Serial Entrepreneur, Self-Financing to $50 Million: GoGrid CEO, John Keagy (Part 2)

Sramana Mitra: GoGrid is 100% financed by you?

John Keagy: That’s right.

Sramana Mitra: Tell us more about how you go about building GoGrid. What can people learn from your journey of building the company assuming that we’re taking the issue of financing off the table in this particular case because you have not raised financing? What are the key strategic things that you did and what can we learn from your journey?

John Keagy: The key takeaway is that it is possible to build a great company in Silicon Valley in a cut-throat technology business that is incredibly infrastructure-intensive from a Capex perspective and also R&D-intensive. It is possible to build that from cash flow without institutional investors.

Sramana Mitra: That’s a fabulous message. Let’s talk through that message and understand the nuances of that. What were the first things that you did to get this company off the ground?

John Keagy: Here’s step number one. Make a cash flow forecast. I started GoGrid in 2000 right at the dot com crash, at a period in time where it was impossible to raise any money. Nobody was investing in anything in technology in 2000. It was like trying to raise money for a bank in 2009. It was an impossible task. So step one is build a cash flow forecast. You have to have a sensible business where people pay you for the things you do for them.

Sramana Mitra: What validation did you have that people were looking for the kind of solution you planned to offer before you launched this project?

John Keagy: The first thing I did was I test-fielded some Google AdWords to see what the demand was.

Sramana Mitra: What were they looking for at that time? Hosted servers?

John Keagy: That would be an example.

Sramana Mitra: There was already search traffic around that particular keyword?

John Keagy: That’s right.

Sramana Mitra: What was the competitive landscape like? Are we talking about 2002?

John Keagy: No, we’re still in 2001 right now.

Sramana Mitra: It was very early in the cloud computing space. What was the competitive landscape?

John Keagy: Step one was cash flow forecast. Step two is checking the demand. Obviously, the demand looked ripe and the competition looked loved.

Sramana Mitra: That’s a good point to start something but it was also, from what I remember of 2001, what has come to be known as nuclear winter as far as the market is concerned in Silicon Valley. Nobody was raising money, really. Cloud computing was not at all an established phenomenon yet. There were just a few companies like Salesforce and WebEx who were doing cloud services at that point. Most of that was funded outside of the mainstream venture capital environment. A lot of it was funded by people with their own money. It’s actually played in your favor that the market was not swarming with competition. Even though there was a bit of demand developing, there was not a huge amount of venture investment into this market. That is a market scenario that plays in favor of self-financed businesses.

John Keagy: True.

Sramana Mitra: How long did it take you to get a product in the market to be able to harness that demand that you were seeing through the Google PPC traction?

John Keagy: I would say a couple of months.

Sramana Mitra: That means that you were able to start generating revenues fairly quickly.

John Keagy: That’s right.

Sramana Mitra: How did it ramp?

John Keagy: I would say it ramped sensibly. Meaning, I ramped expenditures pro rata with the revenues. I was a very disciplined entrepreneur. A lot of Silicon Valley entrepreneurs run around and spend money like they’re drunk, but I was much more disciplined than that. I established a cash flow model as step one. Then, I had made some assumptions about the demand , cost to sales, and margin. I was careful to proceed only as rapidly as I had proof point that my model assumptions were correct.

This segment is part 2 in the series : Serial Entrepreneur, Self-Financing to $50 Million: GoGrid CEO, John Keagy
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