Pioneering Data On-Demand: Salary.com CEO and Serial Entrepreneur Kent Plunkett (Part 5)

SM: Aside from your on-demand aspect, how else do you differentiate from the consulting firms?

KP: We do not charge on an hourly basis for customer service and the help desk. Our customers call us all the time and ask for help pricing a job – we try to help our customers with those problems. We give about 10 hours of that service to each of our clients annually. It is a nice way to take care of your customers, and it generates a lot of customer loyalty.

SM: What type of ramp did you have revenue-wise and how was that split between the two businesses?

KP: The consumer business has been the slower growing business for us over the years. The corporate business grew an average of 50% a year. It has never grown less than 50% a year since inception. It grew an average of 79% from 2002 to 2007 on a compound annual growth basis. We basically took every dollar in free cash flow we could generate and put it back into the business from 2002 on. We actually turned cash flow positive in the 2004 fiscal year and we have never looked back from that status. We have never had a negative free cash flow since. We have never had to do any financings after my putting in about $3 million back in 2001 and 2002 up until going public.

SM: You built this from inception to IPO for a total of $5 million?

KP: It was about $8 million in total.

SM: That is impressive. You said you were putting everything back into building the company. What were some of the big areas you needed to invest in to scale? It sounds like your service is incredibly scalable. Was it mostly in the sales force that you had to scale?

KP: Exactly. For example, one of the ways you can tell a true on-demand software company is if you look at its true cost of goods margin. We have a strong cost of goods margin. In the past year we started to introduce a heavier services component to our customer base because we were not offering enough services to satisfy the needs of our biggest clients. Other companies we compete against either do not have true architecture as on-demand software companies or have a very heavy services component. Our cost of goods has been running in the 20% range, which is a very strong margin compared with many of our competitors. That margin includes our 50% growth a year. That is an attractive number given the economics of on-demand software, where you tend to run with very high deferred revenue levels that do not show up in your GAAP revenue right away.

SM: Let’s talk about the IPO. What year was it and what were your metrics at that point?

KP: We completed our IPO in February of 2007. At the time we were completing a fiscal year on March 31 where we had about $23 million in revenue and had generated a couple of million dollars in free cash flow. In the fiscal year we just finished, we ended the year just under $35 million and generated about $7.8 million in free cash flow, which is a 23% free cash flow margin. We are continuing to grow at 50% and generate 23% free cash flow margin. I think we had a very successful first year following the IPO. We were a small on-demand company going public in February of 2007, but we were successful because we had proven our ability to grow the business without consuming loads of cash from venture capitalists.

This segment is part 5 in the series : Pioneering Data On-Demand: Salary.com CEO and Serial Entrepreneur Kent Plunkett
1 2 3 4 5 6 7