John Keagy: I have to tell you a story about InReach internet. I ordered three phone lines into my apartment. One was the sales line, one was support, and one was the billing line. I was answering all three phones. I’d use a different voice on each of the phones to make it sound like there were three different people. It was a one-person company. The same is true with the start of GoGrid. There were times when employees played multiple roles. I’m thinking of this one guy Paul Lancaster. Paul did our billing, sales, and he even did a little bit of support.
Sramana Mitra: Who else was involved in the very early stage of the company?
John Keagy: In the early stage, it was just two to three people.
Sramana Mitra: How long did that two or three people team take the company?
John Keagy: Six months.
Sramana Mitra: Where did you add resources and how many?
John Keagy: We just added them one at a time.
Sramana Mitra: Was it more engineering?
John Keagy: I think we added a technical resource first.
Sramana Mitra: You said 18 months to a million. How many people were in the company by the time you got to a million?
John Keagy: Probably five.
Sramana Mitra: From there on, let’s say one million to five million, what was the trajectory? What was the timeline? What was the staffing involved? Where did you need to add resources for that? The beauty of Google PPC being the customer acquisition strategy is, it is technical. It doesn’t need people.
John Keagy: Customers weren’t ordering online. They ordered with us over the phone generally.
Sramana Mitra: So you needed an inside sales person?
John Keagy: Right.
Sramana Mitra: Would you answer my question about the one to five million period?
John Keagy: I would guess that took us only one more year and probably required five more people.
Sramana Mitra: You mentioned earlier on when we started talking about your journey that it was a very capital-intensive business. Can you talk a bit about your Capex? Sounds like you had to buy a lot of servers. What kind of Capex are we talking about?
John Keagy: We were delivering servers. We had to price our service so the servers paid back within about six months up to 10 months. We had to use the revenues and we had to make sure we had the revenue to buy the servers.
Sramana Mitra: For a $5 million run rate scenario, how much were you spending on Capex?
John Keagy: Since the servers paid for themselves in 10 months, by the end of the year, all the servers are paid for. It’s like operating a health club where you just got to keep signing those customers up. They’re paying for the other customers.
Sramana Mitra: The trick in the business is to financially engineer your cash flow, investment, Capex, Opex such that you can afford to buy enough servers to sustain the growth that you are trying to build?
John Keagy: Yes.
Sramana Mitra: You also said that it’s very R&D intensive. Can you talk a bit about what were some of the complexities and challenges on the R&D side? How were you tackling those?
John Keagy: Building software in 2004 – this was after we had substantial positive cash flow – we have been able to grow organic positive cash flow and use that to invest in intellectual property to try to automate our business, achieve higher margins, and offer new services.