June 7, 2011
Bootstrapping – the startup metaphor for a self-sustaining business that proceeds without external help. This is a story about bootstrapping – real bootstrapping, like, live with your parents, and rent a crappy office bootstrapping. It’s holding out on paying yourself until you start making money, on the way to a multi-million dollar revenue business bootstrapping. Here’s the story of SingleHop.
SingleHop, if not familiar to you already, has become one of the most recognized names in the hosting industry. The once two-man – now 70-person – company is suitably named after the networking term for the passage of packets to the next router. The team also has a penchant for sky diving, as evident in the names of many of their product lines.
Dan Ushman, co-founder and Chief Marketing Officer of SingleHop, is a long-time friend of Tech Cocktail, and was a sponsor of our very first event back in 2006. We had the opportunity to ask Dan about not only the story of SingleHop, but ask him to share some actionable steps for those entrepreneurs faced with the decision to self-finance or consider outside funding.
TC: Where did you get the idea to start the company? Basically, what were you doing at the time, when did it hit you to start your own company?
DU: “I was a student at Southern Illinois University, and Zak (Boca) was at Western Kentucky. Since high school, I had been running a directory of web hosts. I was doing everything, including making sales calls – even from the bathroom stalls at school when I had to, hoping the guy next to me wouldn’t flush. Zak and I met in high school over the Internet – he was running a similar hosting directory website, and we would send referrals to each other. I realized when I was in college I was pretty good at selling hosting for other people, and so was Zak. This is how our first company, midPhase, was born.”
Ushman says that midPhase started off to make “beer money” in college, and they never intended to grow it, let alone develop it into the $22 million in revenue-making company SingleHop is today. Roughly a year and a half into midPhase, Boca sold his directory to another company, and flew up to Chicago for a weekend to stay with Ushman and decide the future of midPhase. “We made a handshake deal,” recalls Ushman. “We said that if we got customers in the first six months, we’ll leave college.” After that six month period, Ushman and Boca had their customers – 1,500 of them. They both made the decision to leave college and set up shop. With desks bought from Best Buy, they moved into their first office which Ushman describes in jest as a ‘hell hole.’
“It was awful. It was a basement office in Palatine, IL (his hometown) that had a patio door, complete with a screen, dividing it right down the middle. We had this hilarious phone system worked out where a call would go to me, then to Zak, to my cell, then to Zak’s cell” if it wasn’t answered along the way.
The two worked this way for a year, and put all the money they made back into the customer acquisition. During the process cash accumulated, and an opportunity to buy another hosting company presented itself – and they went for it. “It was an interesting transaction, complete with promissory notes and some creative accounting,” recalls Ushman. The transaction also brought on board a third employee (the owner of the acquired company).
The acquisition also bought new, downtown Chicago office space for the team, and their first technical employee, Andy Pace (now COO) was hired. “We couldn’t have built the reputation we have for technical excellence if it weren’t for him,” says Ushman.
Two years into midPhase, a firm out of Washington State made an attractive offer to buy the company. “We thought there was still more potential in the business,” says Ushman of the desire not to sell. Investors came calling at this point – often three times a week.
Ushman offers some advice: “Don’t sell yourself short. At a certain stage you may need outside funding to grow, but bootstrap it if you can. You will thank yourself, and the investment deals will be better later on.”
“Investors bring a lot more than money to the deal,” says Ushman. “If you are going into a business where you need the capital and guidance, it may make sense.”
TC: Did you have any mentors or advisors early on?
DU: “Not really, there have been a lot of people that have offered advice – the person that bought my hosting directory, for instance. We’ve gone on instinct. I certainly didn’t know how to run a business (at the time).”
SingleHop grew out of midPhase in 2006, from the desire of Ushman and Boca to enter the field of dedicated hosting. Ushman is now Chief Marketing Officer at SingleHop and Boca is the CEO. Ushman says these roles play to each of their strengths; Boca is a natural negotiator, Ushman is a marketing and sales type of guy, and Pace, the COO, is highly technical. “Zak will come up with 5,000 ideas,” Ushman says, I’ll reject 4,999, but there will always be one that I’ll market and run with.” The company has 70 employees, 3 facilities and 8,000 servers, and now that many of the early lessons about fostering a business have been learned, SingleHop is ready to give back to nascent ventures.
TC: What are your thoughts on the rise of business accelerators/incubators?
DU: “I think it’s exciting. There are a lot of people out there who have great ideas, but they don’t have the resources, or the connections. [Incubators] bring products and companies to market that may not have ever gotten off the ground. Tech Stars, YCombinator – a lot of great companies have come out of these.”
SingleHop is in the process of talking to a few different Chicago entities about partnering to provide infrastructure and server space for an initial period of time to support early-stage companies to relieve some of the financial demands of hosting new applications. “New technologies that are coming out are extremely taxing on computer resources.” Ushman expresses the desire to create a true incubator with Boca someday, and invest in the companies. “If only SingleHop didn’t keep us so busy,” he laughs.
The company differentiates itself in an industry where customer service claims have become “commoditized” as Ushman explains. “Five years ago, things like 24/7 support and a high degree of reliability were differentiators. Now it’s a prerequisite; consumers expect it.” SingleHop sets itself apart through its automated services (e.g., clients can order a web portal and have it in 30 minutes – without human intervention), its white label control panel, and its outlook towards its resellers – as more than just a vendor, but a partner in growing their businesses.
Those resellers may notice the pattern in products they are buying – the names are all related to sky-diving, something the team did to celebrate reaching a sales milestone and Ushman uses as inspiration in naming new products. The first was Tandem, a reseller hosting program named after the way a student takes the first dive harnessed to the instructor. Others that have followed include Altitude (a resellers program), Altimeter (a new product rolling out next month that will look at hardware metrics and identify problems before they occur), Freestyle (a line of servers) and Formation (a cluster of servers).
TC: Looking back, is there anything you would have done differently?
DU: “I hate that question. Sure, I’ve made mistakes, but I wouldn’t have learned from them. You always wonder ‘what if’, sure. But you learn more from failure, than success.”
Dan Ushman’s Tips for entrepreneurs:
- Bootstrap it if you can – you will thank yourself and the investment deals will be better later on.
- Don’t pay yourself a salary; invest the money you’d use to pay yourself a salary back into the company.
- Don’t discount the idea of investors, but hold off if you can – the deals will be better the longer you can wait.
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