Bootstrapping a Big Data Company Using Services: DataSong CEO John Wallace (Part 5)

Sramana Mitra: What were the backgrounds of these other two companies? Were they using a vertical approach?

John Wallace: No, they’re horizontal. I think what they have in common is that they have simplified the problem by collecting data off of Excel. They try to get themselves on the website. It makes the day of living hell more uniform. We’ve taken a different approach to on-board people’s data because for a lot of people that we want to analyze, we can’t pick up the data off of Excel anyway. We might have to on-board data a little deeper. We just said, “Let’s go ahead and be a completely open system.”

Sramana Mitra: And your customers like that?

John Wallace: They do.

Sramana Mitra: So how has revenue progressed from the pivot to product?

John Wallace: Now, we’re about one-third product and two-thirds services.

Sramana Mitra: You were $4 million in 2011.

John Wallace: So, we’ll do about $6.5 million this year.

Sramana Mitra: You’re continuing in the bootstrap mode. You’re not interested in taking money?

John Wallace: We’ve done it for 11 years. We have an optimization problem. We have a lack in capital. So we continue to keep putting the dollars where they have the most meaning. It’s something we’re comfortable with. I considered it a couple of years ago. Should I step on the gas and raise capital? Two things don’t fit that model. We don’t look like the cookie-cutter fundable company from a VC viewpoint. One, we’ve been around a while, are profitable, and come from a services background.

Sramana Mitra: No, that’s not a problem. As far as VCs are concerned, if you look at the Big Data space, it’s broader than your space. AgilOne is very similar to your story and they were about $15 million in revenue mostly in services. People raise money in that model all the time.

If you look at my Boostrapping Using Services book, you’ll find lots of case studies. Companies that have come from that bootstrapping using services background are mature companies and then they go out and raise money at fantastic valuations. The other question that you have to address is the TAM question. By going very granular and very focused on this retail problem, it is a smaller TAM as a result of that. That’s more of an issue unless you broaden and go outside of your current market.

John Wallace: I agree with you. Given the capital we have to deploy, the market’s enormous. Because we have limited capital, we need to have the discipline to be very specific.

Sramana Mitra: That’s great. That discipline is what actually lets you win in the market. What is your current TAM?

John Wallace: We did that a couple of years ago with a top-down kind of model. We looked at the omni-channel retail space that we’re going after. We looked at the marketing spend.

Sramana Mitra: We’re not quite interested in top-down. Top-down doesn’t really get you the numbers that investors work off. It’s more of the bottom-up. Very simply, very back of the envelope, how many companies can you sell your solution to at a certain average deal size?

John Wallace: Our deals are tied to marketing spend. That’s the metrics that we’re after. We saw the dollars on the table being spent on marketing and what we charge as a fraction and what percent of the market we thought we could capture. We thought of this as a billion dollar market.

Sramana Mitra: Then this is a perfectly fundable company should you choose to get funded. How do you price your business?

John Wallace: We currently tie it to marketing spend. We look at everything that’s been on media – not the marketing department. We look at the email, direct mail program, digital spend on digital ads, search spend, television, newspaper, and TV. Any of that is what we add up and then we cut that to four charges where the people who are spending less will be able to afford our product. Then, the people who are extracting the most value out of it will pay more.

This segment is part 5 in the series : Bootstrapping a Big Data Company Using Services: DataSong CEO John Wallace
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