A Serial Entrepreneur’s Awesome Journey from Austin, Texas: Jason Cohen, CTO of WP Engine (Part 2)

Sramana Mitra: It is very difficult to get any kind of financing for new companies from these community banks. I’m curious about how you managed to get that. Was Gerry offering a personal guarantee of some sort to get that money out?

Jason Cohen: Yes. He also had a history with the bank. Of course, you’ll say, “If I’m starting out, how do I get a history?” You don’t. That is a dilemma of course. Local banks don’t know how to finance startups. We had a rule with how we price things internally, which is “a third to sell, a third to build, and a third to keep”. The total cost wasn’t more than a third of the price. The rest of the expenses of the company like marketing and finance weren’t more than a third. That was the unit economics that we settled on. It worked well. Our products were cheap.

The competitors were maybe five times more expensive than our devices. We were very inexpensive. Because it was a small company, we didn’t have a lot of overhead to cover. The product was a server room monitor. If it gets too hot or humid, then you want to grasp how things are changing over time. Eventually, we did a project for a company in Lincoln, Nebraska called Geist. Geist was one of about a hundred major power strip manufacturers in the world.

We built a web-enabled power strip for them which in 2003 and 2004 was a big deal. Nowadays, everything is web-enabled. Then it was pretty special. You could go and see what’s going on with each socket. That was pretty cool then. We remember they said, “What’s stopping you from making the same board and selling it to one of our competitors?” We said, “I guess nothing.”

Six months later, they bought the company. Just to put it in perspective, this is a power strip that could sell for $3,000. The board that we built to drive all this stuff cost only $15 in parts. It’s a tremendous benefit to us. Most competitors had nothing like that. They bought us and they continue to make all kinds of different things to this very day. You can buy lots of different kinds of products. They really continue to thrive in terms of growing revenue and creating new products.

Sramana Mitra: Which is the most satisfying, isn’t it?

Jason Cohen: Yes, exactly.

Sramana Mitra: When did this happen?

Jason Cohen: We sold that in 2004.

Sramana Mitra: What price did you get for it?

Jason Cohen: Geist is a private company so that’s something we can’t disclose.

Sramana Mitra: Were you doing substantial revenue at this point or was this more of a technology acquisition?

Jason Cohen: We were in the single-digit millions a year in revenue. It wasn’t huge, but it was established.

Sramana Mitra: And you got a decent multiple on the revenue?

Jason Cohen: You don’t get a great multiple on hardware. We did fine. Remember what it was like in 2004. This was not a time of high multiples. If you can build a business in down market, you have a very real business. This is not fake.

This segment is part 2 in the series : A Serial Entrepreneur’s Awesome Journey from Austin, Texas: Jason Cohen, CTO of WP Engine
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