March 17, 2009

How fast-growing Doba took a pause to rebuild

by Grant Buckler, Senior Writer, SoftwareCEO

A recession can be a great time to pause and make your company more sustainable for the long haul.

And here's one software CEO who's already done it.

Utah-based Doba links smaller online retailers to hundreds of suppliers who drop-ship orders straight to buyers.

Starting with consulting contracts to bootstrap the startup with no outside investors, Jeremy Hanks and two co-founders built Doba into an industry leader.

But after two years on the Inc. and Deloitte lists of fast-growing firms, CEO Hanks decided to ease up on the accelerator.

He stopped worrying about growing revenues, and asked his team how they would improve the business. Among the projects they suggested: streamline sales and marketing, clean up the software, and address a new market.

Company Snapshot
Doba
Basics
Founded:	2002
CEO:	Jeremy Hanks
HQ:	Orem, Utah
Headcount:	65
Revenues
2003:	$229,000
2004:	$887,479
2005:	$2.6 million
2006:	$7.6 million
2007:	$8.7 million
2008:	$6.6 million
2009:	$8+ million (proj)
Major Clients
• Baker & Taylor • D&H Distributing • Ingram Micro
Awards / Honors
• #324 on 2008 Inc 500 list • #87 on 2008 Deloitte Technology Fast 500 • #23 on 2007 Inc 500 list • #6 on 2007 Deloitte Technology Fast 500

So they tackled those three, and more.

And today Hanks believes that fateful pause set Doba on the road to long-term success. Here are his 11 tips on how he did it.

The pause that refreshes tip #1: Look beyond sales and growth
Doba has been on the Inc. 500 list two years running.

It was named Utah's fastest-growing business in 2007, and #7 fastest-growing in the state in 2008.

But Hanks isn't aiming for any of those lists this year.

He says Doba's 2008 revenues, at $6.6 million, came in $2 million below 2007. But he's quick to add that in 2008, the company showed close to $500,000 profit versus a $300,000 loss in 2007.

"We made a lot of money that year: $8.7 million came through our doors," Hanks says, "and at the end of the day, there wasn't any left."

Doba was reinvesting everything in its growth.

But the fact that none of that $8.7 million ended up in the bank was a sign to Hanks that the company needed a closer look from top to bottom.

"We could've just kept up the full-steam-ahead," he says, "and I think if we had, there was some likelihood that we could've ended up being one of those companies that grew 3,000 percent and went out of business two years later."

Rankings like the Inc. 500 look only at the top line of revenue growth. That's understandable, Hanks says. After all, most entrepreneurs tend to ask each other about revenues and head count.

But there's more to the story.

"If you only know those two points of data, you have no ability to understand how successful that company is."

Hanks believes that profit and revenue-per-employee are pretty important. In late 2007, when he wasn't satisfied with Doba's score on those metrics, he decided to stop pushing so hard for revenue growth, and to take a year or so for housecleaning and rethinking.

His team agreed they were done trying to win awards... and were going to focus instead on rebuilding the company.

The bottom line: There's more to success than chasing more sales every year.

The pause that refreshes tip #2: Tear down part of the house so you can rebuild it better
So Hanks and company took a year to fix some fundamentals.

"I like to think we tore part of the house down so we could... put some supports down underneath it to kind of make sure that the house wasn't going to tip over."

The first step was to sit down with managers from all parts of the business, and ask what they would fix if they had time.

"The minute you gave people that thought," says Hanks, "it didn't take us very long at all to really identify what we had to do."

Managers could almost instantly name three things they'd like to do if they had the time and resources. For instance, a discussion on the user interface to Doba's software resulted in a list of 10 things to be fixed.

Hanks maintains it's paying off. Yes, Doba's revenues were down in 2008, but the company turned a profit.

And it set records on many key metrics — conversion rates, dollars per lead, and revenue-per-employee — even in November and December, when the economy was in a tailspin.

The pause that refreshes tip #3: Don't waste time on unqualified leads
As of late 2007, Doba had 40 people in sales out of a total head count of around 100.

Hanks says 20 people were following up with prospects who started to sign up for a free trial but abandoned the process, or showed interest in a trial through a partner but didn't actually sign up.

In other words, these were more or less unqualified leads.

Pursuing them was getting some results, but not enough to justify the resources Doba was pouring into them.

"Basically they were our leads that were least qualified," Hanks says, "and so we threw people at it, instead of processes. We realized there was a lot we could do with them before a person got involved."

A key step was to follow up those leads first with e-mail rather than taking up a salesperson's time to call them.

Then Doba virtually eliminated those 20 jobs devoted to chasing those leads. The company laid off about 10 employees in the fall of 2007, and reassigned some others.

Not devoting time to lower-quality leads did have some effect on sales, but not as much as Hanks expected.

And on the first business day of 2009, nine new employees started work at Doba, with five assigned specifically to follow up on the new, better-qualified leads.

Hanks expects to get three or four times the return on those leads with those five people than the company got before with 20.

The pause that refreshes tip #4: Shave down marketing costs
Doba's marketing budget in 2007 was about $150,000 a month. Now it's about $120,000 a month, or 20 percent less.

Some of that cut came from scaling back search-engine advertising.

"The easiest thing for us to cut was our PPC marketing," he says.

"Basically we're paying money to Google and Yahoo and all those guys, and we're driving the total there [by] what we're willing to pay for certain keywords, how many keywords, all of those things.

"So that's the easiest place to make the change, because it's immediate."

Doba also renegotiated what it pays some partners and affiliates for lead referrals. How did he manage that?

Hanks simply explained to those partners that the existing arrangement wasn't working for him.

"Everybody's very receptive to that," he says, "because ultimately you want those relationships to be mutually beneficial."

Cutting the marketing budget did reduce the number of leads flowing in to the sales force, Hanks says, but it didn't have much impact on actual sales.

"Your team responds to that and says, 'Oh, if I've got less, I'm going to do more'," he says, "and all of a sudden it doesn't hit you as hard."

Doing more with less: sweet.

The pause that refreshes tip #5: Fix your broken windows
"I like to think that for entrepreneurs who are trying to do something, you've got to be quick, but you don't want to be quick and dirty," Hanks says.

"And we had been quick and dirty."

An example was the UI of some customer-facing systems. They worked, but they weren't as intuitive or as useful as they could have been. But that work had always been pushed back by more urgent demands.

A case in point: Doba's system offered three different views of the product information from its suppliers. There was a gallery view built around product pictures, and two slightly different table views with smaller thumbnails.

Each view contained slightly different information, and there was only one way to sort the listings. When Doba set out to clean up its UI, those issues jumped out right away.

"The first meeting we had, we got our guys in the room, and everybody was like, 'I can't believe it's running this way,'" Hanks says.

So they eliminated one of the table views, standardized the data between the two remaining views, and added a range of sort options.

Fixups like that didn't take a lot of customer input, or much deep soul-searching.

It was just a matter of stepping back to look at the product that evolved during a period of rapid growth to see where it needed cleaning up.

"When you're living in a house of broken windows," Hanks says, "you just ignore them after a period of time."

Refining a software UI is an ideal project for a recession, when you don't want to let your talented developers go, but you don't want to commit to a lot of new product development either.

When was the last time you asked everyone on your team how your software really looks and feels, and what they would change if they only got the chance?

The pause that refreshes tip #6: Invest in knowing your customer
Another important thing Doba did in its year of rebuilding was to create a full-time position responsible for business intelligence (BI).

Hanks says a company that started with plenty of VC might have done this sooner. With lots of up-front capital, some companies spend their first year or two just building the product and the infrastructure.

"That wasn't our story," he says. "We bootstrapped the thing, so we didn't have the luxury to build the data warehouse."

That meant that if Doba wanted certain customer information, it would have had to pull an engineer off another project to figure out how to extract it. When a company reaches a certain point that's not good enough any more.

It took considerable resources to build the data warehouse and BI capability — around $100,000 including six months of a top engineer's time, Hanks says —  but it's already starting to pay off.

"We go and we say, 'Greg, I need this and this and this' and he can get it out of the system for us," Hanks says.

Now his team can see, for instance, not just the average monthly retention rate, but the retention rate for customers who found the service through Google ads versus those who came through partners.

He can see whether an alternate sign-up process the company tests makes a difference, or whether customers attracted by search ads with particular keywords behave differently than those lured by other keywords.

That kind of real-world information really helps you marketing team understand what pays off — and to continue to invest in their most winning campaigns.

The pause that refreshes tip #7: Solve more problems for your customers
Doba was built on serving microbusinesses: e-commerce entrepreneurs looking for goods to sell through online channels like eBay and Amazon.

At the same time, Doba serves vendors with goods to sell who need distribution channels.

A key problem for small e-tailers is finding things to sell, Hanks says, when they don't have contacts or buying clout.

That's part of what Doba does for them.

The software helps them pick goods from extensive catalogs, featuring two million products from more than 250 vendors. And it also helps manage relationships with these suppliers.

The lesson here is that software companies aren't always just about software. Their success sometimes depends on solving other problems.

Not long ago, SoftwareCEO profiled iSeatz, a New Orleans company that started out making online restaurant reservations and then progressed to helping large companies — like Amtrak and Delta Airlines — offer a selection of travel products on their websites.

For both iSeatz and Doba, it's not just about the software; it's about the network of vendors the company offers to its customers.

Doba put together that network by attending trade shows, and approaching suppliers with the proposition that it could help them reach small retailers who would be too much trouble to work with otherwise.

Hanks says Doba can establish a relationship with a new supplier in a couple of weeks: a week or so for the supplier to examine what Doba has to offer and make a decision, and then as little as a few days to get the links in place to their catalog.

By bringing together both sides of the transaction — both supplier and online merchant — Doba solves a pressing business problem for both.

And better still, this marketplace becomes a tangible business asset.

The pause that refreshes tip #8: Identify upscale or downscale opportunities
Doba built its software to serve its original customer base, small e-commerce entrepreneurs selling goods on eBay and Amazon.

Doba helps microbusinesses find goods to sell and establish relationships with suppliers.

But the company has since realized that larger businesses in the mid-market have some of the same problems. These larger businesses face challenges in inventory management and supply chain management.

So now Doba is extending its software for larger e-tailers.

Hanks likens his offerings to an iceberg, most of which is below water. The microbusinesses that have been Doba's core constituency just see the tip of the iceberg.

His goal now is to "take all of the iceberg that was below water, and put it out there as a software product, and let a different kind of customer come in."

Doba already took the first step last year by launching an inventory on-demand platform for e-tailers. More will come this spring, Hanks says.

Your initial software can often be tweaked for larger or smaller customers. Such opportunities, if you can identify them, offer a natural growth path.

But those are opportunities that may take some time to spot... and that's yet another benefit of a pause to reflect.

The pause that refreshes tip #9: Tell employees more than you first want to
When Doba laid off some employees in 2007, it sent shock waves through the company.

Even though firm had just landed at #23 on the Inc. 500 list, some people were very worried.

"That was a big thing," Hanks recalls. "That was like somebody in the family doing something really bad."

And at least a couple of Doba employees who weren't laid off went out and found other jobs within days.

In hindsight, Hanks believes he didn't communicate enough about what Doba was doing.

"We tried to put a whole kind of PR spin on it, as opposed to just saying this is exactly what's going on," he admits. "We didn't put people in a room and say, 'We're going to make $8.7 million and have nothing to show for it, and we want to fix that.'"

Doba learned his lesson, and from then on he's been more open with employees. For example, his management explained the plans to take time to fix some fundamentals, make some changes in sales and marketing, and branch out to offer its software to a new market.

In the process, Doba shared some detailed sales numbers and other metrics that he'd never discussed with employees before.

The best way to fight rumors is with facts, and hold some all-hands meetings where your people can ask all their questions.

"You need to prepare your materials that you're going to tell everybody... and then add to it, such that you're uncomfortable with what you're going to tell them, and then everything will be okay," Hanks says.

In other words, in times of change, be prepared to go beyond your comfort zone and to over-communicate.

The pause that refreshes tip #10: Be a somebody in your industry
Despite his young age, Hanks is somewhat of a known quantity in his industry.

For instance, he's a published author, who co-wrote "Drop Shipping for Dummies." He was a finalist from his region for Ernst and Young Entrepreneur of the Year in 2008. Earlier, he was named one of the state's "top 40 under 40."

And the company's website lists more accolades, both for the company and for Hanks.

Even the company's mission statement has been declared outstanding, coming in as third best  in the state in a roundup in 2007.

The point is, this CEO and his team know their stuff. And they've put it out there on the web to help position the company as an industry leader.

The pause that refreshes tip #11: Finance your startup yourself
Hank's first startup, GearTrade, floundered with its backers refused to advance more money.

The plan was to offer sporting goods manufacturers an online channel to liquidate end-of-line and excess inventory.

Hanks recruited two friends and the three lined up some VC. The investors told Hanks and his partners what they needed to deliver, and they did it.

But when they went back to the investors in the midst of the dot-com bust, there was no more money to be had.

So Hanks was forced to sell off GearTrade's assets to pay its debts. He wasn't discouraged, but he took two things away from that experience.

First, he was convinced there was an opportunity to do something like what he tried with GearTrade in a broader market, beyond sporting goods.

And second, he didn't ever want to depend on outside investors again.

So he and his partners launched Doba. This time, rather than bringing in VC, they did any sort of consulting that would pay the bills and bring in money while they built their first product.

That's a classic bootstrapping technique, and today they're happy they did it that way.

Not all entrepreneurs agree on this.

Some argue that good VCs brought useful experience and advice to their companies, or that the up-front investment was necessary to make their concept work.

Others agree with Hanks that you're better off remaining master in your own house. They've seen how hockey-stick revenue growth isn't always the path to a solid company.

One thing is probably safe to say: Doba's decision to slow its pace a bit over the past year and rethink parts of the business would have been harder to do with outside investors to keep happy... especially if those investors were fixated on an ever-increasing top line of growing revenues.

And this year, Hanks expects revenues to bounce back up again.

"We are looking at around $8 to $8.5 million in revenue for 2009, and probably $500,000 to $750,000 in income. We're going to be investing close to $1 million of our own money this year in our new software platform, which we're doing offshore. That will hopefully pay off with revenue starting in 2010," he says.  

"The ability for us to take a pause and reframe our business... is allowing us to be aggressive in the current macro climate, and bet our hand aggressively, while other competitors aren't able to do so."

About the author: Grant Buckler is an award-winning technology journalist with 28 years' experience covering computing and communications news and trends. He has written for numerous business and general-interest publications and research firms in Canada & the U.S. .