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Bootstrap First to Exit, Bootstrap Again, Then Raise VC Money ALL from St. Louis: Stephanie Leffler, CEO of OneSpace (Part 2)

Posted on Tuesday, Jul 26th 2016

Sramana Mitra: You’re going way too fast for the story. Remember, we are doing an Entrepreneur Journeys story.

Stephanie Leffler: The key portion of switching gears from trying to be a retail business to starting our e-commerce journey was out of complete necessity. We were in a situation where we didn’t have enough money to keep our retail business going. We didn’t have any plans to be profitable fast enough for us to be able to survive. It was a survival technique.

Sramana Mitra: As a survival strategy, you decided that you were going to become a reseller of this e-commerce platform company?

Stephanie Leffler: That’s exactly right.

Sramana Mitra: What price point was the platform priced at, and what was the reseller deal that you struck with them?

Stephanie Leffler: At that time, he was selling that platform for $1,800 as a one-time license fee. We would get 50% of the revenue from any sale we could make and he would provide end-to-end tech support. We basically could sell and move on. Because we were in the middle of the dot-com bust, people were struggling to pay $1,800 one-time, so we changed the pricing and got him to agree to let us sell it for $79 a month.

It was before the term SaaS even existed. It was before Salesforce was around. All of a sudden, we went from selling one per month to one per week. I remember having a conversation with my partner and we said, “If we could just sell one per day, I think we’d actually be at a place where we could make this work.” When we hit the 250 total customers, we started to talk to the guy who was providing all the tech support.

We said, “We’ll be able to continue to grow this. You’re going to have to grow on your end.” He was in a position where he wasn’t super excited to manage all of this stuff. He definitely was an ideas guy. That’s when we started to talk to him about, “What would it look like if we actually bought this whole business from you?” We found a way to start selling without having to buy the business at all and spend a single dollar. Once we had a recurring revenue stream behind us, we felt a lot more confident bordering a deal that would allow us to ultimately buy him out.

Sramana Mitra: Where was he and what was his expertise? Was he the developer?

Stephanie Leffler: He was more technical than we were. He was not a developer himself but he was a product guy. He hired two developers to build the platform for him. He was in Los Angeles and we were just outside of St. Louis.

Sramana Mitra: How did you structure the deal to buy him out? Did he continue to remain involved in managing the product or did you have to take that over?

Stephanie Leffler: For quite some time, he designed the product and managed technical support and engineering. We managed all the sales and marketing. We did all the accounting out of our group. We would send him a check every month for his portion of the revenue. It was still 50% all the way through. The way we structured the buyout deal was we started to grow and invest in more things.

He ended up borrowing money to run his portion. As his debt started growing, he wanted to be able to take money out of the business. That was when we said, “What if we pay you just a lump sum? We’ll assume all of the debt that you built up funding your half of the business.” It was a modest amount. We had structured a deal that was good for us in the beginning. I don’t think he had a clear way out of that point.

Sramana Mitra: Interesting. What year was this happening?

Stephanie Leffler: This was all happening probably around 2003.

Sramana Mitra: What kind of revenues was the business doing at this point?

Stephanie Leffler: That’s a good question. I would say we were probably getting close to a million dollars annually at that point.

Sramana Mitra: After this deal got done and you got control of the business, how long did you run the business and what scale did it get to before you sold the business?

Stephanie Leffler: We ran the business from that point until the time we sold it. We continued to grow well. Some of the key milestones that happened between then and selling it was in 2004, we launched a shopping comparison engine called Monster Marketplace. When we launched it, the sole reason was to reduce churn within our client base.

We had lots of customers coming online and we saw this magical churn figure that said, “If the customer makes one sale per month, they will stay on as a customer. If they don’t make one sale per month, that’s when they churn.” We were brainstorming ideas on how to get them to make a sale. We decided to build a shopping comparison engine. That was around the time that Google launched the Search Appliance, which was eventually called AdSense.

We bought the Search Appliance to power our marketplace and they asked us if we wanted to be a beta partner of this thing they called AdSense. We said sure. The first day we launched our shopping comparison engine, we looked at the revenues that came from this thing called AdSense. We made $300. The next day, we made $600. Within a couple of months, we were making thousands of dollars a day.

By the end, it was more than 50% of our revenue. It was interesting how we never envisioned it to be anything other than a small project but it ended up being a huge piece of our success. In early 2005, eBay reached out and was interested in acquiring us. That was the first time that we had had anybody talk to us about potentially buying us. My CTO and I at that time flew out to eBay. We were very excited. They ended up not choosing us.

They chose another company that was in bankruptcy, so they could buy it for very little. Following that, it was probably about six months later that Network Solutions approached us to acquire the company. That year, we had done $12 million in revenue. We were on track to hit about $20 million. We had 80 team members at the time.

This segment is part 2 in the series : Bootstrap First to Exit, Bootstrap Again, Then Raise VC Money ALL from St. Louis: Stephanie Leffler, CEO of OneSpace
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