Bootstrapping to Exit, Then Raise Money and Exit Again: Wendy CEO Lance Neuhauser (Part 2)

Sramana Mitra: I assume that since it was a services company, you were able to bootstrap it, right?

Lance Newhauser: Yes, it was a service company that we initially bootstrapped. We did bring on one investor who put a few thousand dollars into the company so that we could go get some office space and work in the same area. But this was very much a bootstrapped, service-oriented organization. Over time, we incorporated technology to offer differentiated services and improve operational efficiency, enabling us to stay price-competitive.  But we’re very much a bootstrapped service business, no doubt.

Sramana Mitra: Now, how did this company that spent $50 million on a campaign find you?

Lance Newhauser: So the path goes that we started managing search dollars. And honestly, I’d love to say we had some great insight—there’s going to be this recurring theme where I say, ‘I wish I had foresight,’ but it was largely happenstance. There does need to be, to some degree, a bit of vision that says, ‘I think this could actually be something big.’

It was me and a group of others who recognized that this was a fantastic form of advertising.

Sramana Mitra: Invented, actually.

Lance Newhauser: Yes, one of the best ever invented. Thank you for framing it up the right way. I appreciate that. And next thing you know, more and more companies are asking about it.

At that time in Chicago, which had a very small interactive marketing community, there were really only two notable companies in this space. The other one was Performics, which became a great success story with brilliant people behind it and had already grown significantly larger than us.

There was a gentleman named Sean Finnegan, who was working at Omnicom then—rest in peace, as he has since passed on. He had some foresight and recognized that many of his clients were asking for this type of service. Omnicom needed an agency in this space. He thought, ‘Who can I find that I trust, who’s doing great work at the right price?’

We started in September 2003, and by October 2005, Omnicom completed the acquisition of the company. They began introducing us to every client they had, promoting search because it had higher margins than traditional media, which had been heavily negotiated. It was the new hot service they could offer to expand their business.

It got to the point where, as a 25-year-old man, I found myself in the room with Omnicom’s CEO, who wanted to learn what search marketing really was and how to present it within his organization.

That journey over those few years really speaks to what initially attracted me to entrepreneurship. Suddenly, I was in the ‘room where it happens,’ to quote Hamilton—we had created a service out of thin air that was changing how people did business. I thought to myself, ‘I’m hooked. I have to do this again.

Sramana Mitra: Go to the next one. I want to underscore something that we have. As I said, we’ve been doing this for a very long time. I started writing my blog in 2005. In 2006, we started developing case studies. So, we have thousands of these case studies.

Whenever I saw threads, I developed methodology blocks based on those threads. One of those methodology blocks that we have is bootstrapping to exit.

I love bootstrapping to exit as a strategy. You just gave me a story of bootstrapping to exit. Are you at liberty to quote any numbers? To bootstrap this company, how much of your own money had you put in? What kind of returns did you get? You were four people, right? You had three other colleagues.

Lance Newhauser: Yes, correct. There were four of us in total. There was a ‘fifth Beatle,’ as we like to call him—a close friend of mine named Aaron Goldman. He was working at an agency here in Chicago, and he saw the potential in search early on. He knew he could start sending us some business right away. So when we were just getting the doors open, we had a few clients, but our costs were minimal.

Our office space was tiny—smaller than the room I’m in now—with four of us squeezed into that space. We needed some tables and desks, so Matt Spiegel, another close friend and fantastic partner on this journey, and I built the desks ourselves. Our initial capital expenditures that first month were literally just a couple thousand dollars. Operationally, we took modest salaries from the revenue we brought in.

Sramana Mitra: Classic bootstrapping strategy with organic growth.

Lance Newhauser: That’s right. We’d some contribution margin going into our pockets.

This segment is part 2 in the series : Bootstrapping to Exit, Then Raise Money and Exit Again: Wendy CEO Lance Neuhauser
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