Serial Bootstrapper: Oversee and Manage Founder Fred Hsu (Part 6)

Sramana Mitra: What are the milestones of this business? By how much did it scale? How fast did it scale? What kind of strategy did you follow to make it grow?

Fred Hsu: What we wanted to do at first was to basically get a good sense of the market and establish a few key customers. We all had this internal confidence that if we got the customers, we know how to go out there and get the demand. We can build the full stack and do it better than anybody else out there. It started with a simple kernel. There wasn’t an intense capital need. Computing power was already ten times more powerful at a fraction of the cost than it was back in 2000 when I started doing startups. We didn’t need a lot of outside capital.

We also didn’t necessarily need a large sales force or support infrastructure just yet. We didn’t want to get too many customers to start off with. We really wanted to focus on making sure our systems work for a small set of deep pocket clients. The business lost $50,000 in 2011. But in 2012, it generated about $2 million in gross revenue. In 2013, $18 million. In 2014, we ended up with just under $80 million.

Sramana Mitra: Wow!

Fred Hsu: We were profitable. The staff today is about 60 to 65 people across four locations – two in the Bay Area, one in New York, and one in London.

Sramana Mitra: How much of your own money did you have to put in to get it to start breaking even?

Fred Hsu: $500,000.

Sramana Mitra: That’s fantastic. Superb execution. What do you think is the secret of what you’ve been able to achieve in such a capital efficient manner?

Fred Hsu: Choosing co-founders wisely. Our co-founders are Kai who is very technical, Steve who’s financially very savvy, Gerald our design VP, and myself. Also, getting to an MVP as quick as you can and doing so efficiently was also crucial.

We happened to develop initial dominance for programmatic buying for mobile. We’re still the largest programmatic buyer out there. That was one benefit. More importantly, we have a culture of hustle. I’m an LA guy. I actually moved to Bay Area because I like the competition. I like to build something to run circles around the VC-backed companies out here. Even though they’re driving up rents and they’re actively soliciting my employees, I totally get that.

Being capital efficient is a priority these days. Are we open to raising money? Absolutely, but it has to be the right timing. It has to be served on the company’s terms. What’s also helped is the hiring approach. I usually look for only three traits in employees. Are they smart? Are they motivated? Are they mature? If I look back in my career and think of all the people who worked out and the people who didn’t, the guideline dictated the success or failure of every employee.

Sramana Mitra: When you started your previous company, you were not very mature yourself. When you were younger, you only had so much life experience. I started my first company when I was 24. I definitely was not very mature. I was mature for that age, but how mature can you be without life experience?

Fred Hsu: Of course. I personally dodged a bullet there. I recollect the moment when I first asked a candidate whether or not they’re married. I think I was about 23 at that time. I didn’t realize that I wasn’t supposed to ask that question.

Sramana Mitra: How many people do you have in the Bay Area now?

Fred Hsu: We have about 50 people in the Bay Area.

Sramana Mitra: Where are you located?

Fred Hsu: Our headquarters is in San Francisco.

Sramana Mitra: The 50 people are in San Francisco?

Fred Hsu: About 35 are in San Francisco and 15 are in Mountain View in an engineering office that we built down there.

Sramana Mitra: Are you losing a lot of people all the time?

Fred Hsu: We’re losing some people. There are two reasons. Some people we terminate for performance. Some people leave on their own. Oftentimes, they’re being recruited to another startup.

Sramana Mitra: In hindsight, was it a good idea to do this company in the Bay Area? Would it have been simpler to do it in Southern California without having to fight the talent war up here?

Fred Hsu: For sales and marketing, it’d be better to do it outside of the Bay Area. I feel like there are a lot of smart-minded business folks outside the Bay Area. LA would work just fine. So would Seattle. But if we’re talking about the best possible technical platform, I think being in the Bay Area is really critical. I do have a bias to the Peninsula. That’s where I live. That’s where most of our engineers are. If I had to do things differently, I would probably have raised more money quicker rather than doing it completely bootstrapped.

It’s because of the dynamics of the Bay Area that just makes it harder. Employees are harder to find and they’re more expensive in general because I’m competing against the VC-backed companies. There are a lot of marketing and outreach type of programs that we can do if we had money to burn. No offense to anybody in the marketing and PR industry but I think a lot of times, the VC-backed mentality is such that it’s not necessarily smoke and mirrors but you’re doing a lot of propaganda. Oftentimes, you may not actually have a stack of product that is working at scale.

This segment is part 6 in the series : Serial Bootstrapper: Oversee and Manage Founder Fred Hsu
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