The Million Dollar Club

1/23/13Follow @sramana

I had two conversations last week, each of which reinforces a simple phenomenon that I have constantly emphasized over the last five years in my writings.

On Wednesday, I had lunch with Brian Jacobs, General Partner at Emergence Capital. We were discussing our respective startup portfolios, and Brian mentioned that his firm’s preferred stage for investment is when a company has about a million dollars in revenues. Presumably, at that point, the experimentation with product, business model, pricing model, customer acquisition strategy, cost of conversion, and other key issues have settled down. That means, a cash infusion of, say, $7 million will result in a somewhat predictable set of outcomes. Most importantly, the fresh cash would accelerate customer acquisition, and hence revenues.

On Friday, I spoke at MIT’s Digital Economy event in San Francisco. Sharing the stage with me was Doug Leone, Managing Partner of Sequoia Capital. We discussed a company that Sequoia has recently invested in called AgilOne. Before raising a Series A round, this Big Data company had built up substantial revenue, customer traction, and validation. In a sense, raising money from the best-in-class VCs in the Valley was easy because of the unambiguous customer momentum.

Both Brian and Doug agree that getting enough customer validation, business model validation, pricing model validation, and customer acquisition strategy validation makes it significantly easier to get venture financing.

So, at the risk of repeating myself, folks, please remember: Validation is the operating word. Bootstrap first, raise money later. And ideally, get into the Million Dollar Club before you go out to raise serious capital.

Today, in support of this premise, I will introduce you to some 1M/1M portfolio companies who have already made it into the Million Dollar Club, as well as some that will in 2013. If you follow my Xconomy columns, you’ve heard about a few of these successful companies before.

Ifood.tv

It was 2006, and Vikrant Mathur and Alok Ranjan were learning how to cook. After seeking out advice from every cooking website they knew, they found that text-based sites were lacking in their instructional capabilities. No resources existed that incorporated visual elements or a means to reach out to recipe authors with any questions. The two decided to take matters into their own hands.

Drawing upon the resources they found most helpful, such as the Food Network channel, Vikrant and Alok began the process of adapting them to an on-demand platform. Ifood.tv, launched the next year in 2007, is a multi-platform video channel that focuses on learning to cook visually. In addition to written recipes, the site is comprised of a media library that is always growing. The content is created in-house by ifood.tv’s editorial team, as well as crowd-sourced from authors, professional chefs, video producers and other media companies. Every video is hosted, managed and streamed through the company’s own content management platform.

Ifood.tv works as a cook’s online community for every skill level in the kitchen. But its unique selling point is the number of ways users can interact with and factor themselves into the site. Users exchange recipes and resources in huge numbers, as up to four million monthly unique visitors rate and review existing content in addition to providing their own new materials.

The site initially encountered competition from brand-name media, like the Food Network site and Epicurious. But these sites ignore ifood.tv’s principal aim to engage with their user community. Years later, their closest competitor is YouTube, as the de facto platform for online video content. However, the site remains unique through ease of searching and organizing information, as opposed to YouTube’s generic approach.

Ifood.tv is a fully bootstrapped venture. Vikrant and Alok contributed $100,000 in personal funds, which has gone a long way toward hitting $3 million in revenue in 2012. The site has been profitable for three full years, generating revenue primarily through advertisements.

In 2013, this Menlo Park company sits in a strong position to explore a new business model: e-commerce. But with over four million users, validating a new business model won’t be that difficult. Besides, many proven business models are already floating around in the industry, flash sales being but one of them.

Orangescape 

Chennai, India-based Orangescape, a platform-as-a-service (PaaS) company, has reached its million-dollar mark by catering primarily to large enterprises trying to move out of Lotus Notes to Google. Co-founders Suresh Sambandam and Mani Doraisamy spotted a gap in Google’s App Engine and over the last couple of years, successfully plugged it for many large customers.

By immersing themselves among Lotus Notes customers, they were able to get a visceral understanding of the issues facing them. One such issue was that enterprises had developed numerous long tail applications on the Lotus platform, and a move out would mean orphan apps all over the organization.

The key selling point was Orangescape’s ability to cost-effectively and seamlessly facilitate this transition through their PaaS solution.

After gaining traction with their first product, Orangescape launched KiSSFLOW in 2012. Also built to integrate with Google Apps, this workflow engine is designed for small and mid-size businesses in order to capitalize on their need for an organized system of mail and documents. The product pilot drew more than 500 customers. It is currently being validated.

While it bootstrapped itself to the Million Dollar Club, Orangescape has since raised $1 million from the Indian Angel Network.

MMIS

Portsmouth, New Hampshire-based MMIS develops and markets software products for secure collaboration and compliance for healthcare and pharmaceutical businesses. Founder Michaeline Daboul has shepherded the company through significant pivots to arrive at a value proposition that customers are resonating with.

The company has settled on two competitive central technology platforms: collaboration suite NetworkFortress, and an aggregate spending tracking system MediSpend, both of which are being sold primarily to pharmaceutical and medical device companies. MediSpend first launched as a SaaS platform in January 2011, and was quickly followed by a third low cost, high-feature platform capable of integration with MediSpend. The platform is now the most competitive in its category.

MMIS has already surpassed competitors Cegedim and Aggregate Spend 360 in customer volume. Major system integrator partners have started showing serious interest, promising to address Michaeline’s scaling challenge.

The company has surpassed the $1 million mark, and has accumulated a strong backlog that should make 2013 an exciting year. A key take-away here: if you can reach the Million Dollar Club, channel options may also open up!

IndiaCakes

Also in the Million Dollar Club is IndiaCakes, an online cake delivery shop based in Pune. Founder Manit Nagri started off by observing that Indians around the world would like to celebrate their loved ones at home on special occasions by sending them cakes.

The site consolidates the menus of hundreds of cake shops, from hundreds of locations in India. Cakes can be combined into packages with flowers and chocolate and delivered to 250 Indian cities. IndiaCakes offers additional convenience in the form of five-hour delivery, or having a cake delivered by midnight.

Manit has had top VCs chasing him, wanting to invest in the company. We love to see entrepreneurs in the position of being chased by, rather than chasing, venture investors.

See? The “Bootstrap First, Raise Money Later” philosophy works! Of course, not raising money remains an option, and many entrepreneurs are taking that course.

Mansa Systems

San Francisco-based Mansa Systems, led by founder Siva Devaki, is one of them. Mansa provides cloud, mobile, and social enterprise solutions, including cloud storage, secure document sharing, cloud telephony and more. In order to differentiate the firm from its competitors, Siva initially focused on Salesforce CRM, partnering with the company to build apps for Salesforce customers and publish them via AppExchange. Today, the company provides both products and services that extend the Salesforce CRM capabilities.

If you look at their portfolio of apps, you will find CloudDrop, a storage app built on the Rackspace infrastructure, as well as Slide2Lead, a nifty app to integrate SlideShare with Salesforce CRM. Each app is affordably priced, well below competition, and comes with the option of additional integration services from the company.

The company is entirely self-funded through the company’s services business, with no plans for outside funding at the moment. Mansa continues to expand by building strong partner relations with Salesforce partners such as Informatica, ServiceNow, and others. And with a U.S.-based potential market of over 40,000 customers, Mansa has already achieved $2 million in annual revenue.

Siva and his small team believe they will, one day, bootstrap to the billion-dollar mark. For now, getting to $10 million is on the immediate agenda.

Indus Net

Abhishek Rungta has bootstrapped Indus Net Technologies to a $5 million, 500-person Web design and digital marketing services company from Kolkata, India. Indus Net focuses specifically on application development for Web and mobile, integrated digital marketing, and Web design, with specific work in SEO and SEM.

Services companies are easier to bootstrap, since they bring in revenues and cash from the very beginning. What’s more, once profitable, you can set aside some of the cash to start developing products.

Abhishek’s company has developed an SMS-based election polling system for the West Bengal elections that has successfully saved the state huge manual work and expenditure. Among others, Abhishek’s agenda is to sell this solution as a product to other governments looking for similar functionality.

Now, we move to companies that will soon hit their million, likely in 2013.

Happy Grasshopper

In October 2010, multiple-time Inc. 500|5000 honoree Dan Stewart began a side venture based on a clear need for effective e-mail marketing campaigns. The project was originally inspired by an earlier venture, a customer relationship management (CRM) company Dan founded in 2007. One of his customers, a marketing-focused teacher to real estate agents and brokers, advised his students to stop sending e-mails that were “boring” in nature. He instead recommended that e-mail messages be “fun, relationship-building, [and] conversation starting,” giving Dan his evidence that creative message content was a challenge facing the market at large.

Happy Grasshopper is made up of a team of writers who create timely, interesting message content that is sure to evoke a response, making it easier to maintain contact with a network. The easy-to-use solution offers five services to sales professionals: keep-in-touch, canned content, sponsored tools, CRM marketing tools with integrated drip services, and DIY e-mail marketing tools. Dan’s writing team simply loads a new message into a customer’s account every three weeks. The customer edits and approves the message prior to sending.

The Florida-based company became Dan’s main focus after selling his CRM customers to his lead developer in 2010. Their advantages lie in ease of use, reach, pricing and content. Happy Grasshopper fully alleviates the discomfort of composing e-mail messages for just $19 per month. Scaled plan sizes are available for increasing network size, up to $39 per month for 5,000 contacts. And full reports on message deliverability and open rates are provided to the customer in real time.

Happy Grasshopper was formally incorporated in March of 2011. Their open rate was 198.2% higher than leading competitor Constant Contact, also within the real estate market segment, in the first quarter of 2011.

In 2012, Dan built a quarter million dollars in SaaS revenue and expects to reach $1 million in 2013.

InSync

Atul Gupta first began his entrepreneurial ventures in 2003 with an IT provider based in Bhutan, India. His drive to provide software solutions to local small businesses resulted in a move to Kolkata in 2006, where he founded InSync. Over the next three years the company conducted extensive research through their more than 500 domestic customers. Atul noted that once a business reached a certain volume, customers could no longer manage an e-commerce business without an integrated ERP system.

InSync responded to Atul’s findings by shifting focus from services to product. Customer feedback indicated that integration was a viable market, and the company released their flagship product, SBOeConnect, in 2009. SBOeConnect expands InSync’s business to a global focus, helping e-commerce merchants worldwide increase efficiency by integrating Magento and SAP Business One into a single all-purpose solution. The connecter provides a secure exchange of data between e-commerce and the ERP system through more than 60 integration points.

After establishing an initial partnership with SAP, an agreement was reached allowing InSync to resell the product as part of an integrated solution. The company published their first success story shortly thereafter. Today, SBOeConnect remains highly competitive against companies like zedSuite, eBridge Connections and Orbis Software in number of integration points, sync, and total cost.

To date, SBOeConnect has serviced over 80 paying Magento merchants. A typical product implementation is $7,400 plus an annual maintenance fee of $900, subject to variation based upon chosen bundled services. Through SBOeConnect, this bootstrapped company generates an average of two new leads per day, and revenue already exceeds $500,000.

In 2013, the Million Dollar Club is well within reach.

Freshdesk

Completing our list of soon-to-be Million Dollar Club members is a finalist in the Microsoft BizSpark India Startup Challenge: Chennai-based Freshdesk. The company was founded in 2010 by CEO Girish Mathrubootham and CTO Shan Krishnasamy. After a series of successful products in his work as a technical architect, Girish was inspired to start Freshdesk by a posting in Y Combinator’s Hacker News. Learning that a major company in the customer support software industry had raised its prices, Girish and Shan set out to create an affordable alternative.

Freshdesk is a SaaS company providing customer support software to small businesses. It combines a back-end helpdesk system of ticketing and knowledge management with a front-end online social customer portal. Social CRM is a clear trend in the industry, and Freshdesk is well-positioned to lead the pack.

The company stands apart from competitors ZenDesk and Assistly as a cutting edge solution at a significantly better price. Plans are flexible too, ranging from $9 per agent per month to $49 at the highest tiered option.

Following their launch in June 2011, Freshdesk had five paying customers within the first week—and 100 in almost exactly their first 100 days. Beta signups continued in the hundreds and by the time they went out to raise money, all validation points—customer interest, business model, pricing model, customer acquisition strategy—were nicely articulated.

Freshdesk won the $40,000 2011 Microsoft India Startup Challenge grant, followed by Series A funding of $1 million from Accel Partners. Subsequently, they have raised another $5 million from Accel and Tiger Global in 2012, and should comfortably stride into the Million Dollar Club in 2013.

Conclusion

I know many of you are struggling to figure out how to put one foot before the other in your quest for a successful entrepreneurial journey. I also know that many of you are continuously chasing investors over customers.

Stop doing that. Do the right thing in the right order. Customers first. Investors later.

Bring customers, revenues, a validated investment thesis, business model, pricing model, and market sizing model to the investors.

Chances are, you will get funded.

And if not, your customers will help you become a sustainable, profitable, successful business.

Isn’t that the point?

Sramana Mitra is the founder of One Million by One Million (1M/1M), a global virtual incubator that aims to help one million entrepreneurs globally to reach $1 million in revenue and beyond. She is a Silicon Valley entrepreneur and strategy consultant, she writes the blog Sramana Mitra On Strategy, and is author of the Entrepreneur Journeys book series and Vision India 2020. From 2008 to 2010, Mitra was a columnist for Forbes. As an entrepreneur CEO, she ran three companies: DAIS, Intarka, and Uuma. Sramana has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology. Follow @sramana

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