Bootstrapped, Profitable, and Proud – (Full IData responses)
From 37 Signals’ Signal vs. Noise Blog
What does your business do?
In short, we solve problems with technology for higher education institutions. In some cases, we solve people problems with better technology, and in other cases we solve technology problems with better people. To be more specific, we are a technology consulting and software solutions firm with the mission to increase the productivity of higher education institutions through better use of administrative and data systems.
We have three divisions within the company:
- Technology Consulting Services Division. Providing custom software development, system integrations, and system implementation services.
- Institutional Research and Reporting Services Division. Helping schools get more information out of their institutional data.
- Innovative Products Division. Following through on innovative ideas and creating products that can serve all of higher education.
After four years in the consulting side of the business and patiently working on product ideas, we launched our first product, DataCookbook.com, in November 2009. The Data Cookbook is the only data management tool created specifically for higher education.
How successful is your business? Any numbers you’re willing to share to back that up?
Since 2004, IData has been doubling in size and revenue each year. More importantly, we have also been profitable for each of our first five years. Last year, we launched DataCookbook.com, our first product, in the midst of the big economic downturn in the education market. Despite a huge drop in the higher education spending, we were able to fund our product launch from services revenue and begin selling our software for actual money. The Data Cookbook has been on the market for six months. While we have not yet recovered the costs of development, we are at a point of ongoing “ramen profitability” for our innovative products division. Our sales pipeline is also looking good for both services and the Data Cookbook.
Throughout our first five years we have developed a reputation as a leader in consulting services in higher education. We can count over 50 universities as happy clients. We continue to grow our capabilities and capacity to help schools through innovative services. And at the end of 2009, IData had 18 employees and over $2 million in revenue.
How did you get started?
IData was started in September of 2004 in the way many small businesses begin. I quit my job at another company because felt I could do better on my own. I seeded the company with $10,000 in order to cover the initial incorporation costs and cover my salary until the first revenue starting coming in. (Yes, I paid myself a salary from day one.) It was only a one-person company for the first 18 months. I was focused on consulting services for higher education, primarily custom software development, but I always had a vision to create a company that had a combination of services and products. There were just too many opportunities to create tools to help schools innovate, and the cost to create products with new technology kept getting cheaper.
From the first year, I would invest all the profits, back in the company into both a capital account and a separate “innovation fund.” Our innovation fund was intentionally set aside for funding the first (and future) product ideas born from our services or identified through client need.
In June of 2006, 18 months after IData began, I got some company in the company when Ken Dezio, our current CTO, joined IData. The decision to add the first employee was easy, because I had gotten to a point where I was turning down consulting business, and also… Ken is a rock star.
I added an employee profit share to the existing structure of the profit investment (50% capital reinvestment, 20% Innovation fund, 20% profit Share, 10% discretionary). From that point, we started growing quickly with consulting demand, but we made sure that everyone we added also had the entrepreneurial spirit and an interest in innovation and product development.
Two years later, we had over a dozen employees and had settled on idea for our first product. The Data Cookbook was something that we really needed in order to deliver our services, and we knew that schools needed it as well. It was clearly going to solve a problem. We spent about nine months developing a first prototype part-time while continuing to deliver services.
We test drove the product internally as part of our services and decided two things: one, this was a good idea (it was definitely a tool we needed), and two, the prototype sucked.
For the next nine months, we invested the previous four years of innovation fund savings in creating a working product. In November, 2009 we launched the vastly improved DataCookbook.com product.
Even though we had some money saved for development, it could only go so far. One decision that helped to get a product out quickly and with less cost was to use the Ruby on Rails platform and to leverage many open source modules. Besides the cost savings, it allowed to quickly deploy the software and rapidly adapt to changes.
What is your culture/work environment like?
We are primarily a virtual office. Our recruiting method is to find the best people in higher education technology. When we find them, we don’t ask them to move. It is a big benefit for many of them to work from home with flexible hours. We encourage innovation, collaboration, professional development, and good work.
I have many opinions on our culture, but I am sure our employees have more to say on this than I do. What I can say is that we invested a fair amount of energy in the first four years in trying to make IData a great place to work. 2009 was a much leaner year with an industry-wide drop in services demand combined with our investment in product development. It is a lot harder to invest in professional development and team building when you are looking closely at cash-flow. That is why it is so important to make those investments whenever you can.
It is also important to be transparent with your employees. If you share the news (both good and bad), they will understand and buy into company decisions that can affect culture and work-life balance.
How did you fund yourself at first?
Outside of a small initial investment to form the company and cover my salary until the first checks started coming in, the company has been entirely funded by our clients paying us for products and services. It helped that I decided from the beginning to pay myself a realistic salary, and be willing to invest the extra money (profit) back in to the business to cover three important things: 1) Cash. Work fluctuates and businesses pay slow. You need cash or you die. 2) Growth. New people cost money. It takes time to catch up even if they are immediately billable. 3) Innovation. Building a product requires money. Sweat equity only gets you so far.
Did you ever consider taking on any investors? Why or why not?
Every day. Money can buy you time. Entrepreneurs are impatient people, and I am no exception. I would like to accelerate both our product and services development. However, at the end of every day, I am happy that we took a breath and remembered that we are making progress in a smart and independent way. Plus, having limited resources keeps you honest and forces you to make efficient decisions. This can make you, in many ways, more competitive than a better funded competitor.
That being said, 2009 was a tough year for higher education budgets, and we needed to make investments in our consulting business at the same time we were investing in our product. For the consulting practice, we needed money to re-invent our sales and marketing strategies. We had several lean months where I seriously considered investment. If we had not been self-investing for several years in capital reserve, we may have had to find funding, and we were not in a good negotiating position. Luckily we were able to adapt fast enough and we are back to profitability across the company (both products and services).
How long did it take to get to profitability?
IData was profitable from the start in our services side of the business. Luckily, I was able to find contracts for myself from the start. We only grew when we were no longer able to take on all the business we had coming in with our current staff, and this has led to remaining profitable.
Our product launch has been slower to reach profitability. After six months we are just now seeing enough monthly revenue to cover our active sales, marketing, and product operational costs. We hope to recover our product development investment within another twelve months and that will put us in a great position for on-going profitability. Our Data Cookbook product is a SaaS model with an annual license. This has great potential for recurring revenue, but also sets a high expectation for continued updates and support. We look forward to growing the product.
What’s your goal with the company?
We love doing what we are doing in both services and products. On the services side, we are looking to continue to develop capabilities to help schools innovate and be more productive. We are looking to possibly expand in to the K-12 market.
On the product side, we are focused on continually improving the Data Cookbook and growing the DataCookbook.com community. We have many ideas for future products in the higher education marketplace, but those will only come after the Data Cookbook team becomes entirely self-sufficient.
As a business entity, we enjoy making things and helping schools, so we are not looking to sell. It is my goal to make great products, deliver great services, and make some money for everybody in the company. That seems like a good enough goal for me.
Any other advice for someone considering starting a business?
I have a lot of advice, but it depends on what their goals are. Some of the less traditional things that worked for me were the following:
- I took a salary from day one, and I made sure the company was profitable even after it paid me the salary I wanted as an employee and owner. I think some business owners forget that they need to be paid when they crunch the numbers for profitability.
- I invested the profit back in to the company, and most of it just sat there. The temptation was to spend it, but it turns out that I needed it for all sorts of problems; slow paying customers, product investment, cushion for loss of business, etc. As they say, ‘Cash is King.’ Without it things get VERY bad. Be sure you have three to six months operating capital on hand or access to that in credit (less desirable).
- Hire carefully. Love the people you are hiring.
- Delegate things that you don’t do well. I outsource everything I can: payroll, marketing, media relations, server support, web design, graphic design, writing, legal, HR, accounting, etc. Focus on creating business and delivering to your clients. The rest should be done by other people, and you need to be sure you are covering those expenses in your revenue.
- Patience. Some of the biggest mistakes I make are when I know I should be waiting, but I am afraid I will miss the opportunity if I do not act. This does not mean you shouldn’t take risks, but it does mean that you shouldn’t act just because you think someone else will beat you to it.
- If you want something to happen, you have to invest in it with time and money. Ideas and hope are not enough. You need to pay for things to happen. This includes company culture as well as products.
- Find other companies to partner with. It is better to partner with a company than compete with them. How do your skills complement another company? How can you both benefit each other’s clients?
Are there other aspects of your company that would be interesting to readers of REWORK, Getting Real, and Signal vs. Noise? (E.g. You promote through education, you underdo the competition, productivity secrets, etc.)
- Promotion Through Education. Every year we go to higher education conferences and teach best practices. We are not selling our services or products directly, but we are trying to give people something that can help them when they leave. I believe if we do that, they will remember us and call us if they do need help. The Data Cookbook product is actually a result of our best practices lectures. We continued to promote best practices for data management, but there was no tool to make it easy. So, we built one.
- Transparency. Transparency is also very important to us, both with our clients and with our employees. If we are trying to do the right thing for our clients, they will want us to be successful. So, we openly talk about our costs for projects and what goes in to our estimates. They are going to argue about cost anyway, so it better to be honest with them. This has worked well for us. Honesty with the employees is critical, as well. It is harder to do in bad times, but that is when it is even more important.
- Work-life Balance and Underdoing the Competition – We have one rule about working extra hours: live up to the promises you make to the clients. Therefore, we stress to our people to make honest and achievable promises. If we do that, we can all go home at the end of the day. If you screw up, and we all do, then ask for help and everyone will pitch in, no questions asked. But try not to screw up.
- Mistakes Are an Opportunity To Win Client Loyalty – We all screw up. Whether or not clients love us is really tied to how well we handle our screw ups rather than whether or not we have them at all. That is why I tell everyone not to freak out if we mess up, but instead embrace it and do everything you can to show the client that we plan to fix it. No arguments. If we do this correctly, we will have clients that are loyal for life. Of course, this does not mean that we should do bad work. We should always try hard to not screw up, but mistakes will come along on their own.
Lastly – here is a screenshot from our DataCookbook.com product (written with Ruby on Rails)
