John Keagy: There’s a famous sociologist at my college called Harry Edwards. Harry Edwards was the first guy to say that professional athletes are not role models. Charles Barkley was the first professional athlete to implore kids, especially inter-city youths, to not see him as their role model. He said, “Don’t try to make your path in life being a professional athlete. There’re just too few opportunities. 400 of you are going to become professional athletes and 400 million of you are going to fail at trying to do that.”
WhatsApp had 55 employees, no revenues, no billing department, no customer service department, no real organization to speak of. You could question whether those people really built a company at all. I understand that that’s a wonderful thing to aspire to and I suspect that many young entrepreneurs think that they don’t have to build a real company either. I just want to point out that strategy is akin to aspiring to be a professional athlete if you’re an inter-city youth. You’re much better off aspiring to build a company that actually has revenues.
Sramana Mitra: I fully agree with you. That’s pretty much the philosophy that we teach in our program. WhatsApp actually did have some revenues but many others – like Snapchat, Instagram, and Tumblr – don’t have any revenue whatsoever. They don’t even know what a revenue model would be. In the case of WhatsApp, there’s actually a revenue model and that revenue model is going to evolve further as Facebook takes over. In many of the other cases, there is no revenue model. It’s valuation without revenue. It’s completely speculative. Just like what happened in the late 90’s, it’s happening again. Silicon Valley is turning to that very dangerously speculative mindset again.
John Keagy: I’m glad to hear you’re not teaching people that their career path should be to build companies that don’t generate revenue.
Sramana Mitra: I don’t believe in that at all. I absolutely, deeply do not believe in it. So, there’re no questions of teaching that. Let’s anchor this to your story. In a self-financed mode, how long did it take you and how much capital did it take you to get to a million?
John Keagy: I probably got there in less than a year and a half.
Sramana Mitra: How much capital did you put in it?
John Keagy: At that point, I was probably in for a couple of hundred thousand dollars.
Sramana Mitra: That’s very good – $200,000 investment earning into a million dollar in 18 months. That’s excellent. That’s a very precise execution. We just did a case study of a company that is also self-financed by co-founders. They put in a total of a million dollars and have built a very complex, sophisticated product. It’s a messaging app as well, TextMe. They have done $10 million in two years. Of course, the Internet is at a very different stage of evolution today than it was in 2001. If you got to a million dollar in 18 months with $200,000 in investment back in 2001 to 2002, that is fabulous.
John Keagy: What I’m excited about is that at this point, we have spent over $25 million on building software. I can prove that from R&D tax credits. You’d have to raise in the order of $100 million in order to put $25 million specifically into software development and to build an organization like that. We’ve done that all from cash flow.
Sramana Mitra: Let’s talk about your team building strategy. When you launch a project, how many people were involved? Who were they? How did you build the team out?
John Keagy: I built the team out organically and sensibly, commensurate with revenues.
Sramana Mitra: If you could elaborate on that a little bit. In other case studies that I’m seeing a lot of parallels with, in the two years that they have spent to build a $10 million revenue stream, they have 12 people. What they did was to bring together a couple of engineers, the two co-founders, and a marketing guy. That was it for a while. Then, they gradually built up more of the customer service, and the engineering team. Basically, they’re a $10 million revenue generating company with 12 people.
However, all this has become cheaper in terms of how fast you can grow things and how much scale you can achieve in the last decade. You are, of course, talking about a time that is before a lot of the viral Internet came into being. I’m asking you to give us some contrast with this case study on how your journey has been.