Duke Chung of Parature. (Jeffrey MacMillan/JEFFREY…)
No matter how many times you’ve built a company from a young start-up into a thriving business, challenges abound. Every new venture must face competition in the market, hunt for that first customer and, perhaps most dauntingly, raise the capital necessary to keep the wheels turning.
Capital Business, in collaboration with the Northern Virginia Technology Council, sat down for a roundtable conversation with three long-time entrepreneurs to discuss the challenges and opportunities they see in their current business ventures.
Jeff White created Gravy, a smartphone application that helps people find events and activities in their area. He previously founded, and subsequently sold, mySBX (now called GovWin) and Blue Canopy.
Duke Chung founded Parature while still a student at Cornell University. Twelve years later, the company provides customer service software to such companies as IBM, Travelodge and The Washington Post Co.
Justin Langseth has made a career in big data. His latest venture, Zoomdata, allows firms to visualize their information using interactive charts and illustrations. His past endeavors include Strategy.com, which folded, as well as Claraview, Clarabridge and Augaroo, a consulting firm. Here is an excerpt of that conversation, edited for grammar and clarity:
All of your ventures require you to work with other firms. How do you deal with companies that change their strategy?
White: Like a guppy deals with a whale, you get swallowed and then spit out. One of the benefits of being smaller is we don’t put all our eggs in one basket and we can be nimble. I haven’t had a single business that I started end up what I thought it was going to be, largely because of that very thing. [But] sometimes that works in the opposite direction. A large company will come to you or you can observe their inefficiencies and that creates the opportunity versus shutting the door.
Langseth: You don’t want to become too dependent on any one other company’s business model. If you’re too dependent on being specially ranked in Google searches, for example, and they change their algorithm, you’re screwed. One way to hedge against that is to base yourself off open source technology that is community controlled so not any one company can say, “I don’t like you today I’m going to turn you off.”
Chung: People are a little smarter on the agile way of building something simple and seeing if it works first. Ten years ago, we would have spent a lot of time building an enterprise product and taking it from beginning to end.. I think people today will try things earlier to see if it works. The time to build is a lot faster. The time to market is faster. Don’t overly invest in one strategy where you’re going to be screwed over time.
How did you acquire your first paying customer?
Chung: We were in Ithaca, N.Y., and this was 10 years ago ,so you still had to pick up a phone and call. We just picked up the white pages in Ithaca and we were calling the “T” section and we called Tompkins County Trust, which is a bank in Ithaca. They were launching Internet banking, which was really progressive for them back then, and their big concern was what if people have questions. So our chat [software] was launched onto their banking site as our first customer, and they’re still our customer today.
White: In our industry, the first paying customer is easy, and they don’t give you much. Getting $15,000 to $50,000 orders isn’t hard. Turning $50,000 into $500,000 is hard. But the ad space and sports and entertainment space spend pretty readily on sprinkling seeds around and seeing what sticks. Fortunately, we’ve been successful at making them stick and grow.
Langseth: It’s actually a little different in this company than it has been in my prior companies. In the past, it’s been mostly relationship based, go see [people we know] and get them excited. In this case, we announced our seed funding last November, we did some PR around it and tried to talk about our vision. In that case, we got a lot of inbound interest immediately off a couple news stories that got printed and some of [the people who called] became our initial customers.
A lot has been said about “the Series A crunch,” or difficulty in raising money after a seed investment. Is there actually a crunch?
Langseth: It is easier than it has been in the past to get somebody to give you $50,000 or $100,000. In our case, we put together a round of 20 different angels and put together a $1.1 million seed round. It easier to launch companies these days, it doesn’t take as much money or equipment. There’s fewer active VCs in our area who are actually doing Series A deals. A lot of them have moved down to only doing seed deals because they have less money than they used to, and there’s others who have moved up to doing only later-stage deals because it’s considered safer for them.
Chung: We bootstrapped our first five years, not because we wanted to, but because we had to. So by the time we raised our A round, we had $4 million to $5 million in product revenue. So for an investor to come in at that point is easier. It was almost like our Series B.
The last three years we’ve been profitable. But we’ve traded growth ... to become profitable. If you go to the Bay Area, a lot of the [software as a service] companies aren’t profitable. They just tell you to completely aim for the top line and get 100 percent growth if you can get the capital.
Langseth: There’s the whole profitability versus growth dynamic. Some of the seed stage and earlier A round companies try to get there too quickly. If you get to profitability or near profitability at a lower point ... it can limit your ability to raise money. Because once you have an operating history and you’re growing [but slowly], it makes it even harder to get growth capital.