Bootstrapping from Indiana: Passageways CEO Paroon Chadha (Part 4)

Paroon Chadha: If one has to learn a business, you’d rather start out from where your foundation is good. Raising capital and accelerating based on your balance sheet is a thing you can do anytime. If you have a solid core business, it’ll happen. The reverse of that is not possible.

If you fund your initial journey, but you don’t have a business model figured out yet, then you still don’t know whether you’re a business or not. We were profitable from year one. We never raised more money. Up until this point, I am still working completely in the bootstrapped mode. Now we are about 65 employees. Hopefully, we’ll get to 100 by the end of the year. Our revenue is between $5 million and $10 million.

Sramana Mitra: Let’s talk about some of the inflection points in your journey. What strategic moves did you make to get to those inflection points?

Paroon Chadha: Very good question. We started to realize that we have a very horizontal product, but we’re just selling it vertically. Why is that the case? People pointed this out, but we were making a lot of money and were happy where we were. There was a choice. Is this a lifestyle business or are we going to scale this? Scaling a business often means that you’re not playing for profit. You’re playing for growth. You’re building for the future.

We had gotten used to playing for profit a little bit simply because we were very young. We were getting half a million dollars in profit. I was still looking for a green card. A little money stashed away can never be bad. In hindsight, we should have actually taken venture money. That was a missed step.

The inflection actually happened automatically as the financial crisis happened. Then we realized that we had to diversify into other verticals and perhaps other product lines. First we tried other verticals. We started going after other industries and we started selling our products to other verticals with not much success mainly because the financial talk was a little too ingrained in the way we pitched.

One of the things I would recommend is, if you are going to another vertical and you’re trying to find adjacency, you should spend time learning that domain almost like we had done to learn the credit union space. Take two to three weeks living in the hospital environment, for example.

Sramana Mitra: You went from credit union to healthcare next?

Paroon Chadha: Yes.

Sramana Mitra: Why is that? One of the questions that arises is that if you’re in credit unions, you obviously have developed understanding of the finance vertical. Why did you not find another sub-segment of finance? Why did you go to healthcare?

Paroon Chadha: We’d already done credit unions and community banks. We should have gone to other financial services like insurance. We didn’t because we found that a lot of people who are in the leadership roles in a bank were often transferring to hospitals.

I’ll tell you the reason. These are both compliance-heavy industries. The care that you give to your financial records is the same care that is given to your health record. There are a lot of commonalities and people move back and forth. Hospitals had started to think about becoming an IT shop. Electronic medical records was a big thing. A lot of the talent from the community  bank industry was going there.

This segment is part 4 in the series : Bootstrapping from Indiana: Passageways CEO Paroon Chadha
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