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The SaaS Podcast - Growing Profitable AI SaaS & AI Agents
429: Huntress: From NSA Hacker to $120M ARR Security SaaS - with Kyle Hanslovan
01:03:44
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- [00:00]
Omar Khan
Foreign welcome to another episode of the SaaS podcast. I'm your host Omar Khan and this is a show where I interview proven founders and industry experts who share their stories, strategies and insights to help you build, launch and grow your SaaS business. In this episode, I talk to Kyle Hansloven, the co founder and CEO of Huntress, a cybersecurity platform that helps businesses protect themselves against hackers and cyber threats. Before starting Huntress, Kyle was a hacker for the US Government and the nsa. Not the Hollywood version, but as he puts it, the real life pasty version behind a keyboard. In 2015, he spotted a huge opportunity. The big companies had fancy security teams, but smaller businesses were left wide open to attacks because they couldn't afford that kind of protection. Kyle had a rough start. He was bootstrapping the business and taking on part time security work to pay the bills, while pretty much everyone he talked to kept telling him he was going about it all wrong. It took him nearly a year just to get his first three customers and two of them actually paid. The third one, as Kyle says, used my free trial for like seven years before they finally paid me. His first product was super basic, just an installer that would flag security issues via email. No fancy dashboard, no automation. They were doing all the security analysis by hand because they couldn't afford to build anything more. But that helped them get traction and start growing the business. Then things got pretty tough. Multiple seed rounds fell through, investors walked away and Karl and his co founders weren't taking home a paycheck. The equity dilution got so painful that they almost sold the company. But they stuck it out and eventually took a bridge round from their early investors that helped them grow from 1.5 million to 5 million ARR in just a year and proved their skeptics wrong. Today, after years of doubling revenue year after year, HunTrust generates about $120 million in ARR, has raised over $300 million in funding, and has grown to a team of 500 remote employees with a valuation of nearly $2 billion. In this episode you'll learn how Kyle validated his idea by talking to strangers instead of his network, and why this led to better insights, why leading with education instead of sales created organic demand for their product, how they grew from 0 to 5 million ARR without spending any money on advertising, what critical mistakes Kyle made with early equity and job titles, and how you can avoid those. We talk about why being extremely minimal with your MVP can help you build trust faster, and how Kyle maintained control despite significant early stage Dilution. So I hope you enjoy. I talk to a lot of founders who have the same challenge. They've got an amazing product idea but need a technical team to build or scale it. If you're looking to develop a B2B SaaS product but don't want to hire and manage an in house team, listen up. Gearhart is a product development studio that handles the entire technical side of building your software. They've built over 70 successful products, including SmartSuite, whose founder trusted Gearhart after his 200 million exit to help build his next big venture. Some of Gearhart's customers have gone through YC and their portfolio companies have won over 10 startup competitions. Until the end of March, they're offering our listeners free strategy sessions with their leadership team. Just visit Gearhart IO to book your session. That's Gearheart IO. Kyle, welcome to the show.
- [03:41]
Kyle Hansloven
I am pumped to be here. Thank you.
- [03:44]
Omar Khan
And we're both wearing hats today, so we look like a duo. Love it. Do you have a favorite quote? Something that inspires or motivates you that you can share with us?
- [03:54]
Kyle Hansloven
You put me on the spot and for some terrible reason, Will Ferrell's the first that comes to my mind. So it's probably between some. If you're not first, you're last or 60% of the time. It works every time. I don't know which one, but I think they both apply to Startup World.
- [04:09]
Omar Khan
I love both of them. It's awesome. So tell us about Huntress. What does the product do, who's it for, and what's the main problem you're helping to solve?
- [04:19]
Kyle Hansloven
Yeah, cybersecurity is a mess out there. Hackers are constantly going after businesses of any size. So we allow essentially businesses, especially those that can't attract great cybersecurity talent. It doesn't matter if those hackers are going for their laptops, going for their data, going for their logins or their employees. We go head to head with them, wreck them when they try to slip past preventive technology. And at the end of the day, it's just a tool that allows them to sleep easy at night. They don't manage it, and it's affordable for businesses of all sizes.
- [04:48]
Omar Khan
Great. And give us a sense of the size of the business. Where are you in terms of revenue, customers, size of team?
- [04:55]
Kyle Hansloven
Yeah, we just ended the year just a tad shy of about 120 million in revenue and we're real close to about 500 teammates, fully remote.
- [05:04]
Omar Khan
Awesome. And you have raised, I think, just shy of 310 million now, yeah, I.
- [05:11]
Kyle Hansloven
Think between seed line of credit probably counts in there. It's definitely, it's definitely over 300 for sure. So about 300 million between, you know, convertible notes all the way up to.
- [05:20]
Omar Khan
Series D. And you've got a, you've got a, you're a unicorn status now, right?
- [05:28]
Kyle Hansloven
Yeah, yeah. So, you know, the valuations always like, bother me a little bit. Right. Because valuations can be inflated. I tend to love like the revenue number. You can't fake that one. So, yeah, I think we're probably just shy of 2 billion these days.
- [05:41]
Omar Khan
Awesome. So let's go back because it's been like 10 years since you founded the business back in 2015. Where did the idea come from?
- [05:52]
Kyle Hansloven
So I'm a shady hacker style type of guy. That means not just in the concept of I like do things that maybe the rules suggest that I can't, but I literally was a hacker for the U.S. government. I was in the military, stationed with NSA. And my whole job was to create the tools, slip into the networks and steal the data from, whether it's foreign intelligence adversaries or the counterterrorism mission, put bombs on bad guys. So it was good.
- [06:20]
Omar Khan
So you're the people we see in the movies and the TV shows where you're like the real life version of.
- [06:26]
Kyle Hansloven
That, the real life pasty version behind a keyboard. It's never sexy like the movies, but yeah, that was the job. Just not as Hollywood. How about a lot more boring with no phones and compartmented facilities? So not as sexy at all.
- [06:42]
Omar Khan
Great. So you're in that world. How does that, you know, where does the idea come from for this? And focusing on SMBs as well, which I guess is a very different world to where you were in.
- [06:55]
Kyle Hansloven
I appreciate the tee up because you could imagine part of the reason I gave you the story that way is like, it's not a direct correlation, but people forget like when you're gathering intelligence, you might not be the only person on the computer in the account going after the, you know, the individual. And so I got a lot of experience over years looking at both really quality nation state hackers, but also like subpar cyber criminals. And I thought, okay, I know I can do better than them. Actually, they're really easy to catch. Like, how are they not being caught? So it gave me this like, unfair edge to realize businesses, even though they thought they were well protected, probably had something misconfigured or maybe they weren't actually well protected. And so my whole idea realized that, like, if I could Address not this problem for the enterprise. Because enterprise, Those fortune like 500, 5,000 companies, they got kind of unlimited budget. But what about people who don't have the budget and definitely couldn't access like my talent, which is like the perfect need for SaaS product, right? How could I deliver my expertise at the price of a product? And that's what we decided to do. It was through a lot of iterations and, you know, small, like micro pivots. But we finally got down to the answer was they want to deploy our software on wherever it is and set it. Forget it. They don't want to configure knobs, they don't want to have to have expertise because again, they can't afford it. Even if they could, someone like me probably wouldn't work for a 500 employee company. I'd be up with the big Fortune 100 banks. And that's how it worked as I built this software. And it turns out cybercriminals pivoted about a year later. And instead of going after whales, we kind of predicted in advance they were going to go after the businesses that are like 2,500 employee companies and below. You can make a lot more money off of deer and rabbits than you can off of just taking down every one giant whale. And I think we now have like 150,000 plus of those businesses.
- [08:52]
Omar Khan
Wow. Wow. How did you validate that idea? Like, okay, so you have a hypothesis, you understand the space to, to some degree. I mean, obviously the secured cybersecurity space, and you say, okay, these are the types of, this is the market that makes the most sense. But in terms of validation, did you, did you go out and interview customers? Did you just start building the product, like, and just hope it was the right thing? How did you get started?
- [09:22]
Kyle Hansloven
You know, you read any book, right, or listen to a podcast and they're going to tell you you must find product market fit. But I, like, was a hacker that slang code, Like, I didn't really know what that meant. So I'm going to give it to you, like the ruthless way that it kind of came about, which at first I just kind of like licked the finger, put it in the air, felt the wind, and was like, there are already like 35 vendors that service the, you know, kind of fortune 500 above the enterprise. So what about like small enterprise, mid market, enterprise and below? Like, I should probably go there because that's where they're not, right? That's just like obvious. Like, clearly that's heavily competitive. If I Don't truly, you know, and I wasn't overly confident. I was confident in tech. I didn't know how to go against like sales teams or marketers. So my first part of product market fit was just a guess, it wasn't scientific. But then started the networking, right? And I've told this story before, but after you get a handful of calls underneath you and you have people that are like, listen, I already have that product which was upmarket or down market, they were like, I don't even have an IT team. What are you talking about? I went too small. That's how I actually found the gold. And the gold was if you have and think about like all these, you know, in the US 30 million of these businesses that can be as small as like 10 person companies, all the way to thousands of employees, but some of them don't have it or if they do have it, they're like oversaturated. Those people were telling me, don't give me a tool. They didn't want a recipe and they definitely didn't want ingredients. They wanted the whole cooked dish. And to be honest, that was that type of journey over about four or five months of embarrassing calls and embarrassing, like getting told that I was kind of an idiot, kind of wrong, that it finally clicked that I could find the right fit was again these good sized businesses and they wanted a fully automated product, which was a not part of my plan when I left nsa.
- [11:22]
Omar Khan
Were you just cold calling these people and trying to get conversations started?
- [11:26]
Kyle Hansloven
You know, I started with the trusted network, right? But it turns out your trusted network is probably a little bit dangerous. Maybe, you know, folks like you and they don't want to see you fail, so they want to be there. But they will never be as ruthless as somebody that owes you nothing. And when somebody owes you nothing, they will actually tell you, like, I hear what you're doing, but I'm never going to separate a dollar out of my pocket for the value you're doing. And that's actually what you want. So younger version of me wishes I would have actually been told, quit talking to the friendlies, go out there. Especially for me, like, I'm better at talking now, but in 2015 I was kind of a bumbling goon, right? I was technical, I didn't understand business value. And it turns out like if you can go with like no ego and kind of go out like, excuse me ma'am or excuse me sir, like I don't know what I'm doing, help this little stray prior military member they actually were a lot kinder to me, not in the feedback, but they understood that I actually was genuine. I needed real time. And then they also still gave me. They opened their arms for me to give me time and were genuine there. But they didn't hold back on pulling punches. They were there to tell me right away, kyle, I do not know what you are talking about. And I needed that. So it was a humbling process, but a good process.
- [12:47]
Omar Khan
It's interesting because with friendlies, it feels like the right thing to do because these are people who kind of know you or through the network, you're going to get their time, they're going to be supportive and want to help you and all of that stuff. But. And many founders, I think, will avoid talking to strangers because they may hear stuff that they don't like. Like, I would never buy this. I wouldn't, you know, it's a stupid idea. I don't understand this. But I think that's what you really need to hear at that point because then you can ask those questions like, well, why? And it's going to get help. You figure out whether it's, you know, that you're solving the wrong problem, you're talking to the wrong type of customer, and so on. So it sounds like you went through that same process where the breakthrough came when you started hearing the things that most founders don't want to hear.
- [13:43]
Kyle Hansloven
I think you nailed it. It reminds me of, like, if you ever go to the gym, some exercises you don't want to do because they hurt just a little bit, they're not your favorite, but those are actually the ones that you need to do because you're weaker there. I think what you're describing, and as I'm putting it together, like, yeah, I needed that feedback. There's also a weird thing about friendlies. Like, I call it the home field disadvantage. When you talk to people in your local area, they tend to just assume you're small. So some of the first calls I had were in my local area. But the most successful calls I had later in my product market fit was actually meeting people from outside my city because they didn't know I was just the local guy. And for some reason, my home team never rallied behind me until later. I found some of these very close people that took me in, but for the most part, I actually had. I remember being at a time at like 20,000 monthly recurring revenue, so nowhere close to a million ARR. And I remember at that point thinking, I've got five times as many customers in Texas than I did in Maryland, which is where I was living at the time. And so I think there's a lot going on here. Not only do you need the feedback, but they will give it to you directly. No holds bar. I think there's also some, at least in my experience, more willingness to buy, too.
- [15:00]
Omar Khan
Okay, so you said you spent several months having these types of conversations until you started to get clarity on what you needed to focus on. What was that first version of the product like? I mean, again, cybersecurity and the kind of things that Huntress does today is pretty extensive. And the challenge often is like, you may even see that vision back then, but it's like, where do you focus? What do you build? Like, you want to build everything, but how did you approach that?
- [15:31]
Kyle Hansloven
60% of the time, it works every time. And that was actually our product too, like when we started using the home field advantage. And I had these really close, like, mentors who were teaching me the business. They weren't people I knew, but they were people who could see maybe like versions of themselves in me. I think that's maybe a little bit of what happened. And it turns out they just cared about, does the plate of food taste good? Right. They don't want to know how the sausage was made. And so where I'm getting at about that quote is most of the time the founders I meet, and even thinking back what I probably like, I did very few things right. But one of the things that I do think I did right is I obsessed on how minimum and viable I could get, especially if nobody knew. So the first version of our product, the installer, like just to get it installed on their laptop or server or workstation, it was silent, it worked every time it was polished. The data that went back to the backend, in many ways, it just was ingestion. And I remember a time that we were doing the work that the only UI we had was a digested email. We would get an email in and our queue was our inbox. We didn't have a ui, but it gave us there and we were doing hand analysis. And what was silly is even though none of the automation was done, no fancy AI, no rockstar humans, just essentially founders who were both doing sales, writing code, trying to create marketing assets and also deliver the job, we were still finding things missed. And nobody knew we didn't have a UI at the time. We didn't have any form of 24 by 7. But people weren't upset about that at the time. They didn't Realize that we weren't doing things that couldn't scale. They just cared what was the end result. And so my part behind it, if I could encourage, like any founder, to learn from my lessons, of the very few things I did right, is it turns out I would challenge you that you can get much, much, much more minimum and viable than you probably expect, especially when they don't see it. And then with the time and the money you make while you're showing value, you can go back and band aid those later. You just can't forget the technical debt.
- [17:41]
Omar Khan
Okay, so I just want to kind of break this down a little bit so it sounds like you're saying from a customer perspective they had some kind of installer, that they would basically install your software onto each device.
- [17:55]
Kyle Hansloven
Yeah. Think about installing an app. However they did it, whether it was like a mobile device management or it was some software or manually, I made that process perfectly smooth because that was a friction point that would tick them off. So I put the love there, and.
- [18:10]
Omar Khan
Then that connects to some kind of backend.
- [18:13]
Kyle Hansloven
Yeah. So it's, you know, cloud based, all the data coming back to us. And so you have to make it secure. But think like, I meet sometimes founders that spend all this time on the perfect schema for code. They want to get the database optimized and tuned, and we just didn't care at that point. We just had to get it in the most raw format, and then we had to build all these individual things on top of it just good enough to show them value, because it turned out they don't care. Is it stored? You know, they care if it's encrypted for security, but they don't care. Is it compressed the perfect way? Is it ready to be read in multiple languages? Like, they don't care about any of that formatting stuff. What they care about is did you deliver on your promise? Which our promise at the time was, even if you don't have a hacker in there, I can give you extremely high confidence, a seal of approval, you're safe. We've hunted through your network, you're cancer free. And that's very different from saying, I don't know if I don't have cancer. Right. That's not a whole lot of certainty. And by not focusing on all that minutiae and starting small, we got to the point where we obsessed on delivering value. And it turns out even to this day, at 120 million in revenue, I'm still saying the same thing to my team now, of you could be More minimal. Actually, one of our core values at the company is send it. Meaning don't overly like, you know, don't let perfect be the enemy of good send it.
- [19:36]
Omar Khan
I want to talk about that because that sounds really counter to a CEO running a cybersecurity company where everything probably you feel like it's about reputation, it's about trust, it's about getting everything right. When you have that kind of philosophy or maybe even encourage it, does that open you up to more risk of things going wrong or customers kind of feeling like the product isn't as stable as it should be? I don't know.
- [20:18]
Kyle Hansloven
You're actually nailing a nuance that I almost wish we pre gamed this because the nuance you're hitting on it wasn't quite at series like a, you know that I learned this, but it was a little bit after. But for early founders, the point is the exact same. It turns out if you make your product so very, very minimal that you can repeatedly and reliably deliver on what you promised. For us it was we're only going to find hackers and how they lurk undetected in your network for a long period of time, not short. Not how they steal data, not how they upload that data. That's called exfiltration. Not how they move throughout your systems. That's called lateral movement. The only thing we focused on was long term persistent access. And even though that was so minimal we could do that reliably. So by focusing on just one part that you could deliver on your promise. Always. Yeah. Some people were like, this is kind of more of a feature than a full product. But we were reliable. I didn't learn the value of that lesson till we built our second product about five years later. And we didn't do this. We went for all the things and delivered an unreliable product. And I ended up getting roasted properly so and had to put egg on my face, you know, coming back to my community and say we messed this up. Like we, we did not get this right. And the reason for it is we were finding by the way, thousands of incidents, but we were inconsistently finding them. And to be very frank, 200 consistent incidents are actually worth more in your, especially as an early stage company in your clientele or we call them our partner's eyes because at that point they can trust that you will deliver on your promise. So you can't be so minimum and viable that you're inconsistent. But I've found in most times, as long as you can do what you say and clearly articulate and say what you can do. Set that expectation early, people will buy that. And then even better when you add more, you can price increase. And they're very happy to take that because then the price increase isn't attached to like an arbitrary thing. When we were early, we just made up our price. And so it turns out like, you know, as we got closer to a million in revenue, we had to like think, oh man, we're undercharging. And so that's where I'm getting at. When you ship so early, call it beta or call it general availability phase one, whatever you do it, just make it clear that when there's later extra value, there's just so much with it. And then they celebrate you adding new features instead of booing at you for being inconsistent on what you provide, even if you providing them a broader capability.
- [22:57]
Omar Khan
Most of us are familiar with the idea of a cyber security or data breach or something like that, right? It's like something bad happens and everybody knows about it. But what I'm hearing from you is that the scenario that you were focused on was saying, hey, hackers can basically infiltrate your system. You may not know about it for a long time and it could be causing a whole bunch of long term damage. And so what we're solving for is, is we're going to monitor that and give you the peace of mind that there's nobody in your system that shouldn't be in there.
- [23:34]
Kyle Hansloven
When I pitch it to like non entrepreneurs, say somebody that thinks more like medical. Medical is actually a great analogy because even though, like, if I told you, you know, Omer, you're never gonna get sick again, you wouldn't believe me. You'd say I'm crazy. But if I told you, if you get sick, I'm gonna find specifically right here, any lung cancer related, I'm going to tell you when it's stage zero or stage one and never stage four. That's not saying I prevented the sniffles, measles, mumps, rubella. I didn't, you know, let alone all the other types of cancers. But I promised what I could do. I'm going to prevent you from getting to stage four. Not because I prevented it, but early detection is a form of prevention. And it turns out when you really understand value, a lot of founders I meet will wait till they're like, I need to be able to handle lung cancer and throat cancer and thyroid cancer and you name it. And then by that time you've spent two and a half years and you might have Built a product that one, doesn't work, or two, nobody likes, or three, you ran out of money and now you're getting acquired or going out of business and so you're nailing it. And even if you notice what I just did there, I have to be able to articulate what I'm doing in a non technical term for a different audience. Like all of these things are the stuff that the first probably three years of business I just got roasted. And so notice my mentality on this isn't to talk about what I did. Right. It's really to just admit of how much part of the process is getting it wrong over and over and over and being cool with it.
- [25:05]
Omar Khan
Yeah, yeah. I love the simplicity of this product. The first version, I mean it sounds like it was basically like this is the promise and you were getting a daily email to make sure that you were reviewing that, to make sure that there was nothing that they needed to worry about rather than saying, we're going to have this ui, we're going to build all of this stuff before we get this product out there.
- [25:32]
Kyle Hansloven
You nailed it. It was janky, but it was good enough that they found value in it and then you could add all the sexy stuff later, right?
- [25:39]
Omar Khan
Yeah, yeah, exactly. So tell me about like how you went about getting those first 10 customers. It sounds like you've defined a target market pretty well. You've got a very, very focused problem and solution. How did you find those first few customers?
- [25:58]
Kyle Hansloven
Yeah, the first three stand out to me the most. And then I'll share the big difference between 3 to kind of 20 because it happened faster than I expected and slower than I expected. For instance, the slower part. The first three that I met were folks that, they were new to me, but they were the ones I mentioned earlier that kind of wanted to help me on this journey. They were helping me with the market. They were these people that do IT department work and some security work. But for kind of companies that don't have their own in house, it think of like outside outsourced it. They call themselves MSPs. And these folks that help, it turned out they did not immediately want to buy. And I by that time was actually a little afraid to ask. I didn't realize like how much anxiety I had. I as a founder was not ready to ask people to pay money because I didn't believe in my full product. And I remember at one time one guy sending me like, you better send me an invoice on this sucker if you want me to pay like I was nervous and he kind of helped me realize like I had value and it was valuable enough to pay. But those took a very long time. My first three were all flavors of this. Outside outsourced it. But they were also helping me understand that there were companies that wouldn't use them, companies that refuse to use, outsource it. So they gave me the perspective when building that first product that whatever I'm going to need to do, I need to plan for scale. And that included my sales and how my product needed to work because I was doing not what the enterprise like. Think of all those people who go for great enterprise customers. They have like a long one year sales cycle, but they might get boom, million dollar purchase order right on my side of the business where the company could be like 500 or 1500 employees. That deal might only be 10,000 or $20,000. Right. And you have to do a lot of those. So the first three really conditioned me and said, you better be prepared to repeat this because you're going to have to do this like a flywheel. It's going to have to be what I now call low touch, high velocity. But by them teaching me this, everything I was doing with them, some of them were kicking back and saying, no, you're asking me to do this manual. What's the system behind this? How are you going to do this times 20 or 50? If not, you're going to have to hire all these people and you don't have any money. Right. This was pre any investment. Right. And it turned out those folks were teaching me how to set up for my next 20. So once I learned how to go to market and find these watering holes, it turns out they had helped me actually streamline not just the first motion, but they helped me automate as much as possible for the next kind of 20. And so even though it took me so long to get those first three, maybe a year, and only two of them paid me, one of them still were friendly to this day. But I think they used my free trial for like seven years before they, I finally said like, are you going to pay me with that? Said the next though, as you asked, up to 10. Because I spent so much time preparing for scale, I didn't just go from 1 to 3 and then 3 to 6 and then 6 to 9. I went very quick from probably 3 to 20 and then 20 to 40. And it didn't grow like doubling always, it was much more linear. Sometimes it was like 40 to 60, 60 to maybe 90. So a little bit more But I was using each time this process. So I would build the ui. I remember like the time that we had to take our first credit card payment. We built the UI for them at that moment to charge them. Like that's how minimum and viable we were. And so the part that I'm getting at is do you truly need a fully billing system if you're not showing value and people aren't willing to buy it? If not, like, you gotta prioritize. And that ruthless prioritization, by the way, is by the time I actually went through a startup accelerator and I learned this stuff and I finally reached my first million dollars of sales, almost all the other startups that went with the accelerator or went through the accelerator with me were out of business. And I really look at this as a testament to you have to build minimum and viable and obsess on value, build everything else later.
- [30:20]
Omar Khan
How did you find those first 20 or so customers?
- [30:24]
Kyle Hansloven
So as I mentioned, the first three were the most embarrassing. You know, it was probably a hundred calls of businesses. I do remember within the first five finally understanding that I was calling businesses so small that didn't even have it. I didn't really think that through. Like, think of like your local small business. They might have 10 total computer. The whole model wouldn't have made sense. But that's what happens when you're a founder, right? You, you, you don't always get it right. But by then I learned that the strike zone that I found were these IT outsourcers that helped again, IT security. And so I could then build like my very first, not only like icp, which is the ideal customer profile, I kind of went through this silly like handwritten exercise of who are the Personas within there. I would name them. Like I remember it was like CEO Toby named after one of my most impactful both friends and kind of founders that help, you know, get me on board, right? And I could picture him because he was the CEO of this IT outsourcing firm. And then it was like Jill, hr, she has no, doesn't care anything about protecting the computers or anything about protecting your digital identities. But she wanted to help educate the humans, the people and the people organization. And so it turns out by putting that in there, I could now pattern match. And even though I wasn't like, I didn't run my first ad for probably six years. Ads are really, really expensive. And when you start bootstrapping, it's like, do you have money that month for payroll and bills or do you bootstrap and it turned out I found myself going to watering holes. These IT outsourcers would meet with each other regularly at trade shows and kind of peer groups. That's where they get together. Since they're smaller. Right. They're not like an enterprise company that competes with like bank of America always competes with Wells Fargo. You can't have them talk to each other. But if somebody's like, I only do business in this region of the US and you have somebody from an opposite region, it turns out they often get together to share best practices and improve each other. So I started showing up to those watering holes and did the same pitch from my first one, but instead of only talking to one or two or three, I was now talking to 20 at a time. And so that started beginning the building of a funnel. And I didn't know what a funnel meant and I didn't know what top of funnel was or the difference between middle and bottom of funnel. I didn't know anything about nurturing. I didn't know those things. But I just started repeating. And each time I did it, I got a little bit faster. And by that time, it was time to hire my first salesperson. I did my first 20 or so deals completely by myself. And by the time I started noticing I could do one or two of these in a week if I had enough funnel built up by finding these watering holes efficiently, it was time to bring on my first sales leader so I could focus on the stuff only I could do. Because anybody, generally speaking, there's a lot of people who can do sales, not a lot of people who can write the code and do that. So that's how I. How I nabbed probably the first 20,000 monthly recurring revenue.
- [33:26]
Omar Khan
Hey, have you heard of SmartSuite? They were just named 2024 SaaS Startup of the Year by Startup Grind. Well, I recently discovered that Gearhart was the development team behind their success. Gearheart is a product development studio that specializes in scaling B2B SaaS. Companies built by serial entrepreneurs. They understand the unique challenges of startups and can plug into your team to accelerate growth. With offices in San Francisco and London, plus a distributed team of 43 experts, they've helped build over 70 successful products. To learn more about how Gearhart can help scale your development, check them out@gearheart.org that's gearhart IO. At what point did you raise money? So how long did you continue to try and bootstrap this business before you started to look for investors?
- [34:13]
Kyle Hansloven
So I went to an accelerator first that gave us $50,000. But you could imagine that was enough for like legal fees and some of the basics gave me some free Amazon Web Services credit that was really, really a big one. But I never saw. So that's fall of 2015 and I didn't receive my first investment in the form of a convertible note for two and a half years from an angel group. And it was a $750,000 seed round. So the answer is years without pay.
- [34:48]
Omar Khan
Yeah, yeah. So this, you were bootstrapping for several years really before you.
- [34:54]
Kyle Hansloven
But also building the product and the scalable system. So like it hurt. And sometimes I had to do like part time, like work. But it was always, it needed to be the business first. So even though I was doing sometimes services, like for me in cybersecurity they call it incident response, which means after you have a big incident, somebody needs to come in there and help clean it up. I would do that and then say, you know, you wouldn't have had this incident if you were using a product like mine. Nobody ever bought it that way. But it helped me perfect my pitch. So yeah, you're right. Two and a half years before I saw that 750k seed round, before we.
- [35:31]
Omar Khan
Started recording, we were talking about founders and equity and vesting and all of that stuff. You have a couple of co founders with this business. When you started out, there was, I think you mentioned four of you.
- [35:53]
Kyle Hansloven
Yeah, I know where this is going.
- [35:54]
Omar Khan
Yeah, just tell me a little bit about that. Like I want to try to get a, paint a picture a little bit of like, how did you guys like set this thing up? How did you decide on allocating equity? And then how did it end up four being three in the first, the end of the first year or so?
- [36:13]
Kyle Hansloven
So I'm quick to admit that we didn't do a ton of things right. And it turns out one of the biggest parts of an early stage team, especially if you think you could go for scale, like if you're incorporating in Delaware and you plan to raise capital, that's usually a good indicator. You probably need a great law team or a legal team. And it turns out the least important things they do for you is legal advice. They actually have seen so many companies like yours either raise money, fail to raise money, fail to hire the right people. They've seen all the scars. And so what I wish I would have done is I wish I would have found my legal team probably a lot sooner. And so by the time that I had my legal team, we had created like a lot of folks Do a basic Delaware C Corp had about 10 million shares in this sucker and we had about 20% of the company set aside for the employee stock option pool. That was a real big thing for us, that every employee should have equity in the company. And still to this day every single employee has equity in the company. And equity that's on the same level as founders, meaning it's not like some shadow stock. But that type of stuff is as far as we got. And what I didn't humble myself with and a good legal team like Cooley, like that helped me is simple things like usually companies, especially companies of scale, you have a standard 12 month cliff that nobody gets equity for 12 months and then you start earning the equity after that. So you'll get your first 12 month cliff, 25% usually of a four year vesting period. And what I'm talking about are things that can prevent you from everybody getting their slice of the pie up front that doesn't even get to the hard stuff, which is how large is everybody's pie. But notice the first, first thing I jumped to was there's a difference between an agreement of what you can earn in your pie and giving it to you up front. And that is such an important part because as founders you don't really know anything. As first time founders you think you know and you think you've got advice and you've read all the other stuff, but the reality is you just don't know how your life is going to handle. And so I had a founder, for instance, that at 13 months things didn't work out. But by that point we had lost 25% of his equity because he invested 13. Technically it was 1348, right? He was going to earn it all in four years, which isn't as bad as giving it all up front, which would have been really brutal. But losing 25% of that equity. The reason I'm talking about is it could have been so much worse. It could have been 100% of his equity that was just gone that he would have forever had or you would have to do something unnatural to like clot back and all these things. Like when I'm talking to founders, they talk to me so much about their go to market, so much about what they inspire to do 10 years from now. But they don't take for granted or they are taking for granted and don't consider just how something as simple as like whoa, this balance and what a startup is required of me and kind of now that I'm actually doing it isn't what I really want to do full time. I want to go back to my old job. And that's what happened. There was no like blow up. There was some like, you know, hey, you're not really in it type thing the way and kind of a self admitting like, yeah, you know, not, not really. But there was no fireworks, no like anger. But there was definitely some real talk when we had to make that decision. And then at that point the equity was gone. And so where I'm going with this is in the beginning. Usually founders divvy up equity equally. But I think the most seasoned founders, second time founders, have a better idea what each other brings. And it turns out you probably have a couple equal founders, maybe one or maybe two, maybe three. It just depends. And then you have some stuff, some people that join you, that are closer to early employees. And I don't think enough founders have that hard initial conflict. Like if you really trust each other, you can have a fight and make it through conflict, at least healthy conflict that's respectful is good. But if you can't have that just real talk with each other of like, I think you're only actually an early employee and I'm going to give you 4% equity instead of 20% equity. Right. If you do the quick math, four founders, 20% each plus 20% for the ESOP, you can lose a lot real quick. And that probably doesn't sound like too much, but if you happen to be, you know, some of the folks that don't really knock it out of the park, this could be the difference of do you have to get another job right away after your startup? And can you afford to take a year or two off and spend time, raise a kid, move, take care of your mom or dad? This stuff really matters. So if you notice, like one of the biggest pieces of advice I'd give to your kind of base and the advice I wish somebody would have got ahold of me is you really need to approach founder equity very carefully and be willing to have the conversation of fight for what you're worth. But also understand like if you really don't know and somebody is a leading founder and somebody is not, you just don't really know who's going to be the one that's going to fall out. So I guess I would. The advice I would give is if you can't have those hard conversations, split it equally. But my guess is somebody is going to get the upside and somebody will probably get the short end of the stick that you then have to remedy years later or never. So, so hard. Lesson learned there.
- [41:39]
Omar Khan
I also want to talk a little bit about like just growing and hiring and the team. And I know there was a situation you went through with a sales hire and we wanted, I want to kind of COVID that before we get into that, let's just close off on this conversation about the growth and getting to the first million in ARR. So sounds like a big part of your go to market was basically going after these MSPs, these people who are basically the IT outsourcers, and selling the product through them. You were also doing a lot of education to kind of, I guess, build awareness. Just tell me a little bit about what you were doing and how that was working.
- [42:24]
Kyle Hansloven
So I mentioned not a marketer, but there's two really important parts of gathering or creating demand for your products. The first one is capturing, right? How do you capture people who already have their hand raised? And so as I mentioned, people that already knew they had the problem and had their hand raised. Well, a good portion of them were at these watering pools, right? These watering holes. They were there to solve a problem. And that's where I met these IT folks that needed help with security, didn't have talent and needed something at the lowest total cost of ownership. Not the cheapest product, but the best bang for the buck. And it turns out those people, I was able to capture them, but for the next probably 30, 50, 100 of my customers and partners, especially those that were not outsourced it, but they were a little bit different. They were the internal it. They had to be educated often. And so I did the other side of marketing, which is demand generation. That's where you're taking somebody that doesn't. They might have their hand half raised, they might recognize the problem, but they don't even know if a full solution exists. And they're sure as heck not ready to purchase your solution. And so it turns out probably the biggest weapon that we had that actually turned into some of the best brand credibility. Huntress never led with sales. We always, and still to this day, we lead with education first. And so that means, let me show you, not tell you, but show you what hackers are doing. Let's talk about what they're actually, how they're getting by. Let's dispel any myths. And I don't care who you are, if you're a dry cleaner, you probably have a difference between your organic starch and regular starch. You need to bring people to the water, right? And so for Me by leading with education. It didn't just bring me the whole next bit of funnel that I wasn't expecting, but it built me a reputation that on Reddit, 99.9% of the posts about us are like, holy crap, this team, they're not slimy. Their sales cycle is just educate first. If I have the problem, they allow me to be able to buy on my own. If they don't have the problem, they walk backwards and so I can come back to them when I'm ready. So the part that I think that you, you nailed on is there's so many people who just go to spending expensive ads right away and your money is so, so limited. And even if you did have more money, say you got money right out the door, a seed round or something along those lines because you knew somebody or had some past performance, even if you had the money running straight to ads, you probably don't know your messaging good enough. So by me doing all the education, I just would pitch to a large enough audience that by doing a trade show, for instance, I'd do a keynote and I'd go and give my presentation and then people would rush the stage afterwards, thank you, shake hands. Especially if I did something cool like a hacking demo and I would ask them the question, what didn't you like? What didn't you understand? And when you ask that 20 times, you can just start iterating much faster. It's kind of like what hackers do. They try to get in and brute force into computers, guessing passwords like thousands of times. They don't care that they failed the first 999 times, they just care at work that thousandth time. I'm the same way about our pitch. And if you lead with education, you can not only build like a raving fan base, but you can also build some of the people that will help you iterate your pitch and get better. So when you're trying to go for customer 100 to 1000, you're now much more prepared then you can maybe consider try a little bit of ads, a little bit of paid placements, things of that nature. So you're right, I have a little bit atypical route to my first. To be honest, 5 million didn't involve a single ad. Just doing what I told you. Demand capture through going to the right place with the right pitch and demand generation by always leading with education.
- [46:19]
Omar Khan
Love it, love it. I think it's, it's, I think that's going to be very inspirational for a lot of people who don't enjoy selling, who enjoy building products, who enjoy solving problems. And to know that you took that approach and, you know, made it work, I think it's going to resonate with, with a lot of people. Let's talk about one of the lessons you learned about job titles and overinflating titles. Tell us that story about the salesperson.
- [46:51]
Kyle Hansloven
I gotta keep in mind you asked these prodding questions earlier just to get all the good, juicy stuff. So that's a good one. Biggest mistake I made in the beginning was I had a killer, absolute killer of a salesman who joined me. Remember when I mentioned I got to the point where I did my first 20 deals and now it's time to bring somebody in to help me scale somebody to do these sales so I could focus on other things? Well, Omer, of course, what did I do? I lured him in and I said, come be my VP of sales. What I didn't do, because I didn't know is I should have sat down and should have said, hey, Omer, we're getting started. I think I got this cracked. I think this is how the sales pitch is supposed to go. I need you to help me take it to the next level and not just do it for 20, help me get to the next hundred because I'm again doing smaller size deals. And what I should have said is you might get to a point where you're going to have to hire people under you and if you're not that right person, I got to set the tone right now with you. If you are not the right person, let's be okay with you hiring your own boss so we can all start crushing it together because you've got early stage equity and you're going to be able to win. But I didn't do that. I just gave him the VP of Sales title. This guy killed it for me. Brought me my first million in revenue, by far the hardest revenue I ever brought in. I still remember we had a board that we didn't track against ARR annual recurring revenue. We tracked against monthly. And the magic number is 83333. That's your million dollar mark. And I remember the day we crossed this. Him and I high fived and it was about the same time, you know, a week later or so, I remember having the conversation with him and said like, hey, we're going to have to bring on like this next leader, et cetera. And he was kind of like really offended, right? He was really like, I just got you your first million. But it was Clear to me it wasn't going to be the, you know, the guy that could, for instance, get me to 10 million. It was a completely different motion there. And even though I was able to give him a big pay raise and was able to expand his work, when he had to go to LinkedIn and update his title, nobody knew all that behind the scenes. The optics were, hey, this person got demoted. And that wasn't the case at all. Like, it wasn't the case at all. This guy killed it for me. But, you know, it's not even just ego if you don't control that expectation up there. I ended up losing this teammate almost immediately after. It wasn't a great situation. He was crushed. I was really crushed to lose him. The new team that came on board wanted his experience. He had real, real experience. And I kind of, you know, lost it as a founder. Right. I was the loser there. It wasn't his fault. It was my fault by failing to set expectations. So the advice I always, it's usually one of my first things that I share outside of go get good legal counsel is you really have to make sure you're delicate on titles. And let's be real, we're in startup world to execute. Like, I would be just as happy if my title was like chief janitor or chief nothing. Right. My co founder, John, he's our director of technology. He's not even the C suite anymore. He was the only smart founder and chose to hire his own boss of the remaining three. Right. But my point behind it is I didn't set expectations, I didn't clearly communicate. And as a result, I lost probably somebody who could have been a key player to me, helping me solve new problems 10 years later. It was that good of a relationship. So, yeah, take it from me, don't overinflate titles ever.
- [50:31]
Omar Khan
So how long did it take to get to the first million? So we started in 2015.
- [50:37]
Kyle Hansloven
It was probably 2017ish. You know, that's about the time people wouldn't really talk to me. So Maybe it's even 2018 because I had started raising that money in 2017. I think by the time we actually got the money in the bank, we had made it a lot further. So notice I was able to have traction. I had tens of thousands of dollars of monthly recurring revenue, but I didn't quite have a million yet. But I was right at that cusp. So it took a very long time. But I tried raising earlier. I tried raising in 15 at the end of 15, all throughout 16 I had complete seed rounds that failed. I even had some people that walked out on me later, came back and were major parts of my round later. It just. It's funny, like, you might have all the things in the world going for you, but if you can't show dollars, a lot of the people who have to take the most risk on you, especially as an unknown founder, money's the only thing that speaks, even with the greatest idea. You know, I got folks now, and by the way, like Omer, talking about the roi, the people who invested in me in my first seed round, I think they have something like 140x return. Wow, it's huge. Think about putting 25k in on that and what you're getting back, like, unheard of. It doesn't happen often. But those folks, like, they did me a huge favor. I also, at that time, like, I took another little bit of dilution. So if you think about this, between the startup accelerator I went to, that took a little bit of equity. A founder that I lost, you know, that 25% of his equity, not 25% of the company, but 25% of his, and then that last little piece of getting like kind of a term sheet on a convertible note, that was kind of low. I, by this point started hitting real, real significant dilution. And this is why that stuff is just so important, because it kind of took a little bit of wind out of my sails for a little while and had me considering, do I just sell the company?
- [52:35]
Omar Khan
And you did. You did consider selling the company. Right. So what was the growth trajectory? So two to three years to get to the first million, and then beyond that, like the next six, seven, eight years. How did it grow?
- [52:48]
Kyle Hansloven
So we went from one and a half to five, five to 10, 10 to 20, 20 to 40, 40 to 72, 72 to 120, 117, something like that.
- [53:01]
Omar Khan
That was like year, year on year growth that you were seeing.
- [53:03]
Kyle Hansloven
Yeah, every year that I was given was year over year. So a lot of doubling and in the beginning, a lot of tripling. Right. But it turns out like, so I get a little bit of investment and I'm at the point where I'm like, maybe I could raise a Series A. And I had folks come in really early. And this was a term sheet from Dell Technologies Capital. Gave me my first Series A term sheet, and it just, in my opinion, undervalued me so low that that next level of dilution I was going to receive, it sucked the wind not only out of me, but out of My two very motivated co founders, like, all this hard work we had just slog it like for at this point, three and a half years. We were like most of that. We weren't paying ourselves at all. You know, we were personally funding the company. And when you get a term sheet, that's the wrong valuation or the valuation that's maybe right for their risk, but wrong for you. I went to my friends and that had a much bigger SAS company, cybersecurity company, and we negotiated an acquisition for about $30 million and we were going to take it over. I set the wrong expectations. For me as founders, we were just like, even though we were having fun, we had all the trajectory and all the data showing we were going to keep like we had a flywheel going. It wasn't just a one off individual sale. We were keeping going to these watering holes and the watering holes were big and we'd find new ones and then we would go and lead with education. And we were just constantly keeping our funnel predictable. It still gave me a term sheet. I think at that time I was 1.5 million in revenue. One point, like it had gone pretty quick, you know. So from a seed round to maybe like a year and change later, we're now dangerously close to like probably 2 million or so in revenue, if I recall right. And they valued us like at half the price. I think it was like maybe a 10 million post valuation. And I was like, this is not going to work. And turns out they were wrong. I doubled down on my angel investors who wrote me a. Most of them went in again. They wrote me a $1 million bridge. So that now brings me from 750 to 1.75 million raised. And I went from 5.3 million in revenue. Sorry, 1.5 to 5 million in revenue in about a year.
- [55:26]
Omar Khan
Wow.
- [55:27]
Kyle Hansloven
And you can imagine at that point everybody was like, oh, there's something to this. And then even in a Covid year, I went from 5 to 10. And you know, you know that because we're now talking about from like 1920, I got series A in the middle when Covid kicked off, and then to go from 10 to 20 after that. But nobody knew it. We knew it as founders. But that's why I give all these points that I mentioned about like building the flywheel. So even when you have no conviction from anybody else outside of it, you'll have the data, you'll have the repeating process, you'll have the conviction to weather everybody's nose. And so kind of a lot of rough lessons that I'm throwing on this podcast.
- [56:12]
Omar Khan
Keeping it real. Appreciate that. I think we could keep talking for much longer, but we should probably wrap up. So let's get on to the lightning round. I've got seven quick fire questions for you.
- [56:29]
Kyle Hansloven
Let's do it.
- [56:30]
Omar Khan
All right, what's one of the best pieces of business advice you've received?
- [56:34]
Kyle Hansloven
Don't take money from your friends and family. I know a lot of people do it. For me, there was so much risk that I think if I would have taken that money, the extra anxiety for me, it would have been a lot. It was hard enough being accountable for myself, so I didn't take friends and family and I'm happy I didn't.
- [56:50]
Omar Khan
What book would you recommend to our audience and why?
- [56:53]
Kyle Hansloven
It's an atypical one for this stage, but I think everybody should read Good Strategy, Bad Strategy. The reason for it is we have really bad nomenclature and as you if you unlock and go past that first million, you're going to need to look at not just the plan that you're doing, but what are your strengths and how do you align them with the market's weaknesses or your competitors weaknesses in the market's opportunities to truly make strategy. That book makes it approachable the first five chapters for even an early startup founder. So good Strategy, Bad strategy.
- [57:26]
Omar Khan
By far my favorite great what's one attribute or characteristic in your mind of a successful founder?
- [57:33]
Kyle Hansloven
Oh, it's supposed to be lightning at the end of the day, alignment with core values like we always knew. Integrity, transparency and trust. Like these things were like unwithering and that gave us such a crazy disadvantage or sorry advantage and other people who didn't have it, it was such an unfair disadvantage to them. So alignment with founders on the things that really make you tick. Everything else you can pivot. You can't pivot like a disagreement on trust or integrity or transparency.
- [58:02]
Omar Khan
What's your favorite personal productivity tool or habit?
- [58:05]
Kyle Hansloven
I am pretty certain I'm somewhere on like the ADHD side of the house. I bring an executive business partner. It's kind of like an administrative executive assistant on steroids and they run my life. They tell me where to go, how high to jump, they keep accountable. And it's actually a really good strategy for me who like I can go do the things that nobody else can do, but I am not the most timely, I am not the most punctual and I will show up. When most people are like, you need to be on stage in 15 minutes. I'm like, we got 15 seconds to until we go live. I can finish that last slide. So my favorite personal habit is I bring someone in to help me with my accountability.
- [58:44]
Omar Khan
What's a new or crazy business idea you'd love to pursue if you had the time?
- [58:48]
Kyle Hansloven
So I've learned that these mid sized businesses and small businesses that have millions of companies not only have a problem with cybersecurity, they have a problem with marketing. Even in their own local cities, most of them get their business and sales through word of mouth only. I actually think if you want to help a business grow, you have to show them value immediately. And if you could show somebody how to make more money, not through a consultancy, but truly give them a turnkey outcome specifically targeted to businesses most ignore mid market and below, you could probably be a billionaire. I would love to chase that problem.
- [59:26]
Omar Khan
What's an interesting or fun fact about.
- [59:29]
Kyle Hansloven
You that most people don't know on the outside? A lot of people don't realize that being a great tech founder had got me very far and helped me with the story. Most people have no clue that I am an extremist when it comes to financial discipline. And it turns out if you want to scale, not everybody has to scale. But if you want to scale, that fun fact is you have to be able to do it. You can't depend on certain skills. So I am no joke. Despite me looking, you know, maybe cool, maybe nerdy. Everything else, I'm a hardcore finance guy and I just don't wear a suit and tie.
- [60:08]
Omar Khan
And finally, what's one of your most important passions outside of your work?
- [60:11]
Kyle Hansloven
I lost most of my passions during seven years of over rotating and I started just recently driving race cars. I did what every founder does when they finally hit a certain level. I bought a Lamborghini Super Trofeo. It's a race car only, not street legal. And I now drive with a race team, trying to build up my skills to give me something else to do that isn't just family life and isn't just work, but me, me only.
- [60:36]
Omar Khan
Awesome. All right, great, Carl, thank you so much. It's been really, really valuable, I think, to unpack your story and I feel like we just completed chapter one maybe, so maybe we can figure out, you know, if there's some kind of follow up we can do at some point. But I really appreciate you going through this, talking about just your journey, your lessons, your mistakes, everything I think is so valuable for founders who are in that stage right now to hopefully get some inspiration, some ideas that they can go and apply to their business. So thank you for doing that. If people want to check out Huntress, they can go to huntress.com and if they want to get in touch with you, what's the best way for them to do that?
- [61:27]
Kyle Hansloven
Yeah, I'm actually@KyleHandslovin.com, but nobody can spell my last name, so it turns out just Kyle and Huntress go pretty far when you're trying to stalk me online.
- [61:37]
Omar Khan
Awesome. Thanks man. It's been an absolute pleasure and I wish you and the team the best of success.
- [61:43]
Kyle Hansloven
I appreciate you just taking the time to pull the hard questions out of me stuff that's original content, so huge thanks for what you do.
- [61:49]
Omar Khan
Thank you so much. Appreciate that. All the best. Cheers. If this episode got you thinking about building or scaling your own SaaS product, let me tell you about a resource that can help. Whether you need a complete technical team or want to scale your existing one, Gearhart might be exactly what you're looking for. They're a product development studio that specializes in building B2B SaaS platforms. What's interesting is that they can act as your fractional CTO and technical team, but with a unique twist. They've built strong connections in Silicon Valley and can even help connect you with VCs when you're ready. Plus, as a proud Ukrainian born company, they deliver Silicon Valley expertise with an offshore pricing model. They're offering our listeners free strategy sessions with their leadership team until the end of March. Visit Gearheart IO to book your session. That's Gearheart IO.