It wasn’t as though John Horton, President of LegitScript, never sought outside funding for his company. He just didn’t have any luck.

“They all told us we were dumb for the business idea,” he says, “that it would never work.”

To be fair, the idea was a tough sell.

After years as a prosecutor working on drug cases and a stint as Assistant Deputy Director at the White House Drug Policy Office, Horton was getting ticked at the vast, complex “rogue Internet pharmacy” problem and the lack of any way to combat it. At any time, an estimated 35,000-40,000 sites are offering prescription drugs online. Of those, a mind-boggling 97% are illegitimate — meaning they violate laws or regulations, fail to adhere to medical and safety standards, or engage in fraudulent or deceptive business practices.

Ginormous companies like Visa, Microsoft, and Twitter had no way to ensure they weren’t doing business with cybercriminals. Some were getting slapped with significant fines; others needed a way to stymie the crummy user experience of clicking on ads for bogus sites. That’s where Horton wanted to step in, by monitoring the web for counterfeit drug sales, shutting down illegal operations and providing trustworthy information to consumers.

It was May 2007. Cocky first-time founder that he was, Horton figured he could get things up and running in about six months. Two and a half years later, he had run his personal finances into the ground. Still no one was buying it.

It was the classic scenario where VC firms scratched their heads, and said, ‘So, wait: you want companies to pay you to help them lose customers … and want to give the rest of the information away to the public for free?’ They all told me it would never work and my business plan sucked. So, I decimated my life savings, maxed out my credit cards, sold my car, refinanced my condo, borrowed as much money as I could, and got down to having $350 in the bank and was probably a few weeks away from bankruptcy.

It was at that moment — when dogged perseverance finally met with good timing — that Google saved LegitScript by becoming its first customer. “The reputation is true,” Horton says. “They’re a pretty open, receptive company. It was one of those things where they weren’t quite ready at first, but persistence pays off.”

Persistence continued to pay off and other companies — Microsoft, GoDaddy, Twitter, Visa, various registrars and ISPs, government agencies — began hiring LegitScript to keep their platforms clean, via its combo of automated algorithms and old-fashioned detective work. “We’re basically cybercrime investigators who help major platforms make sure that they aren’t inadvertently profiting from shady or illegal stuff,” Horton says.

LegitScript now has the world’s largest database of Internet pharmacies in over a dozen languages, and its team, currently about 30 strong, continues to grow. Employees speak English, Spanish, French, German, Dutch, Portuguese, Indonesian, Thai, Japanese, Chinese, Korean, Hebrew, Russian, Turkish, and Dog.

That last language would be the native tongue of Parker, LegitScript’s office dog. The chocolate Lab greets visitors, has her own internal email address (you can discuss the finer points of Milk Bones vs. Yummy Chummies with her here), and is a trusted panelist at all job interviews. “There’s only been one time where she just did not like the person,” Horton recalls. “He seemed like a really good developer, and a couple weeks later, the guy ended up getting arrested.”

Parker’s not the only staff member “doing battle with the bad guys,” as Horton puts it. Due to the nature of the work, which can include tangling with organized crime, LegitScript doesn’t disclose its precise location (the office is somewhere in downtown Portland, Ore.) or reveal other employees’ names. Horton has endured death threats, attacks from rival companies, even a Russian criminal network registering bestiality websites to his home IP.

“The rogue internet pharmacies consider us to be their worst nightmare,” he claims. “We are responsible for making sure they can’t do certain things like advertise with search engines or use major credit cards to accept payment, and we have shut a bunch of them down. These people have invested a lot of time and resources in attacking us and getting us to not do what we do.”

I don’t favor counterfeit versions of anything, but if you have a counterfeit Gucci bag, you don’t eat it.

But Horton has no intention to stop doing what he does. “This is something that can have real consequences for real people,” he says. People overdose; people are hospitalized; people die because some phony pharmacy sold them a sugar pill.

“I don’t favor counterfeit versions of anything, but if you have a counterfeit Gucci bag, you don’t eat it. It shouldn’t happen, but it’s a lot qualitatively different. If it’s Viagra and it just doesn’t work, eh. If it’s an anti-cancer medication and it doesn’t work? You might be dead.”

Fascinating work that makes a positive impact is a pretty good recipe for job satisfaction. “I feel very very lucky,” Horton says. “We get to do something that is not only very interesting, but something that is doing well by doing good.”

Visit LegitScript.
“Bootstrapped, Profitable, & Proud” is a Signal vs. Noise series highlighting profitable companies with $1 million+ in revenues that didn’t take VC.

In addition to general health coverage and a CSA subscription, 37signals employees get a monthly fitness allowance to put toward whatever helps us stay in shape.

What makes this benefit awesome (and effective) is that we get to choose how to make the most of it for ourselves — it’s inspired by the same ethos behind our practice of hiring Managers of One, then leaving people alone and counting on them to do good work. Unlike company wellness programs that include discounted memberships at a particular gym or other specific incentives, the laissez-faire approach trusts employees to decide what works best for them.

While a few of us rarely spend the money or use just part of it, many of us leverage it toward activities that might otherwise by cost-prohibitive: primarily gym memberships, classes and personal trainers. Michael goes to Fulton Fit House in Chicago; Joan belongs to a capoeira group in Portland; and Eron and I are both CrossFit cult members, in Durham, NC, and Austin, TX, respectively. He recently did his first muscle-up!

Andrea uses her stipend toward horseback riding, and Scott puts his toward entry fees for cycling races—when he’s not racing, he uses it to replace stuff that wears out or breaks (tires, tubes, chains, etc.) in the course of training. Other employees use the money for gear as well: Will just bought some weights; Kristin purchased a yoga mat; and Merissa just started tracking her sleep, activity, and diet with Jawbone’s UP band.

Andrea on horseback, Michael at Fulton Fit House, and Kristin in an extended side angle pose.
Speaking of Merissa, she wins for most inspiring success story: She used the benefit to hire a personal trainer, works out five times per week at a small club near her place, and is now using UP for motivation to be even more active:

Even doing jumping jacks for one minute every hour or so (during my workday) is making a difference. I’ve lost around 70 pounds in the last year. It’s not even about that number, though — it’s about how healthy I am feeling. It’s incredible to work for a company that supports me just as much outside of work as they do at work.

How does your workplace encourage wellness?

Truth be told, we haven’t placed heavy efforts on marketing Basecamp. Customers sign up, pay, and are on their way. For nearly a decade, Basecamp has sold itself.

The problem for us is, with so many industries using Basecamp in different ways, we’re having a tough time figuring out how to talk about the product to new customers. We have an idea of how our customers use Basecamp, but we don’t know for sure.

Harder, still, is that we don’t even know why our customers switch from one product or system to using Basecamp. Hidden within their stories of over-loaded inbox frustrations and bloated corporate software are key insights about what makes Basecamp great for our customers.

We’re after those insights, and we want to share your stories.

Tell us your “Why we switched to Basecamp” story and you may be featured on an upcoming redesign of the basecamp.com landing page.

Share your story at basecamp.com/switch.

Once upon a time, Jordan Lowe, President and Chief Executive Officer of ServerCentral, found himself hacking the telephone pole outside his student apartment.

The University of Illinois dorms only supported one landline per unit, which presented a happy problem: His little business had grown to a point where that would no longer suffice.

“We had to add additional capacity ourselves through the building, through doors and windows and stuff,” Lowe says.

The little business, at first, was nothing more than a little unused space on a small, private virtual server Lowe and his partner, Daniel Brosk, had purchased for $1,000 or so to support their own websites. They didn’t know what to do with the extra space, so they posted an ad on daily deal site for a free domain name in exchange for an annual hosting contract. They also started offering domain names for $10 — when everyone else was charging around $30 — making just a couple bucks in profit at a time. (Hence the phone ringing off the hook; hence the phone pole hack.)

2000: ServerCentral launches in University of Illinois student housing
2000: Server space opens in Bloomington, Ill., changes from virtual private servers to dedicated servers
2001: Server operations move from Bloomington, Ill. to Chicago facility
2002: HQ moves from U of I to Chicago
2003: Server operations expand into Ashburn, Va. and San Jose, Calif.
2004: Server operations expand into Tokyo
2005: Server operations expand into Amsterdam
2009: Server operations expand into Elk Grove Village, Ill.
2010-2011: Server operations expand within Elk Grove Village, Ill.

The original server soon ran out of room too. “All of the sudden, we had to buy another one and another one,” he says. “We were kind of unprepared to start a real business.”

But as their customers’ needs grew, the business did too. Their web hosting customer base started requiring more and more space, needing racks and additional bandwidth. ServerCentral moved out of the dorms and bought what Lowe calls “kind of a compound” — a three-flat Chicago apartment building with a house behind it. The company’s first employees lived there or in the building next door, and would barbecue together in the evenings.

Even at ~80 employees now, the team clearly still manages to have fun.

“When customers are buying racks and servers, that launches a company. We just kept growing with the customers, and they helped launch this business. We always would do what they said they needed.”

Cabinets and servers eventually eclipsed the web hosting side of things, so ServerCentral unloaded that part of the business in 2008. When they needed better bandwidth, they bought a bandwidth provider — nLayer Communications, which was doing about $1.5 million in revenue at the time of purchase in 2007, and about $20 million by the time they sold it in 2012. This year ServerCentral is on track for close to $30 million in revenue, with facilities in Elk Grove, Illinois; Chicago; Ashburn, Va.; San Jose, Calif.; Amsterdam; and Tokyo.

Although ServerCentral made Inc. Magazine’s 2010 fastest growing private companies in America, Lowe insists the company’s success is due to its slow and steady approach to growth. “Going slowly but surely has helped us through the tech bubble exploding,” he says. Managing growth has been the company’s greatest challenge, since the absence of public funding often means saying no to huge potential customers: They can’t afford the risk of overbuying equipment, only to get dumped later on. “We can’t take a lot of risks, since we’re privately funded. ... We take a safe stance on that kind of thing. We’re competitive, but we’re not cheap.”

High-end facilities and top-to-bottom service cost money, but it’s money ServerCentral’s customers (37signals is one) are willing to pay.

“What we offer is very different from our competitors,” Lowe says. “They don’t have the same level of on-hand staff we do. If you call us, you’re not going to get a call center and open a ticket. With us, you call us, you talk to the person who’s gonna walk out there and do it and fix the problem.”

Every new employee spends their first couple weeks at the data center, working with equipment and interacting with customers. The environment is relaxed and low-stress, Lowe says, because they try hard to hire people who like what they’re doing.

“Did I expect to be doing this 14 years later?” Lowe asks. “No. It’s gone very well. It’s pretty exciting. I still like doing what I do. ... That surprises me, because a lot of people hate their jobs. That’s why we haven’t taken any money.”

Not that there haven’t been offers. “I probably get five emails a week, people trying to give us money,” he says. “It’s ridiculous. Especially this last year; the market’s doing really well. If we wanted to take money, this would be a good time, but we just don’t need it. We want to keep growing in other markets, with this level of service.”

Visit Server Central.

“Bootstrapped, Profitable, & Proud” is a Signal vs. Noise series highlighting profitable companies with $1 million+ in revenues that didn’t take VC.

In summer 2011, Mitch Van Dusen and Lech Szporer happened upon an impromptu jam session in their Bed-Stuy, Brooklyn, NY neighborhood.

Van Dusen and Szporer — musicians and creative collaborators with a studio space nearby — dug what they heard, so they brought down some instruments and joined in.

“We ended up playing over an hour,” Van Dusen recalls, “just banging on stuff with kids.”

The two packed up and turned to go, but the kids weren’t having it.

“They ran upstairs past us, and started playing instruments.” Out of the six or seven children who stormed the studio that day, only one had any musical training. What happened next was really something: In less than an hour, “Kickstand and the Butterflies” had written their first song.

“Watching these kids with no training just so effortlessly start creating sound … it was frankly brilliant.”

Over the next several months, the same group of children, ages 5-14, came by every day to hang out and play instruments. Van Dusen and Szporer recorded several tracks with them — never intervening much, just letting the youngsters do their thing and watching what happened.

“We just grew this amazing bond with them,” Van Dusen continues. “I learned more from them about music than in many other formal lessons.”

“That Christmas, Lech and I were sitting in a coffee shop and saying, ‘wouldn’t it be nice if we could get these kids some instruments for Christmas?’ A woman sitting nearby overheard their conversation, and offered a guitar and amplifier she had sitting around. That moment was their epiphany: Give kids your instruments, because they will play them.

The organization’s primary focus at the beginning was an instrument drive — getting folks to send in their unused instruments, that were just sitting around in closets collecting dust.

They soon realized it’s not enough to hand a kid a trumpet and tell ‘em to have at it. Just as important, they saw, was ensuring children had a creative environment to explore and have fun. “More than just teaching the kids music, we’re giving them and environment where they can explore,” he says. “We’re not teaching formal music at all.”

Give Kids Your Instruments is in talks with a small private school, where there’s a decent chance they’ll be able to open a community music and creative arts room. Another project in the works is the construction of large-scale “sound playgrounds” — essentially, Van Dusen describes, “sound sculptures, a big living instrument these kids can play with the abandon they would on the playground.”

“With the kids, it’s such an organic process. ... One of the things that has become so clear is that kids have a certain reckless abandon that they have easier access to than us adults. As kids grow older, they lose that — it’s not accepted. But when kids are kids, whatever they have inside them is so much more likely to just pour out.

“When people listen to the record on the website, and they keep in mind that this was done with very little practice, that this was natural, kids being kids creating songs on the fly — as adults, this is such a profound lesson … all those things we enjoyed as kids without thinking about them. If more of us were taking a peek to peer into the minds and the souls of these kids, we have so much to learn from them. All it takes is a little consideration. You see it real quick if you look.”

Visit Give Kids Your Instruments.

Mike Chang and Eric Grismer, besties since high school, had always kinda sorta kicked around the idea of starting a business.

After college, Chang left Southern California to work in Taiwan for a few years. The two friends toyed with the idea of sourcing something cheaply from Asia they could turn around and sell in the U.S., but they never landed on anything they felt passionately about.

Chang took off to earn an MBA from Oxford, and moved back in with his folks in Los Angeles after graduation. It was late 2008, and the job market was in the sewer. He didn’t have a job … and he wasn’t super convinced he wanted one, either.

“I definitely was interviewing and trying to get a ‘real’ job,” Chang says, “but I was kind of turned off by the whole thing.” He’d put on a tie, show up at networking events, shake hands, make contacts. “I felt like it was always the same boring conversations, the same small talk.” The whole situation was depressing.

Grismer, living in Berkeley at the time, called up Chang to mention that people were starting to use LEDs to light aquariums — and was that something he could find cheaply in Asia? Grismer had been interested in fish tanks since they were kids, but Chang never got into it — it’s an expensive hobby. Still, his program at Oxford had stressed green companies, and he knew LED was the lighting technology of the future.

What the heck, they decided. Why not? The idea is kind of funny, almost. Lighting for fish tanks? Hard to get more niche than that.

“I thought it was a pretty low-risk proposition and that I was going to get a real job eventually anyway, so it didn’t hurt to start a small side business in the meantime,” Chang says. They did a little research, spoke to few contacts, found out they’d have no problem sourcing the products they needed. Chang moved to Berkeley to be closer to Grismer.

“We asked each other how much money we had,” Chang recalls. “I remember I had about $2,000 left, and Eric said he could come up with about $2,500.” That was it. They didn’t approach anyone for funding. It hardly even occurred to them.

“Honestly, I thought it was such a small niche industry that no one would be interested,” Chang says. “We didn’t think it was ever going to become anything big. We never took ourselves seriously back then, and we still don’t.”

Mike Chang and Eric Grismer in China, July 2009. “Obviously we weren’t taking ourselves too seriously at the time if we planned to leave the country only a couple of weeks after launching the site.”

Having less than five grand to start out with turned out to be less of a snag than the learning curve Chang and Grismer found themselves faced with: Neither was an engineer. “We had to learn it on the fly,” says Chang. “People spend years and get PhDs on light.” They tinkered with parts for months, trying to develop a ready-to-use product, but couldn’t get it right. Finally, they stumbled upon a long thread in a fish forum about assembling aquarium lighting with parts available online. That was their eureka moment.

“As soon as we saw that, we realized we had been trying to reinvent the wheel, and that all we had to do was simply sell people the individual parts and they would put it together themselves,” Chang says. Turns out fish tanks are a relatively DIY enterprise anyway — if you have one in your house, chances are you’ve already figured out how to run your own plumbing and manage other projects more complex than assembling your own light fixture. DIY kits were the way to go, they reasoned.

With that, they spent the entirety of their modest investment on their first purchase order in summer 2009 — “and to be honest,” Chang says, “if that didn’t work out we would have quit then and there.”

Quitting might have looked tempting. No one was earning a salary in those days, and Chang was sleeping on the floor in his friends’ studio apartment. “Since they were students and broke just like I was, I never felt out of place or that I really needed the money,” says Chang. It was cramped, but rent was free, and they all had fun together. He promised his roomies he’d name a product after them in return for their kindness.

“I really wouldn’t trade that for anything,” he says. “It was a good year.”

Chang took a temporary job with the U.S. Census Bureau, sold his possessions on eBay, and did whatever else he could to bridge the gap until Rapid LED started making enough money to pay him a small salary. Since the business had practically zero overhead (their storage space was a closet in the same cramped studio), they were able to pump their initial earnings right back into the business.

That worked, as did their extremely customer-focused business model. All Chang wanted to do in the early days, he says, was sit there and wait for emails to come in so he could answer each customer and take care of their needs individually. “People were just amazed at how fast we responded, and at the time we were willing to spend with them to help them pick out their product.”

“I was pleasantly surprised by how much your customers will advertise for you,” Chang says. “If you deliver them a good product with good service, it’s amazing how much people will appreciate it.” Without any money for advertising, word of mouth was all Rapid LED had to go on.

They were the first company to offer DIY lighting kits, but competitors — some of them Rapid LED’s first customers — soon followed suit. Their first-mover advantage helped them stay ahead of the pack, as did (perhaps counterintuitively) their lack of technical expertise. Since Grisman and Chang didn’t have the knowhow or equipment to test which cheaper LEDs might work, they just bought and sold the best name-brand bulbs they could.

“The quality of the light going into the fish tank really matters. People think 100 watts of light is 100 watts of light,” Chang says, but “color spectrum really matters, light intensity really matters, longevity really matters. Lighting is one of the cheaper components of a fish tank. People will have thousands of dollars of fish and coral. It’s important to get really good lighting in there because you’re keeping something much more expensive alive.”

Customers rewarded Rapid LED for its hands-on support and high-quality products by telling their friends, and the business grew organically from there. They eventually brought on a few part-time employees and one full-time customer service rep, another buddy from college. Their revenues grew from $380,000 in 2010 to $1.2 million in 2011 and $1.6 million in 2012. Projected revenue for this year is between $1.75-2 million.

Most recently, the company purchased a commercial condo in Burlingame, Calif., which they’ll move into soon. (They named the company under which their new workspace is held “SooKoo LLC,” after the friends Chang crashed with that first year: Soohyun Cho and Peter Koo. Cho and Koo ended up marrying, and celebrated the birth of their daughter Evelyn in Dec. 2012.)

“Not bad for a $4,500 start,” says Chang, “but obviously we’re still looking ahead for more growth and opportunities.” Indoor and commercial lighting are more competitive markets, so the plan at Rapid LED is to look into various niche industries to see what else they can do. “Indoor growing is a much larger market than aquariums,” he says, “herbs, or whatever else you want to grow.”

Cough, cough.

“But we’re having fun and doing well now, so we don’t feel pressure to sell,” Chang says. “We’ve all been friends for so long and we started with nothing.”

“I think it’s OK to start small,” he muses. “Everyone wants to build a billion-dollar company, and they think they need to go out and find angel funding. Not everyone starts with that ability. ... Do what you can within your means, and just work hard. If I could go back and do it again, I totally would. It’s cliche, but money’s overrated.”

That attitude keeps Chang out of wearing a suit and glad-handing at networking events. “We’re in an industry where it’s pretty relaxed; it’s not fast-moving. It’s more genuine. I don’t feel like I ever come to work and have awkward conversations. Not that I’m not used to that, but it’s good not having to do it,” he says. “I’m working with my best friends every day.”

Visit Rapid LED.

“Bootstrapped, Profitable & Proud” is a Signal Vs. Noise series highlighting profitable companies with $1 million+ in revenues that didn’t take VC.

A few weeks ago, Paul Graham wrote a great essay about doing things that don’t scale. As usual, it’s clearly argued, well written, and full of solid advice. If your first instinct as a product developer or entrepreneur is to automate everything you can, I recommend reading Paul’s piece.

I wanted to add something to his article. While he’s mostly talking about doing things that don’t scale when you launch a new business, I think this advice is equally valuable when you’re launching a new product in a well-established company. In some ways it’s even more valuable in that situation.

There’s no question that automation is enticing – especially for software companies. No one disputes it’s easier to scale your business when you have machines doing the work.

But automation can also lead to myopia. And premature-automation can lead to blindness. When you take human interaction out of a system, you’re removing key opportunities to see what really happens along the way. You miss stories, experiences, and struggles – and that’s often where the real insights are hiding.

A real-life example at 37signals

We recently launched our new product Know Your Company. From the start, we decided to approach development, design, marketing, and sales differently than we have in the past with our other products. We wanted to start out by doing lots of things that we knew wouldn’t scale.

Prior to Know Your Company, every product we’ve ever designed has been self-service. People found the product themselves, signed up themselves, paid themselves, and got started themselves. No human interaction required. It’s obviously worked well seeing that this is our 14th year in business.

But all this automation has also created some institutional laziness. We have systems that work, so we just keep reusing them when we introduce new products. Why think about how we bill people if we can just plug in our own centralized billing system that we already have? Why re-think how we administer customer accounts when we already have a centralized admin screen that runs our other products? Why re-think pricing when already have a monthly subscription model that works?

There’s something about all that comfort that makes me uncomfortable. If you haven’t reconsidered the fundamentals of how you do business in a while, you’re probably past due. And hopefully your late fee isn’t going to put you out of business.

So with Know Your Company we wanted to reset our assumptions and eliminate a lot of the automation we usually lean on. Rather than separate ourselves from the customer, we wanted to bump into the customer as often as we possibly could.

Specific examples of things we’re doing manually that could have easily been automated

1. Sales and demos. If you want to buy Know Your Company, you have to be willing to hear our 30-minute pitch and follow along as we give you a personal product demo. There is no sign up page. There are no product shots. There’s no fancy video tour. There’s just a link to my personal email account. Drop me a note, let me know you’re interested, we’ll trade an email or two, and if we think you’re a good fit for the product, and the product is a good fit for you, we’ll schedule a demo, talk, share some stories, and show you the product.

WHY HAS THIS BEEN VALUABLE TO DO MANUALLY? There’s nothing quite like seeing or hearing the person you’re pitching. It’s never just a demo – it always leads to a little conversation. You get direct questions and you can give direct answers. You can tell a story, listen to their stories, share personal experiences, show specific examples of how you use the product yourself, etc. Emphasis can be placed on different parts of the demo based on how they’ve reacted to something earlier in the demo. Further, in just 20 minutes, they get to see every single nook and cranny of the whole product. No stone is left unturned. You can make sure they know it all right from the start.

2. Adding employees to the system one at a time. To use Know Your Company with your company, you need to add your employees to the system. Instead of making you do that, we do it all for you. You just send over a simple spreadsheet with your employees’ names, email, title, and department, and we’ll add everyone manually to the system for you. And if you hire someone new, and you want to add them to the system later, it’s the same process – just shoot over their name, email, title, and department and we’ll add them for you.

WHY HAS THIS BEEN VALUABLE TO DO MANUALLY? Being forced to enter each person manually helps you understand the types of people who will be using the system. You know (and type) their names, their titles, their emails, and their departments. There’s not just 32 people in this company, there’s Jim, Lisa, Aaron, Bryan, Jennifer, Mark… There’s a few people in customer service, a few account managers, four graphic designer, etc… It also reminds you that data entry can be error-prone and a real pain in the ass. That’s a good thing to remember when you’re usually in the business of asking people to fill out web forms with lots of fields.

3. Four stages before the product starts working. When someone signs up for a product, it usually starts working immediately. That’s because it’s automated and automated things are usually optimized for speed. But we wanted to slow that process down to four specific steps, and display those steps along side customer accounts in our admin tool. This way we could see where a specific customer was in the process. In order for someone to go from one step to the next step, we have to click/toggle the flag in our admin.

WHY HAS THIS BEEN VALUABLE TO DO MANUALLY? Having four distinct stages forces us to maintain contact with the customer every step of the way. This allows more time together, more opportunities to build trust, more chances to show them that we’re reliable and always around to help. This handholding may seem excessive, but it’s really not. All four steps usually get done within a few days. There’s not much to it, but even that little bit goes a long way to make the customer feel more comfortable with us and with the product.

4. Having the customer send out an announcement to their company. Part of the sign-up process requires the customer to make an announcement to their whole company letting everyone know why they’re using Know Your Company, what’s in it for the employees, what’s in it for the owner, the goals, the intended outcome, and how the system works so no one is surprised when they interact with it for the first time. We’re happy to coach them through the announcement, or even help them write it if they request, but we won’t turn the system on until the customer has explicitly told us they’ve made the announcement.

WHY HAS THIS BEEN VALUABLE TO DO MANUALLY? It would certainly be easier if the system sent the announcement automatically, or if the customer just had to click a button to blast out a pre-written email, but it wouldn’t be anywhere near as meaningful. By asking the customer to make the announcement however they usually make company-wide announcements, their employees will pay more attention. Some owners make company-wide announcements in person at an all-hands meeting, other post announcements to Basecamp (or something similar), and others do it via email. The point is that when they do it their own way, instead of our automated way, it has more weight and carries more meaning.

5. Generating invoices and marking them paid. Whenever there’s an invoice to be paid, we have to manually click a link to generate the invoice. Then it’s sent out to the customer via email. When an invoice is paid, we have to mark it paid manually, too. So every time we want to bill someone, and every time we get paid, we’re directly involved in the process.

WHY HAS THIS BEEN VALUABLE TO DO MANUALLY? I think it’s important early on for everyone who’s working on a product to be witness to the financial success (or not) of the product. Further, it just feels good to click a link send an invoice and later on press a button to mark something paid. Certainly automated reports could fill you in on the raw numbers, but it’s really a whole different thing to “work the register” yourself. We also pipe a “XYZ Company just paid an invoice for $2800” into our Campfire room so everyone on the project knows we just got paid.

What’s a little inefficiency worth to you?

So remember, efficiency shouldn’t always be the goal. Especially early on. If you want to learn, you have to struggle. Automating away all the struggle may teach you how to be efficient, but it won’t teach you much about your customers.

And of course at a certain point it does become worth the trade. When it’s time to be efficient, automation does make sense. I can see us automating a lot of the manual parts of Know Your Company later this year. But right now? Not yet – we have a lot more to learn.

No one was talking to the dudes in the middle.

At least, that’s how Andy Forch and Richard Greiner felt about the online retail offerings geared toward men: You could find plenty of high-end designer products hardly anyone can afford, and plenty of hardcore performance gear that’ll help you summit Everest. But the options in between — the options for regular, active guys like them, who bike to work in the city and hit the trails on the weekend — were hardly anywhere to be found.

Richard Greiner and Andy Forch

“We don’t need Mount Everest tents,” Greiner explains. “We need a tent where we can go on a little backpacking or car camping trip, something functional and well-designed. ... There’s no resource out there for ‘guys’ guys.’ Nobody’s talking to us in a way that is more conversational or more relaxed.”

“It was sort of the perfect storm of scratching our own itch and knowing there was a void to be filled because we were the target market,” says Forch. “We both knew we wanted to get our hands dirty with starting a business.”

The two were working in investment banking in San Francisco when they hatched the idea for Huckberry — a members-only, bi-weekly web magazine featuring curated apparel and gear, along with the stories behind the products.

The guys quit their jobs and used the coffee shop between their apartments as their office. Forch learned Photoshop and designed the website; Greiner called up brands and set up suppliers. Inventory started arriving at their home addresses.

“My girlfriend at the time wouldn’t come over to my house, because there were just boxes everywhere,” recalls Greiner.

‘A big dirty warehouse’

Huckberry launched in summer 2011, about five months after its cofounders quit their jobs. They invested $20,000 each at the beginning, from their personal savings. Taking VC was never much of a consideration.

“We took a few calls,” says Greiner, but “coming from the investment banking world, the thought of taking money was unattractive. ... I wanted to see if we could bootstrap it and see where we could get to. The one thing we sought more than money was advice, and we didn’t find anyone who we thought offered a lot of insight.”

Their expenses were minimal at the outset, since they weren’t paying themselves and didn’t have an office. They started turning a profit within three months.

Huckberry’s business model helped leverage the company in the beginning as well — as opposed to traditional retail, where the retailer pays the vendor and the vendor sells to the customer, Huckberry’s customers pay them first and then Huckberry pays their vendors. “Our business model is fixed cost-light and variable cost-heavy,” Greiner says. “Once you get going, you have tons of costs! But a lot of those are the result of doing business.”

They began hiring, slowly at first. “It was a big day when we got our first office,” Greiner recalls. “It’s a big moment when you realize, ‘we have a little business here!’” The reality of a dedicated space — though only 350 square feet — inspired a growth spurt, and Huckberry brought on more people. “Next thing you know, the office space is more like a closet. By the time there were five of us in this teeny office — we do all the fulfillment ourselves — this place was a zoo. It was insane with all the inventory.”

They moved to what Greiner calls “a big dirty warehouse,” which they’re also in the process of outgrowing—it’ll be time for Huckberry to move again soon. But at least the current space is big enough for a rock wall.

‘We are what we’re selling’

“Everyone here is active,” Greiner says. “We are what we’re selling. We’re weekend warriors. Everyone just kind of fits our vibe.”

“The funny thing is,” says Forch, “Rich and I came from very formal worlds, where it’s all about pedigree — ‘where’d you go to school?’ Now I’m never asked where I went to school. Here it’s like, ‘hey, you pass the airplane beer test.’ Would I wanna get stuck with you in a snowstorm? Are you gonna tell a good story?”

“We make decisions all the time that if you were an e-commerce guru, you’d hate Huckberry,” laughs Greiner. Huckberry’s twice-weekly email edition, for example, features four to six brands and their respective stories, blog posts, and a section called “Diversions” — links to interesting stories elsewhere on the web. Traditional e-commerce “rules” stress always sending readers to your site. But, says Forch, customers open Huckberry’s emails at 5-10 times the rate they do competitors’ emails.

The idea is that even if customers aren’t interested in anything Huckberry is selling, they’ll still find value in the email, and the company. “All these little tricks that e-commerce guys do, we pretty much say no to all of them,” Greiner says. “We’re trying to get people’s mind share instead of wallet share. You’re building a relationship with these people. ... Our mentality, that we are what we’re selling — people can really feel that and identify with that.”

“We try to have fun,” Forch adds. “We’re trying to build a lifestyle brand, and authenticity is a big part of that. How do you try out a new product? You take the team camping in the Sierras. We hire people to work with us, not for us — people who are doers, who go out there and get after it. It’s a fun environment.”

‘Fighting with our hands tied behind our backs’

Doers don’t come cheap, though — especially in the Bay Area.

“Bootstrapping a company is hard,” Forch says. “Bootstrapping a company in San Francisco is really hard.” Silicon Valley money raises salaries for everyone in the region, making it a tough place to compete for quality employees who’ll stick around. “Getting that talent and culture to your company is a big challenge for us.”

Being the little guy is always an obstacle as well. As a young bootstrapped company, Greiner says, “sometimes it feels like we’re fighting with our hands tied behind our backs.” Many of Huckberry’s competitors — men’s magazines, other “flash sale” sites like Fab.com — are better funded, and Huckberry doesn’t have millions to put toward advertising.

Instead, they’re focused on growing in a “natural and organic” way, says Greiner: “finding and establishing partnerships with like-minded people who have the same values. We don’t take the buckshot approach. We go out and find people that we really believe in, that we really trust, and we partner with them on an intimate basis.”

The next eight innings

At this point, the cofounders have no plans to sell — they make all decisions as though they’ll be running Huckberry indefinitely. The company employs 12 people and enjoys a run rate of mid- to high-seven figures in revenue, just a couple years after launching. Forch and Greiner are pleased with that kind of progress, but they operate as though they’re in the first inning of a nine-inning ball game.

Next steps include expanding the content side of the business, and exploring other initiatives like a brick-and-mortar presence, a private label, and event hosting — whiskey tastings, a concert series, fly fishing demos — “all these touch points that people can really identify with,” Forch says. “We’d like to go into something knowing we could be one of the best at it.”

‘You always throw out your first pancake’

“The great thing about being small and nimble,” says Forch, is “if you try something and it doesn’t work — OK!” Huckberry’s size allows for experimentation and gives the company a certain level of agility. A few months after launching, for example, they tried out a different sales model — and caught hell from their customers. They went back to their original plan right away. “You sort of know that when you find something that works, do more of it, and when you find something that doesn’t work, don’t do more of that.

“You always throw out your first pancake,” Greiner says, echoing advice he received earlier in his career. “Point is, just go out and do it. Start it. Don’t worry about problems that you don’t have. Don’t overthink and overplan. Your first business plan, your first design, is gonna be thrown out. You learn so much by doing, so get out there and do it.”

Visit Huckberry.

“Bootstrapped, Profitable & Proud” is a Signal Vs. Noise series highlighting profitable companies with $1 million+ in revenues that didn’t take VC.

Yesterday I did an extended Q&A session at Techstars Chicago. Great group, great questions. I really enjoyed it.

Before the talk, Troy, the guy who runs Techstars Chicago, showed me this board they had propped up on an easel outside the office.

The board listed every company in the current Techstars Chicago class, along with some numbers. The columns included inventory, inventory sold, remaining inventory, and net profit.

Here’s a picture of said board:

These are the results from the challenge. But what was the actual challenge?

The challenge

Each company was told to go sell bottled water. Each company had to decide how many bottles of water they wanted for their inventory. They couldn’t get more later. They had one set of inventory and that was it. They could charge whatever they wanted per bottle.

A few other rules… They couldn’t sell them in the Merchandise Mart (which is the massive building where Techstars Chicago is headquartered), so they had to hit the streets to find buyers.

I believe they had one day to sell their water.

Observations from the results

• The companies that were over-confident lost the most money. In this case I define over-confident as taking on too much inventory.
• 75% of the 40% of the companies that were profitable ended up with zero inventory. If they had a second chance, I wonder if they’d increase the price of their water. It’s impossible to tell from the board when the companies with zero inventory ran out of inventory, but they may have been better off selling their bottles for more and ending up with just a few extra at the end rather than zero. Does zero mean they underpriced their product?
• It’s a lot better to only sell 110 bottles and make a profit of $108.60 than it is to sell 868 bottles and end up losing $331.20. Again, impossible to tell from the chart, but I wonder how much work went into selling 868 bottles only to lose $331.21 compared to how much work went into selling 110 bottles and ending up with a $108.60 profit.
• The top two sellers (Peoplematics and Project Fixup) both lost money.
• SocialCrunch, the company that ended up with the highest profit, were sitting in the front row at my talk ;)

I wonder if the results in the water challenge will mirror the results of the companies themselves if/when they get their own actual products to market.

Overall, I love this exercise. I think this is a great idea. No matter what you do in life, selling is a core skill. And there’s nothing quite like having to hit the bricks and sell your wares. It’s the best teacher you’ll ever have.