Bootstrapping From Germany: Cleverbridge CEO Christian Blume (Part 6)

Sramana Mitra: Was it a very profitable situation right from the beginning?

Christian Blume: This is the interesting part. When we started the business, we always said, “We’re only going to enter actual business opportunities if there’s a win-win situation.” I would never have signed off on any kind of deal in order to buy market share and saying, “I’ll go in with a very low price just in order to win that business.” We always sold on the value we could generate. We would typically be always a little bit higher priced than the competitors out there. At the end of the day, what’s a percentage point in additional cost if you have a percentage point in additional revenue? It makes a lot of sense to do that and work through it. That’s why we always went into a very profitable situation with our client.

Are we an extremely profitable company? We’ve never looked at optimizing our organization at an EBITDA level. We always said, “We want to spend the money that is necessary in order to grow the business.” The only thing that we focused on was making sure that we came out with a black zero. Unfortunately, we’ve never reached a black zero. We were always above it. That’s a good thing obviously. For us, it was a lifesaver to say, “We are always capable of investing the money that we actually have in the organization in order to fund the growth that we are looking at.”

Sramana Mitra: What kind of growth rate did you achieve in this mode? What happened in 2008 to now?

Christian Blume: In the first couple of years, you could say that we doubled our revenue. We took it up to €65 million in 2008. It had already gone up to $110 million or €187 million. In 2011, we were at €260 million.

Sramana Mitra: This is gross revenue?

Christian Blume: Yes, because in Germany, we have to do our end of year based on the transaction volume that actually runs through our books. Last year, we actually did €405 million.

Sramana Mitra: So you’re at about €40 million net roughly speaking?

Christian Blume: Yes.

Sramana Mitra: What kind of profitability are you managing to now?

Christian Blume: From our strategic perspective, the only thing that we try to achieve is to stay in a position where we say, “If something comes up where we need to have money in the organization, we would like to keep a balanced approach to it so that there’s a significant EBITDA available.” Last year, we did around about €5 million in EBIT.

Sramana Mitra: We love these kinds of stories of just sheer entrepreneurial execution without the fuss of outside financing. We just love these stories.

Christian Blume: I can totally agree with you. Those stories are a lot rarer than the ones that are venture-funded.

Sramana Mitra: Because the media doesn’t cover them. Entrepreneurs are building these companies.

Christian Blume: You’re right.

Sramana Mitra: We are one of the very few media outlets that actually cover these stories. You said originally that there are about 100 e-commerce companies that are operating in the digital e-commerce area. Of course, between 2005 and 2015, I imagine that number has expanded. Has it expanded? Is it a larger audience now? What kind of penetration do you have into that TAM today? Thirdly, do you cater to the newer categories like SaaS?

Christian Blume: There were not 100 companies at that time. Depending on what perspective you were taking, there were quite a few on the e-commerce side. Digital River actually acquired 10 to 15 of those that were focusing on that niche market. There were obviously a lot of other companies that were offering services for physical distribution, which we didn’t target. That market has expanded obviously. There have been additional players entering into that market. There have also been new business models that have evolved. The market is evolving into a variety of different directions.

This is where I’ll probably share a little bit of our insight into our strategic positioning as an organization. When we started the business, what we were focusing on was mostly the B2C software. Meaning, the typical end consumer that would go and buy a boxed version of a product at a Best Buy. Those were the typical consumers that we were targeting as they moved more into the online space. That was our biggest market segment. It’s our bread and butter at this moment in time. What’s important to understand there is that when we were working at our former company, what we actually saw was there were the first couple of companies of larger software brands that approached us and said, “We would really like to do this direct to consumer business. We’ve got an issue here because we can’t cannibalize our channels. What can you do to help us?” We said, “We can help you run your online business. The cannibalization is something that you probably are going to be forced into by yourself. If you’re not going to react to it, somebody else is going to. You have to make up your mind.” That opened at about 2000.

A lot more companies moved into the online marketplace. Fast forwarding to right now, there are a lot of B2B software companies that are moving into this market. I’m not trying to say that you’re going to be able to buy an Oracle license online anytime soon. That’s probably going to take another couple of years. Looking at those companies that typically sell a certain set of products that can be distributed online like a monitoring software, for example, they’re moving more and more into the online game and selling more and more directly to their consumers.

This is obviously an attractive market for us. First of all, it’s got a very high ticket size because they are typically much higher than what an end consumer would be spending. Secondly, it’s typically a recurring type of business model. This takes us to the next level. What we have done already is we’ve integrated subscription solutions into our solution in order to facilitate this kind of business model. Did we anticipate the whole cloud environment? It’s not like we already described it at that time, but it’s something that we had already been working with. Obviously, all of the cloud environment is something where we are actively playing in.

Last year, we were approached by a very large anti-virus company. What they had actually done is they had switched their model from a perpetual license model to something where the end consumer would be allowed to administrate through an interface where they could enter their whole ecosystem of Internet security protection they would need. They can actually switch on and switch off the protection at any given point in time. Why is this important? It’s important in that instance when you’re going in and saying, “I’m getting rid of my iPhone and I’m getting myself an Android phone.” You don’t want to buy that anti-virus license again which is still active on your previous phone. You actually want to switch it on your new phone. This is something that our solution actually enables. They can manage and administrate the whole security environment. This is where a lot of the whole model is going.

You’re seeing that the consumer is put much more in a situation to manage their whole digital life. We’re assisting them with it. The same is true with B2B segment where you have a lot of prospects and clients that are saying, “We would really like to see that we have the direct engagement with our clients that are out there. We don’t necessarily want to have the man in the middle any more. We want to own the relationship.”

This segment is part 6 in the series : Bootstrapping From Germany: Cleverbridge CEO Christian Blume
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