Francisco Navarro, CEO of LunarByte talks about how they have grown their B2B services firm close to 7 figure revenue. We talk about their 0 to 1 journey & difficulties in scaling a B2B agency. This episode is a bit special as I talk to a B2B Services founder here to compare & contrast how running & growing a services business varies when compared to a B2B SaaS company.
- How LunarByte works with B2B companies helping them build their software
- How they price their software services
- How “word-of-mouth”, “review sites” etc. act as a top of funnel
- How does he handle the predictability of scaling developer resources & why it’s tricky to grow fast
- What’s their plan wrt hiring engineers offshore & Do their B2B clients impose any restrictions
Transcript
when you say you end up converting one or two customers on, on a monthly basis. Mm-hmm. right? So how do you allocate resourcing? I mean, how does that all work for you? Right? Because it's, there is no predictability here, right? So it's not like you've got a software to sell. I mean, you actually have. a bunch of resources, right? So how do you make that decision, Hey, I'm gonna work with you now based on the resourcing I have.
Francisco Navarro:Yeah. So that makes it pretty challenging. That's one of the biggest challenges that we're trying to solve. And, uh, growing, uh, you know, some of the growing pains that you see, uh, because it's linear, right? Like you have a new client, you need to hire a new developer, you see a new client, new developer, and so you really have to stagger your projects and say, we don't have the bandwidth to start tomorrow. We have some of those clients that come in and say like, we need you guys. Uh, please work on our project.
Upendra Varma:Hello everyone. Welcome to the B2B SaaS podcast. Today we have Francisco Navarro with US Francisco here is the CEO, e o of a company called Luna. Hey, Francisco, welcome to the show.
Francisco Navarro:Hey, Pendra. Uh, nice to meet you and thank you for having me on your show. Exciting.
Upendra Varma:Absolutely. So, Francisco, let's try to understand, right, so what, what your company does and how you end up making money.
Francisco Navarro:Yeah, for sure. So we are a software development studio or agency based out of Seattle, Washington. And, uh, in short we work with, uh, B2B companies or B2C companies that don't have technology expertise. So they come to us for, uh, their software engineering needs. Got it.
Upendra Varma:So, so help me understand, how many sort of clients are you working with at, at this point of.
Francisco Navarro:That's a good question. Uh, so I think we do a good job of retaining our clients, and so that means that we always have ongoing projects. Uh, I would say at the moment we have maybe like six, seven different projects in flights. Yep.
Upendra Varma:Across how many customers? Is,
Francisco Navarro:is that, uh, six or seven different? Uh oh, uh, that's a good question. I would say at one project per customer at the moment, Got it. So like six for seven.
Upendra Varma:Got it. So, so give us a sense of how these projects look like. What does the scope of this project look like and how do you engage with your customer on a typical.
Francisco Navarro:Yeah, for sure. So part of the exciting thing of working in a, on a studio is that you have a variety of different projects, right? So like right now we're working with a customer on the auto automotive, uh, auto, automotive industry. We're working with a client on the, uh, aviation industry. Uh, we have a, a marketing agency that we have built some tools for. Uh, it's a really, really wide, uh, range of projects and overall, uh, they see us as their software engineering team. Uh, they come to us for, you know, uh, full stack web applications. Uh, they come to us for mobile applications. Uh, so it can be quite exciting to you, you know, have different, different projects going. at the same time. It can be a challenge just because of different technologies, different business needs, uh, but I think we've done a good job of coping and helping and learning with our clients. Alright,
Upendra Varma:so before understanding, you know, how you end up sort of, you know, converting them to a customer, right? Or a client, right? I wanna understand how you sort of price your, you know, consultancy business or whatever services that you provide us of today. So what happens? How exactly does that work? So can you just walk me through that process?
Francisco Navarro:Yeah, for sure. So part of it is always having a good website, having some tease and seo, right? I'm sure everyone else says that. Um, so we did an okay job early on, and to be quite honest, uh, one thing that really matters is like, uh, you know, word of mouth. So what are people saying about you? And anything that they say positively, hopefully any positive things, you put it on your website, you put it on, uh, you know, uh, review websites like Clutch, do co, et cetera. Um, all those things matter. Uh, any review websites really matter. So, get 'em out there, make sure that people have good reviews and all that traffic drives back, goes back to your site eventually. So that's kind of the top of the funnel, right? Um, a lot of, uh, uh, free consultations come from there. Mm-hmm. uh, just here's our project. Here are the needs that we have, our business requirements here. Here's who we are as a company. Uh, and usually we have a pretty good portfolio now that we can demonstrate like, here's how we can help you with your project based on our experience and expertise that we have. Um, and so I, I think we do a good job once we get over the
Upendra Varma:question, so, right. So, I mean, so I wanna sort of, I want you to quantify this part, right? So like, on an average, how many, you know, inbound interests do you see, say, super per month? How does that number
Francisco Navarro:look like? Yeah, good question. Um, you can see anything between like, you know, five to 10 potential, uh, uh, leads that come in mm-hmm. And so that's just a free consultation. Right. Or, or an email. And some of those are going to go cold once you email them back, once you try to set up a free consultation. Uh, and, and some of them will definitely get, uh, back, get back to you or jump on a phone call and try to do a consultation. Uh, and, uh, part of that process is. do they think you're a good fit? Do their needs align with what you have to offer right now? Uh, so we lose some of those, a couple of those two like things like, well, we wanted to hire an agency, but now we wanna build our own internal team instead. So, you know, those are difficult. Uh, it is still a loss, but, um, how can you compete with someone saying like, we actually wanna build our team instead. Right. Uh, but overall, we, we close probably, you know, I would say like, uh, 10%, five to 10% of the leads that. So, so
Upendra Varma:essentially you're saying that you get one or two new lead every month or so, right? Something on that range. Mm-hmm. So, so I wanna understand, right? I mean, if you're seeing such, such amazing interest, right? Mm-hmm. how do you end when you say you end up converting one or two customers on, on a monthly basis. Mm-hmm. right? So how do you allocate resourcing? I mean, how does that all work for you? Right? Because it's, there is no predictability here, right? So it's not like you've got a software to sell. I mean, you actually have. A lot, a bunch of resources, services, right? So how do you make that decision, Hey, I'm gonna work with you now based on the resourcing I have.
Francisco Navarro:Yeah. So that makes it pretty challenging. That's one of the biggest challenges that we're trying to solve. And, uh, growing, uh, you know, some of the growing pains that you see, uh, because it's linear, right? Like you have a new client, you need to hire a new developer, you see a new client, new developer, and so you really have to stagger your projects and say, we don't have the bandwidth to start tomorrow. We have some of those clients that come in and say like, we need you guys. Uh, please work on our project. And it's funny cuz sometimes that takes like three months. Like we had a, a potential project that we sent a proposal for three months ago and they came back and they said like, we wanna start like next week. Mm-hmm. And the answer is like, well we can't. Right? Like we have to. Stagger right now. Uh, it would've been great if you said yes three months ago, but that's not how business works, right? That's not how the p2p, uh, B2B space works. So, um, we try our best to stagger the projects to hire a new developer. Uh, and it's part of the challenge. We're still trying to solve that right now.
Upendra Varma:Yeah. Got it. So, so you mentioned you, you have around six to seven projects as of today, right? So mm-hmm. when did you get that first project or first customer? Oh
Francisco Navarro:boy. So as every, you know, founder tells you, you kind of get whatever you can out there when you first start your company. So, uh, me and my co-founder used to be a software developers in Seattle for tech startups. That's her background. Uh, and he also worked at Starbucks and other tech companies actually in the area. Um, so, you know, we started our company and we just went out to some local meetup groups. Uh, talked to some businesses like local business meetups, uh, and there was a guy that, uh, a uh, home inspection local company that needed a new website. And so, no, uh, some new integrations, uh, with APIs. And so we built it and it was a WordPress website. You know, like every other good business out there, you start with WordPress Yep. And when. Uh, that was in late 2019, we started right before the pandemic.
Upendra Varma:Yep. So it's, it's been around three months of, uh, three years, right? Yep. Three years. Yep. Three years in business. And what about the second customer? I just want you to put your customers on the timeline for me.
Francisco Navarro:Yeah, the second customer came in probably, uh, a month, two months after the first one. Uh, and that's just how it goes, right? Like the first few customers are really hard to get. It takes time. You don't have a portfolio, you don't have a history. Uh, so that's one of the biggest challenges for founders, right? Like, how do you show up presence? How do you show that you, uh, have a portfolio, right? Uh, but yeah, it took some
Upendra Varma:time. So, so you mentioned you got around six active, you know, clients as of today, right? So mm-hmm. So can you just, uh, sort of help me understand what was that top of funnel like? So basically how many, you know, calls, did you have to sort of, you know, go on mm-hmm. Before you ended up getting those six customers? Was it 60, was it 600?
Francisco Navarro:Yeah, that's a good question. The answer is you hustle, right? Like you, you really have to hustle. Uh, and, uh, thankfully my, my family, my partners as immigrants, my parents, you know, they started a business here in the States. And so I've, I haven't been afraid of like, failure or, or, yeah. So I
Upendra Varma:just wanna understand that number. Right. So how hard was it for to sort of get those customers.
Francisco Navarro:Yeah, so I would say like, you know, I, I bought a stack of, uh, 250 business business cards. I bought, uh, a bunch of tickets to like local meetups. I bought, uh, all kinds of things that I thought were gonna be useful, and I just got out there. I just hit the ground. I started shaking hands, talking to local business owners. Uh, and again, after like, handing out all these business cards, like 200 business cards and talking to a bunch of people. Uh, we got our first, uh, WordPress customer, right? So that's just a reality. You gotta hustle and you gotta get out there and you gotta talk to
Upendra Varma:people, right? So I, I was asking what happened after that first customer you mentioned, right? As of today, you, you see all of this in bond interest from SEO or sometimes from word of mouth, right? So I just want to understand where those other five clients actually listen.
Francisco Navarro:Oh yeah. So once you have that, right, like, so I guess, uh, the numbers game is the more exposure you have, you start getting top of the funnel and then you start closing deals, right? So, um, I don't know if that helps, but, uh, yeah, like. part of it's just getting out there and like doing as many consultations as possible because it's simple, right? Like the top of the funnel is gonna be a little wider. Mm-hmm. and then it just keeps getting error and error. And so, uh, yeah. Um, we do a good job once we get to the last stage of the, of the funnel. We don't do as well at the top actually, but yeah.
undefined:Alright.
Upendra Varma:Right. So let, let's talk about your, your pricing and, you know, Margin here as well. Right. So I wanna understand as an agency, right, so how do you end up sort of deciding on that contract value because there is no straightforward answer to that, right? And how much margins do you sort of end up making on that? And what, how do you pay your developer? What happens that, so just talk about the entire, you know, structure there.
Francisco Navarro:Yeah, for sure. So, uh, the biggest thing is you have to have a margin, a profit margin, right? Uh, if you don't have that, then you don't have a business. Uh, and that number is, uh, based on what other agencies are charging in the area, right? So, like a good rate right now is like, you know, $140 an hour, $130 an hour. Uh, so you have to make a 50% margin on that, uh, you know, with your, uh, internal resources. Uh, so based on that number, it allows you to calculate sort of your salaries or what you can compensate your team. Um, and most of our projects are now six months to like eight months long. Mm-hmm. uh, and so that gives us a pretty good, wrong way. Right? Like if we have that hourly rate and we provide an estimate to the client in the proposal, um, most of our projects on average could be like around 80, a hundred thousand dollars. Uh, so yeah, that's kind of the average right now.
Upendra Varma:Got it. So, and how much margins sort of do you take, you know, at the end of the day? Mm-hmm. after paying. Employees, everybody. So what, like, how much of that, you know, do does the company make at the end of
Francisco Navarro:the day? Yeah. Uh, before taxes and all the operational cost, of course, uh, you, you know, I would say like probably 45% is a good, it's a good, uh, margin.
Upendra Varma:Yeah. That, that, that's pretty good actually. Yeah. So, yeah.
Francisco Navarro:Yeah. And we like to keep a lean, you know, like, we like to keep a simple lean, uh, and that helps, uh,
Upendra Varma:Got. Alright. Right. So, so talk about the resourcing aspect, right? So, so how does the, how, how do you grow here, right? So, I mean, what's, what's the vision here? So for example, so what happens if you start losing a customer? So now you've got an ideal developer there, right? And I think they're on your payroll, you're not definitely paying them on an hourly basis, right? So, so how do you manage with things like those? Because given the unpredictability here, That
Francisco Navarro:is, uh, again, one of the toughest challenges of being an agency, right? So, uh, staggering your projects and then what if you lose an existing project? Uh, we don't see that a lot for us. I think we do a really good job of retaining our customers. So like retention is very, very important. And I think every founder, every. B2B person knows that already and should know that they don't. Uh, once you retain a customer, their lifetime value just, you know, can be really great. Uh, so that helps us a lot. But, you know,
Upendra Varma:retaining here here could be a bit tricky, right? I mean, your customer might end up building a software development team for themselves, right? There could be a number of reasons, right? It might not just be about you not serving them, right? It might be because they're taking a different path altogether, right? Mm-hmm. So retention is not something that you can control even you sort of.
Francisco Navarro:Right. Yeah. And so when we do lose a customer, thankfully, I usually try to like look forward to having one or two other projects stagger down the road, down the road, like one month ahead or something like that, or two months. Uh, but it's just all the variables you gotta play with and that's where you have to keep your eye on it. Right. As a, as a founder and develop, uh, and c e o of the company, you just gotta keep an eye on all, all those things.
undefined:Yeah.
Upendra Varma:Got it. And talk about the team. Do you have like how many devs working?
Francisco Navarro:Uh, we have, uh, we are a team of six people right now. Uh, plus we have, that's
Upendra Varma:nicely matched, right? So six people working on six projects, and then you're, you're working with six clients.
Francisco Navarro:Exactly. And so that helps like, you know, kind of move the variables, right? Like you have a little less work on one project, you move a developer to another project. But we try to keep a simple and only one, uh, one developer per two projects. We don't like to spread 'em around too much. Uh, is that efficient for
Upendra Varma:anyone? You know? And, and how long does this project go? Is it like months, years?
Francisco Navarro:Yeah, I would say on average like six months to a year. Um, and you know what's important here too is that our developers develop a good relationship with the client, which helps with, uh, churn, right? Like that way you retain the customers. Uh, but yeah, the projects are, uh, six months to a year
Upendra Varma:and you decide upon the contract while you're at the beginning of the beginning of the IT itself, right?
Francisco Navarro:Exactly. Yep. We set a kickoff date and we say, here are the, uh, the requirements. Here's when we expect to finish the project. Uh, and one thing we try to do is always hand out like prototypes right away. Mm-hmm. we work together on projects right away.
Upendra Varma:Right. So, so in a business like this, right? Mm-hmm. so scaling is always gonna be very tricky because you have mm-hmm. to scale your resources as well. And so what's the vision here for you particularly? So what are you planning to do in the next two to three years with respect to this particular company?
Francisco Navarro:Um, I think if, uh, by next year we're at a team of like 10 people, that would be amazing and that's quite a challenge. Uh, but I think it's very doable. Uh, and uh, I think as a business, once you have like you're the seven figures, right? Uh, and you have a really good, uh, source of income, uh, and stream, uh, of revenue, it allows you to lower things that are interesting, right? Like we have had one or two, uh, B2B partners that have asked us to like help 'em. take their projects to actual market. And, and a couple of those projects are in the market right now as B2B software solutions. Uh, they want us to be their full like, uh, engineering team, uh, but also be participants and, and potentially, you know, uh, take a stake on some of these companies. So that's where I get excited because I think Lunar Buy has done such a great job of building some of these products. So like there is a lot of potential in the B2B space out there for tools that people are not aware of. Right. And we build some of those, but.
Upendra Varma:Right. Got it. Right. So, so talk about the team here, right? So are you being, you know, innovative here as well? Like are you hiring engineers, sort of, you know, countries where you can get them at a much cheaper cost? Or are you still like, where are these engineers based on based sort of.
Francisco Navarro:Yeah, that's a good question. Uh, one thing I like to say, you know, to my co-founder is that, uh, I like to pursue passions and I like to see people that are passionate too. Uh, if you have a solid foundation of development and, and background, uh, we can work with that. We like to develop talent in house and keep those developers. We like to see like, you know, Good players, a players who come in, uh, and they still may not have all the skills. They have some, uh, pa a lot of passion, but we like to develop their skills a lot further. And I do promise our developers, like they're gonna be challenged more than they are, uh, working at a corporate suite, sitting in the co in the corner of a conference room or somewhere like that. Just cuz I've done that, uh, played that role, my co-founder played that role. And like you're just mindly seeing moving tickets and Jira, right? Like left to right and waiting for all the managers to tell you what to. That, that's not the case here. Like you're hitting the ground, you gotta code, you gotta do things.
Upendra Varma:So, yeah. So my question is, where are these engineers based? Sort of, are they based sort of Seattle itself or are they from some other countries? Yeah,
Francisco Navarro:it's funny cuz we have become fully remote now. Uhhuh, uh, but we do have a developers in Seattle. We have developers in Seattle, in Portland now, and uh, LA but we are all onshore in the us Our whole team, team is based in the us So have,
Upendra Varma:have, have you thought of, you know, maybe expanding beyond, you know, beyond us, right? So because you might get them at a much cheaper.
Francisco Navarro:That is always a good question.
Upendra Varma:Right. And I think that being remote should enable you to do that. Right. And you can get amazing talent outside of us, right?
Francisco Navarro:So That's true. That's true. Yeah. So we have considered that in the past. I think one of the attractive, uh, aspects for our business has been that we're like, based on the US and many of our clients have actually come to us because they took a project offshore and it was just hard to manage it. They don't have the expertise to manage these projects. Mm-hmm. So they come to us once they. we can meet with Francisco, downtown Seattle or with someone else, uh, you know, one of his team members. So, uh, we have considerate, and some projects have talked about like, uh, we would be okay with you outsourcing. So that's kind of in the works. That's, no,
Upendra Varma:I'm not talking about outsourcing. I'm just talking about building a remote team in a different country where you could, you know, hire them from a much, achieve a cost. That's
Francisco Navarro:fair. Yeah. We, we have talked about that with some of our clients. Uh,
Upendra Varma:No, my question is, does, does a client really care where your employees sit? I mean, as long as they're getting, you know, value for their money. Mm-hmm. do they really care about that? Hmm,
Francisco Navarro:that's a good question. Uh, I would say some of them do. Uh, the majority of them probably do care that they're built, their software is built in the us. Um, in the B2B space that we're working in right now, like I mentioned, aviation, uh, automotive industry, they actually, part of the, the business is that they have to follow some regulations or some things with the federal government or things like that, right? So that helps that we are based in the us Uh, there are other projects that are not like that. And so those customers have talked about like, we would be okay if you hire, uh, bringing a member from, you know, outside of the us uh, cuz it is cheaper that that's just a reality and you don't always need to have. Uh, your best developer working on the project in the US and you can have a good developer from Latin America or somewhere else working on the project. So, mm-hmm. Yeah.
Upendra Varma:Got it. Alright, Francisco, I think, uh, thanks for taking the time to talk to me. You know, hope you reach your milestones as quickly as possible. Latuna invite. Thanks
Francisco Navarro:Pendra. Uh, I appreciate it man. Thank you for having me on the show and uh, the best of you too.