by Tim Jahn on March 18, 2011
Christopher Hill is the founder of PerkSpot, a company that manages discount benefit programs for employers. Chris started Perkspot out of his condo four and a half years ago, and Perkspot has been doubling revenue every year since.
I invited Chris here to today to share the story of how he built Perkspot to the success it is today and why he bootstrapped rather than sought funding.
Tim Jahn: So why don’t we just start off, why don’t you just explain what PerkSpot is?
Christopher Hill: Sure. PerkSpot is a corporate perks programs on behalf of large employers primarily as well as associations. And employers use this tool as really as an employee engagement and loyalty tool. What we’re doing on behalf of the employer is helping employer, employees become aware of the perks made available by the employer.
So we’re talking about things like, you know discounts stemming from corporate relationships. You know our client is Starbucks. They buy a lot of Sprint phones. As a result an employee can save perks on a Sprint phone for their own use, as well as some insurance types of programs. One was, there’s certain advantage to purchasing insurance through your employer and taking advantage of the size, you know our employers are large companies so average employer size is about 20,000 employees.
So there’s a lot of advantage to buying through your employee (inaudible) purchase organization. And we’ve got about four and a half million consumers underneath our umbrella. That’s about half employees of companies and half association numbers. And our clients are folks like I said Starbucks, Chevron, Abbott Labs, CDW, Advocate Health Care, ranges, ranges in industry focus but even employers across the country.
Tim Jahn: And where did the idea for PerkSpot come from? How did this all come about?
Christopher Hill: You know I was working for Arthur Andersen, small group within Arthur Andersen when I first graduated from college and had heard about these discounts that we had available to us as employees of Arthur Andersen.
Particularly, you know I was a 22 year old new to the city and out on my own, I wanted to take advantage of a Sprint discount and a Brooks Brothers discounts. So I had heard these discounts were out there and went to take advantage of them on the corporate intranet and you know looked around for twenty, thirty minutes and by the time I found it, information was old and outdated.
And so I was all pumped to take advantage of these discounts and, and then when I went to take advantage of them, the information was bad and I couldn’t. So, kind of play into the seed there for a need, okay there’s a, there’s, there’s good stuff out there but there’s a disconnect between employees, being out there and the employees taking advantage of it. So I didn’t start a business off of that, but kind of planted a seed, fast forwarded my career as working in private equity and started to put a model around that need and really launched you know from there.
Tim Jahn: And I was reading that you started PerkSpot out of your house for the first few years. Do you want to tell me about those, those early days?
Christopher Hill: Yeah the early days are fun and painful to reacall at the same time. You know we, I think we were out of my house maybe the first year or so. Me and one of my buddies who had a sales, some sales experience I brought on board. I wanted him to kind of take this concept and sell it into companies.
And he had some success doing that. But you know he was, I had an office in my condo and so I worked out of there and he worked at my dining room table and you know spent the better half over, I guess just over a year doing that. But finally got kicked out when my wife had our first child, so. Thrown out, thrown out on our own. Had to sublet space and, you know it was, it was cool. There’s certain advantages and disadvantages to working in the home.
Tim Jahn: You mentioned that you didn’t start PerkSpot immediately after having that experience on the company intranet, that it just planted the seed.
Christopher Hill: Sure.
Tim Jahn: What, what eventually led you to actually want to solve that need? Was it years down the road you just kind of remembered it or were there other experiences that built on it that really pushed you to solve that problem or what?
Christopher Hill: That’s a great question. You know I, I had always wanted to start a business. You know and I, coming out of college I didn’t feel like I had what I needed to start a business. You just, I was pretty green, wanted to continue my education and left college knowing I wanted to get into investment banking because I saw that as a logical extension from this group within Arthur Andersen where we were, we were doing that.
I knew I wanted to do that because I’d get exposure to business models, management teams, and really just learn a lot for when I did want to start my own business. On nearing the end of my investment banking career, it’s generally a two or three year analyst program and then you, you know move on. So I discovered prior to that, and I saw that it’s really an option to even go deeper into companies with your mind, companies, you’re owning companies.
You’re going to get exposure to operations more so and so I kind of had that next logical step in the department and I went ahead and took that you know, another two year plunge. And then the next step is to go get you MBA and come back and do the private equity. But I didn’t want to get my MBA and I finally saw this as my opportunity to start a business, to kind of be forced to start ab business because my, you know that was just the emphasis behind being out on my own I guess and having the option to go to school or do something else.
And you know, so I think that looking back I saw that there was this need and I knew there was — I know had a way to monetize business built around that need. I didn’t think it was the greatest thing since sliced bread, I just, I just saw an opportunity to start a business. So, you know it soon to become more of a passion of mine but you know it, it was a business that I could run and build a team around.
Tim Jahn: And so the plan was for, for your wife to graduate law school and then she was going to be making a lawyer salary you know as you were working on this start up, but that didn’t work out did it?
Christopher Hill: Not so much. Yeah, I sank a bunch money into the business and wanted to make sure we were well capitalized from a personal stand point so we didn’t sink a million bucks into the business. I didn’t have a million bucks. We wanted to be sure there was cash there to operate the business and get things off the ground, all the while you know I could go without a salary and my sugar mama paying the bills. That didn’t work out quite as planned. You know it, it was just a tough time to graduate law school and, you know it presented some challenges. You know having to live on, you know having gone from a you know nice salary and equity to zero was just a big change.
Tim Jahn: How did you deal with that? I mean that must have been hard mentally you know to have to go day to day adjusting to the new you know mindset and, and lifestyle. How did you deal with that?
Christopher Hill: I suppose I, I learned and just kind of rolled with the punches. You know by no means did we have any type of extravagant lifestyle, you know but it was, you’re having, for the first time in my life was having to actually think about budgeting and doing things that are healthy. You know what I mean?
You shouldn’t, everybody should be able to kind of know what your income is, what you can spend and live accordingly. And so we were just living off of savings instead of an income which, which was fine, presented its challenges but I think it was more character building than anything.
Tim Jahn: When you, when you started PerkSpot, when you had that idea and you eventually decided to go ahead and solve this problem with this company, why did you not seek outside funding? I ask the question because these days that’s all people do and I’m a big fan of the bootstrapper and clearly you know you went that route so I’m curious why you chose that route instead of the old fashion funding.
Christopher Hill: Sure. Yeah, I — as I’d point to a couple of things. One is I was coming from the funding side. I was working in private equity, we were doing early stage stuff, we were doing more gross equity, reporting thirty, fifty million bucks to work and existing businesses, was trying to grow it and give, you know entrepreneurs a kind of a liquidation.
And so, but I knew what we took is investors and, and you know investors you look at venture capitalists and private equity guys, they’re making a bunch of dough and they’re making it for a reason, it’s because their money comes with strings and you know they need to get their return and pay their investors as well as themselves. So I knew that their money was expensive. So I knew at the very least I wanted to start off funding it on my own. You know build up a little bit of a client base and some revenue before, you know even before entertaining the idea of outside capital.
And the more I, you know as I grew the business, I think it’s still, even if you, you intend to bootstrap, I think it’s wise to entertain conversations with venture capitalists and understand what to look for because they’re smart, it’s a smart group of individuals and they’re going to look at certain things. They’re going to look at your business a certain way and say you as a an entrepreneur need to look at your business that same way, you know breaking stuff down to the unit economics and gearing out scalability and what returns are going to be — So anyway those conversations are still healthy to have and I did have some of those conversations.
But the, you know this is Chicago in 2006, which is pre-Groupon and there aren’t a lot of funding sources out there. You know there’s not a lot of early stage investors that — They, they kind of had their pick of what kind of companies they would want to invest in. They call themselves early stage, but that was you know series a, maybe series b they certainly, a lot folks weren’t seed stage at that point and I think with the environment has changed, even in the last couple of months. And post Groupon you’re certainly seeing some fundings but ’06, ’07, ’08 probably it wasn’t, you know there wasn’t a lot of money chasing early stage start ups in Chicago.
Tim Jahn: Yeah, the landscape has changed, you’re right, since Groupon, the past two years. I want to go back, you mentioned you, I loved the phrase you used, you mentioned this, the investor’s money is often times expensive. What, what did you mean by that?
Christopher Hill: It’s, you know when, when an investor’s dollar comes in, the term is, like pari passu. So I, I am the founder and you know there is ways to get into founders equity but let’s say I just hold common equity. Often times an investor’s money is going to come in and they’re going to take a preferred piece of equity.
And not only is it going to be preferred equity, it’s not pari passu with mine so, in the capital structure a, a company will — let’s say there’s a million shares outstanding and, and — well let’s just say, let’s say there’s a million dollars of preferred, preferred capital for equity in a, in a corporate structure and then there’s everybody, and then there’s common equity. When a company liquidates or when there’s some type of sale of the company, let’s say it sales for ten million dollars, that million dollars is going to get paid out first, and then all the common equity is going to split what’s left.
So often times the investor, let’s say they come in and that preferred owner owns twenty percent of the business plus that one million of preferred. So when the company exists for ten million, you know great, huge homerun for everybody, but that preferred will often times come out first so now you take ten million you subtract a million, so now there’s nine million dollars to split between the equity, but then your investor kind of gets their double dip because not only did they own a million of preferred but they owned twenty percent of the business of the common, so then they get paid twenty percent of that nine million, so they’re getting one point eight million from the common and then an additional one they paid out on the liquidation preference or the preferred.
So they’re just, you know their money is multiplying versus you know what the entrepreneur had who’s got his common equity and — You know I mean I saw turn sheets, I got turn sheets from investors with people under three times liquidation preference, so in my example that would really be, they get three million before anybody gets everything else. It’s just, it’s expensive.
There’s a lot of ways, there’s a lot of things built into their security that are just, they’re really foreign to entrepreneurs. There are no, there’s no reason that an entrepreneur would know the intricacies of, of a preferred equity or a preferred security. So it really speaks to the importance of having good legal counsel. But when you’re an entrepreneur and you’ve built that business and you’ve gotten to, whatever it is, a couple thousand dollars of revenue, hundred thousand dollars of revenue, you know you don’t want to pay that attorney who’s going to cost you $500 an hour.
You know you’ve built your business living cheaply, you’ve bootstrapped. You know so you’re probably not going to be smart to some of those things where as the investors has you know the best attorneys out there and they’re going to secure, they’re going to secure a return for that, for that investor the best they can.
Tim Jahn: Okay, that makes sense.
Christopher Hill: I’m a long winded in terms as why is it expensive, but there is, there is just a lot of reasons.
Tim Jahn: No that makes sense. I mean, yeah the overall you’re just saying that when you take out investors I mean you really are paying a tax you know of sorts that, you know bringing them on board isn’t just as simple as brining them on board. There’s going to be complicated financial results and generally I, hopefully entrepreneurs are aware of that going into that.
Christopher Hill: Well they, you know one more point I think is important is the entrepreneur builds his business with his own blood, sweat, and tears capitol. You know I know a lot of entrepreneurs where they, everything they own was tied into the business, where as the investor, it’s not really the investors money.
They’ll have a piece of it, but that venture capitalists is raising money from Harvard’s endowment, they’re raising money from pension funds. They’re raising money from insurance companies. It’s just not, it’s not their money. A majority of it isn’t their money. So, so your, your investment is very different and when an investor is going to come in and say “okay not only is this not my money, but it’s going to come in senior to yours and I’m going to get paid once, twice, three times before you even see a dime.” That’s just crazy.
So you know I think with the market being as crazy as it is today and a lot of those terms have become more standardized and you know less draconian than they were a few years ago, you know it, it’s getting better. But I still don’t think that they’re completely aligned.
Tim Jahn: Yeah that, I mean when you put it that way, if someone wrote that on a paper to me I, I would definitely second, second guess why I was going after that funding to begin with unless it was absolutely necessary but that’s just me. So you, so PerkSpot has doubled revenue every year for, for the past five years. And how, how old are you guys now?
Christopher Hill: Four and a half years old.
Tim Jahn: Okay, so for, I mean generally you’ve been doubling your revenue for, for your whole life, I’m sorry your whole company now.
Christopher Hill: Basically.
Tim Jahn: Yeah. What do you think is the biggest factor that, that contributes to that success?
Christopher Hill: You know I mean I think it’s, it’s a couple of things. It’s we’ve gotten a lot smarter about our product. We’ve gotten better at selling it. You know into corporations and helping corporations understand the value proposition that we can offer about to the corporation as well as to their employee base.
You know and I think it’s getting better about our offering, technology, how we power it, how we, you know convert users into, or individuals into users into buyers. And building, you know building a smart team, you know we can do all these things. And we can be responsible for each of these areas.
Tim Jahn: Okay, so, so the first parts sounds like you were just a good salesman. But I have to believe there was more to it than, than you being good at selling the product. Did you get like a big name client early on or something that gave you like kind of social proof where the other companies were like oh, such and such is on board, maybe we should check this out or?
Christopher Hill: Yeah, no absolutely we, you know the first win is always the hardest. We were fortunate enough to land a Fortune 500 business here in Chicago suburbs as our first client. We really just had a value proposition that was enough for them to, to kind of take a fly and go with us. And of course you always want to try and seem bigger than you are when you’re a one or two man shop. But they, you know they saw what we could offer, they liked it. They went with it and then it was kind of one by one.
You know we, the way we really build up, well our success is depended on one, well two components. One is the employers and the employees of, you know that’s, that’s really our user base. And then we need to have great, a great offering. We have to have you know perks that people want to take advantage of. And it’s hard to have one without the other. So you kind of stair step approach each one. And we won that first client. We were able to procure better perks.
And then once we had better perks we built on another client. And then we added another client to point two and so we can of just stair stepped up and it take a little bit of time you know getting people to buy into your vision and where you’re going and what you’re doing. But I guess it just eventually worked itself out.
Tim Jahn: How soon after you started did you land that first big client?
Christopher Hill: It was about four months.
Tim Jahn: Four months?
Christopher Hill: We started in June ’06 and we launched that first client late October of ’06, about four and a half months.
Tim Jahn: Wow, how did that feel, that first client?
Christopher Hill: Oh it was amazing. I mean that was absolutely amazing. It was just such a cool feeling to get somebody to commit to it and get a contract signed, get it in the door. And then, okay how do we do this over and over and over again?
Tim Jahn: Yeah, I mean that’s the I imagine, I mean after that first one did the second one come, do you remember?
Christopher Hill: I think we, I think we ended up launching with one or two more within the next two months.
Tim Jahn: Okay so –
Christopher Hill: And that’s when it really snowballed. So calendar year, so, you know we launched October, I think we had one in November, one in December. And then we just got a couple of really just substantial clients that sort of you know buying into what we were doing in, in early ’07 and that’s when things really started to smooth out. I mean I think we did $600 of revenue our first year and our next year we did like, I don’t know $100,000 or something, so.
Tim Jahn: So definitely some momentum.
Christopher Hill: Absolutely.
Tim Jahn: What, what would you say is your number one piece of advice for a creative entrepreneur whose bootstrapping out of their house you know and then their wife kicks them out because you guys are having a kid. What’s your one piece of advice from your experience?
Christopher Hill: One piece of advice? You know I, I would say, I’d say two pieces of advice. One is just go for it. You know keep doing it, keep your head down, you know have a vision of where you want to go and what you think, what you know you can accomplish and don’t just, just don’t give up on that.
And I’d say two is, and the reason I say two instead of one is because I think that’s the number one most important, but number two is, that’s hard, I mean that’s hard work to do so you need to surround yourself with other entrepreneurs going through the same things, entrepreneurs who have succeeded. And you know have lived, you know worked out of the house and now are in a big, new office. It’s, it’s wearing.
I mean you know one day, as an entrepreneur one day you think you’re going to take over the world and the next day you think that you know you’re going to go bankrupt. And you know your family’s going to be des — you know kind of left on their own and we’re not going to have any money and blah, blah, blah. But you know the reality is it’s going to be somewhere in between but you need, you need that reassurance. You know that other people are thinking that way, you’re not the only one.
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