Sramana Mitra: Not all categories of e-commerce have very slim margins. We’ve got great stories of bootstrapped e-commerce companies. I think in your case, pet foods doesn’t have a lot of margin.
Joe Speiser: It doesn’t. When we started, the gross margins on pet food were actually very high. But it’s the shipping that takes away most of it. Then, you also have incidental things like materials and software to run the warehouse. Before you know it, there’s a re-haul and you take a big step back. There’s a lot of things that go into it.
That being said, we knew that we wanted to scale this business fast and we needed more money for advertising to do it. We raised a round with Lightspeed Ventures in 2011. I think it was July. With that money, we were able to bring on additional help. We hired Mike. He’s now our President. He’s been promoted multiple times throughout the last few years. >>>
Josh is a fellow MIT alum, and a fellow believer in the tried and true methodology that we espouse in 1M/1M: Bootstrap First, Raise Money Later. Josh raised his Series A with $5M in revenue. The company today is growing at 150% year-over-year. Wonderful story!
Sramana Mitra: Let’s go back to the very beginning of your story. Where are you from? Where were you born, raised, and in what kind of background?
Josh Manion: I grew up in a little town in Wisconsin called Jamesville, which had about 50,000 people. My dad delivered little snack cakes to grocery stores and stocked the shelves with them. My mom ran a store. It was a Midwest upbringing. The unique element for me was that I was actually homeschooled all the way through high school. That afforded me some unique latitude to pursue some of the things that I’m passionate about. One of which is chess, which I took to some extreme. I actually played as a professional chess player for a couple of years before going to college. I have one sister three years older than me. >>>
Andy Gotshalk: This technology was invented at the University of Utah, so our company is in Salt Lake City because of that. There was another professor at the University of Utah who had a strong business mind, which you don’t find too often. He was heavily involved in developing new advanced parts of the same technology and trying to innovate it. He saw an opportunity to basically buy this business as Cyberkinetics was about to go out of business and actually build a strong company that was dedicated to neuroscientists.
I had talked to him about this idea. He knew my experience. He basically asked me to move from Boston to Salt Lake City and run the company. To me, it was a great idea. It’s on the track of what I wanted to do in terms of growing these businesses and trying to get a product that was going to impact people. We took a step back and said, “We’re going to focus on technology first and then we’re going to focus on getting it into the market.” To me, what it said is, “We’re going to build a strong sustainable company, which is going to help us put this platform that is going to be long-lasting”. >>>
A Gartner report published last year on the global customer relationship management (CRM) software market projects the industry to grow 15% annually through the period 2013 to 2017. The growth in the industry is estimated to be driven by increasing adoption of cloud based offerings which are expected to grow 22.6% annually over the same period. Freshdesk is a fast growing player in the industry, and was incubated in the 1M/1M program since early 2011. In 2013, Freshdesk joined the 1M/1M Million Dollar club and now, it is aiming for the Billion Dollar Unicorn status.
Joe Speiser: In 2005, we were a very profitable business and were scaling quickly. We had 50 to 60 employees at that time. This was my first large business, so I felt that we needed help. We needed some outside experience to guide us on how to scale this company. We brought on private equity. We sold half the company to TA Associates and Strikes Group. We started recruiting the grey-haired management team that you’re supposed to have in place. Things moved very quickly from there. We kept expanding. We went from $50 million to $200 million in revenue. It was on fire. That brings us up to 2010.
Sramana Mitra: The company was private equity owned from 2005 to 2010 and scaled to $200 million. You were still with the company at this point?
Joe Speiser: Yes.
Sramana Mitra: What happened to the company? >>>
Sramana Mitra: Given that the market is $45 billion, there’s obviously a huge amount of head room to build a larger business here. Could you have grown a lot faster? Are there levers that you could push? I’m not saying that you should grow faster. I’m asking out of intellectual curiosity.
Tim Hentschel: There definitely is. If you gave me capital, I can spend it really quickly. You’re spending unlimited amounts of money when you’re trying to educate consumers especially on a worldwide basis. We’ve still got bootstrapping roots and are growing organically. It reflects in the growth that we continue to see.
We just surpassed two million registered group coordinators. That’s a good metric. We hit our first million in 2013. It only took us two years to hit our second million. We have a 70% net promoter score. As the number of people using us and liking us gets bigger, the word of mouth grows exponentially. We’re just hitting our stride. >>>
Andy Gotshalk: I also started taking some classes and thought about the idea of going to business school full-time. I never went back to business school so to this day, I still don’t have an MBA. I did take some key classes along the way, which provided a good foundation for me. The biggest thing that you’re going to get out of a business school is the network. The actual coursework is a critical piece of it, but you can pick that up from many different places. I took some classes to give me more of that foundation and continue to grow with the company.
An interesting side-story about me that doesn’t necessarily have anything to do with business or entrepreneurship is in 2003, there was a restructuring going on in Haemonetics. They laid off a decent amount of the work force. But I didn’t get laid off. I had the opportunity to talk to the people there and coordinate getting laid off for a nice severance package that allowed me and my wife to travel the world. I decided to leave and travel for a year mostly to developing countries around the world. It also helped me think a little bit more about what I wanted to do and where I wanted to be. That was in 2003. >>>
The online travel industry was in the news lately when travel giant Expedia announced the $1.6 billion acquisition of Orbitz Worldwide. Many believe that this is just one of the many acquisitions to happen in the industry. Vacation house rental firm HomeAway (Nasdaq: AWAY) is one such potential target that is expected to be bought. For now, though, the company has managed to stay independent. But, given their financial performance, I wonder for how long they will be able to sustain themselves.