Bootstrapping Using Services from London: Ajay Patel, CEO of HighQ (Part 7)

Sramana Mitra: What else is interesting that I should have asked you about?

Ajay Patel: One thing I think is very important for every SaaS business like ours is profitability. The market is soon going to not accept that a lot of SaaS businesses aren’t profitable. The argument is always that the customer acquisition cost is the same as if it was enterprise sales, but you only make a little bit of money. That’s why you’ve got losses in the early years. I think what’s been important with HighQ and where we’re different is we’re profitable. We do and have, for the last four years, maintained our EBITDA margins between 30% – 35%. I think that’s important. I’m a Chartered Accountant. You have to make money in a business.

Sramana Mitra: I agree on that. I don’t believe in spending so much money and acquiring free customers who never monetize. Your burn rate goes higher and higher. You’re dependent on venture capitalists. You’re at the mercy of investors basically. I hate these kinds of businesses.

Ajay Patel: We were never under pressure to deliver quality results and targets. That allowed us to treat our clients and customers with respect. We didn’t have the strategy, “Unless you close in the next two weeks, this is off the table.” This is a long-term relationship. You don’t want to burn those bridges early on. We understand you need more time. If we have investors on-board, I feel the culture towards the clients would have been very different. We’ve never lost a client since 2006. When you look at industry average, B2B churn rates is 10%. We literally have 0%.

When you look at the effect of losing clients in the long term, it’s actually massive. I wouldn’t take a client on for $5,000. I just wouldn’t do it because if I have a thousand $5,000 clients, I won’t be able to service them. They will leave me. I’d rather turn down that client on day one and say, “This is the minimum entry for us. Our minimum entry is $20,000.” What it does is I can still be high-touch with them from a service perspective. Our average client today is between £40,000 to £50,000. We give them a lot of service.

Sramana Mitra: If you can find a market that is ready to buy your product without having to take investor money, it does give you tremendous amount of freedom. You can set the culture. You can set the value system. We are very big believers in that philosophy. It’s not like we have anything against financing. We have companies in our program that have raised financing and we have full training on how to raise financing. Fundamentally, the view point that you are talking about is something we respect tremendously and we encourage tremendously.

Ajay Patel: There’s nothing wrong with financing at all. If you can avoid it, all the better but there’s nothing wrong with it. I’ll tell you what I do have a slight problem with. It’s the level of some of the funding out there.

Sramana Mitra: It’s a total bubble right now. We’ve seen this kind of bubble before. Ridiculous amount of financing for ridiculously stupid ideas, or in some cases, the business fundamentals do not warrant that kind of financing or valuation.

Ajay Patel: I agree 100%. Sometimes this company is doing $5 million in revenue and they’ve just raised $75 million. I’m like, “How can you even spend $75 million?” All I know is that there’s a lot of market in private equity and venture capital because no one else knows what to spend it on. This bubble will burst.

Sramana Mitra: Very nice talking to you. Good luck!

This segment is part 7 in the series : Bootstrapping Using Services from London: Ajay Patel, CEO of HighQ
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