Bootstrapping to $45 Million from Chicago: RKON CEO Jeff Mullarkey (Part 5)

Sramana Mitra: You started with the model of doing value-added resellers primarily. VARs are not hugely profitable businesses as you know from your previous experience as well as earlier versions of this one. Can you talk about how the business model evolved as you made this next strategic move into the cloud data center?

Jeff Mullarkey: You’re 100% right on the VARs. That was our biggest frustration. We realized that the reason why a lot of these VARs go out of business is they eventually have a slow month. That slow month drains all their money because they don’t have enough to cover their bills. We, early on, started this recurring revenue model. I knew this was going to be very significant for us along the way. VARs’ growth is limited by the risk of the ups and downs. You can’t hire five guys and a couple of months later, you have a bad month and you end up doing is downsizing. They have to adjust.

We actually were able to grow our variable business a lot more because of our extraordinary discipline in growing the managed service revenue and the recurring revenue. The problem with VARs is that when they sell something, they get paid immediately. It’s an immediate gratification business. It attracts entrepreneurs and people who lack that discipline to do that hard thing over a long period of time. It was a lot easier for us to grow knowing we could take a lot more risk because we could pay our bills every month, and the fact that if you do services business right, it’s more profitable than product. Product companies make a couple percent off of revenues.

Sramana Mitra: If you’re selling other people’s products, and not if you’re selling your own product.

Jeff Mullarkey: That’s right. We developed our own intellectual property through our offering and sold a technology. Eventually, you’re going to reach a point where you’re not going to be able to grow because of risk. You, eventually, have to replace that with your own or be happy with the current size. We always believed that growth was important because if you were going to provide high-end service, the only way you’re going to keep your people is if you grow.

This was a core strategy. Why? Because players need expanding opportunities. They need expanding money and promotion. You cannot do those things if you don’t grow. You’ll eventually lose all those people. It’s hard to sustain world-class service in terms of level of delivery if you don’t have growth. That was a core thing for us. Growth actually is a strategy because it enables us to keep and retain the high-performers, which helps us achieve high-quality delivery.

This segment is part 5 in the series : Bootstrapping to $45 Million from Chicago: RKON CEO Jeff Mullarkey
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