Sramana: Was your father’s business model basically selling services around someone else’s product?
Steve Cotton: Yes. The company’s business model was essentially a manufacturer’s representative of a battery monitor product. Companies would deploy these systems into their data centers, and then when they would have problems they would realize that there had been indicators in the data gathered by the software for the previous month. My father built a business by providing a managed service to look at the data from those batter monitoring systems. That grew exponentially when he started to land national accounts. In the late 1990s, I came in and started helping him. I crafted a web-based version of the service. That was the early concept that we put together.
Sramana: One of the philosophies that we support in the 1M/1M program is bootstrapping through services. We have a lot of entrepreneurs who bootstrap their businesses by offering services in certain domains. That offers them deep insight into a set of customers in a domain. It also offers them cash. Through that process, they come up with product ideas and become either product/service combination companies or product companies. We are very much in favor of these kinds of companies. It sounds like this company started as a services company and then built some SaaS products out of that service offering.
Steve Cotton: You are exactly right. The initial business model of the company was effectively 100% margin of anything sold. If you are buying and reselling as a manufacturer’s rep, then you are paid a commission for selling the equipment. You would then get the services wrapped around installation, commissioning, and ongoing monitoring. That is what paid for the growth of the company. I was attracted to the company because it had recurring revenue, tight relationships with customers who value services, and it had unlimited potential for direction.
I was effectively employee number one. I wanted to create a company that could generate ideas and ultimately offer different products and services as packages. When I started adding people to the business, we collectively came up with ideas to expand what our offerings were. Our first approach was to buy resale from the manufacturer so that we could make better margins. Ultimately we were able to build the business to offer a better solution. We started packaging solutions to customers so they could have a turnkey managed solution of the batteries, monitors, and the monitoring service. The customers that we had trusted relationships with were able to grow with what our offerings were.
Over time, we found out that if we changed from one technology to another, customers would buy whatever product we presented to them. There was not a lot of rapid evolution in the battery monitoring space. Our customers valued the trusted relationship and the service we provided to them. They were not buying a box, they were buying a relationship. I knew then that we needed to develop our own product because then we could grow the revenue even more.