? Spend time getting to know any advisor regardless, like lawyer or accountant, so they actually can truly help you. Don't just call them up and say like, "Hey, you want to do something." This is an important moment for your company. Take the time.

David Barnard:
All right, well it's so much fun chatting, Eric. And we'll see you in San Francisco next week, and see you on the podcast again next year for the 2025 report.

Jacob Eiting:
Number six, seven. Something like that.

Eric Crowley:
I'd be honored to be considered.

David Barnard:
Thanks so much for listening. If you have a minute, please leave a review in your favorite podcast player. You can also stop by chat.subclub.com to join our private community.