Below: Q&A with Dan Clifford, Co-Founder and Managing Partner of AnswerLab. This is part of our “Bootstrapped, Profitable, & Proud” series which profiles companies that have $1MM+ in revenues, didn’t take VC, and are profitable.

What does AnswerLab do?
We provide user experience research and consulting for web, mobile and software applications. Our research helps clients improve areas that are confusing or frustrating, so that they can deliver compelling products that are easy to use.

The market research industry exists because of basic human nature – it’s really challenging for people to truly put themselves in other people’s shoes.

We help clients understand how their products are perceived by their target customers. For example we recently conducted a study for a company that was producing games for the iPhone. The development team learned that users had trouble understanding the game rules, however once they understood the rules they loved the game. Without user experience research the team would not have known about this critical roadblock to game adoption.

small biz This San Francisco Business Times story on AnswerLab shows Founders Dan Clifford and Amy Buckner.

How successful is the business?
We’ve been very happy with the success of the business. AnswerLab is approaching its 6th anniversary. Each year, we’ve been profitable and have grown our year-over-year revenues. Our top-line revenues have already been made public since we were on the most recent Inc. 500 list of fastest-growing privately held companies. In 2009, our revenues were $2.7 million. Our run-rate so far this year exceeds that so we expect another year of record revenues. We often compete and win against $1 billion+ research firms. Clients that choose us are industry-leaders such as eBay, Yahoo, FedEx, Electronic Arts, ESPN, and more.

How did you fund yourself at first?
My co-founder Amy Buckner and I funded the company ourselves. The nice thing about a professional services firm is it doesn’t take much capital to get started. All you need is a couple of phones and laptops. Add a website and you’re in business.

Amy and I continue to own the business and we haven’t taken on investors. We’ve both worked at multiple companies before starting AnswerLab and saw that the demands of outside investors to hit quarterly numbers can really impact the relationship companies have with their clients. Pressuring a customer to ensure that they sure they sign your agreement before the end of the quarter does not create a trusted advisor relationship.

focus group
Card sorting studies help clients develop a site navigation structure that makes the most sense to their users.

How many employees do you have? What do you look for in people you hire? What advice would you give to others about hiring?
There are 19 of us now and we’re continually recruiting so we can add the best & brightest researchers as we identify them.

A couple thoughts on hiring – first, culture fit is extremely important. Culture can drive employee achievement more than management or processes. If company management disappeared for a month the AnswerLab culture of thinking creatively, responding quickly to clients and helping team-members would continue to drive our business forward.

Second, when interviewing, seeing a skill first-hand is better than hearing about a skill. Lots of people are better at interviewing than they are at doing the actual job. So our analyst candidates do an analytical exercise as homework and present the results to us. I hired a marketing contractor where the entire interview was spent editing and discussing website copy. In this session I learned not only about her writing skills, but her ability to work efficiently and to communicate her thoughts with me. For anyone in a client-facing role, we look carefully at their cover letter and follow-up emails after our interviews. This approach allows us to eliminate surprises. It also ensures we’re hiring A players who are the right fit for their role.

The majority of the AnswerLab team.

You compete against much larger firms. How do you convince clients it’s not a risk to go with a small firm?
For one we’re amazingly responsive. We can quickly pull together a group brainstorm and turn decisions around on the spot. Our clients are moving quickly and we keep up with them. This is valuable to clients and a clear differentiator.

Our long list of delighted repeat clients also provides prospective clients with comfort. When they see that we’ve already been vetted by companies like Microsoft, CBS Interactive, FedEx, Honda and Genentech, they understand that we have the team in place to meet their needs.

Many professional service startups begin by targeting small companies, then try to scale up to larger companies. While it can be easier to land small clients, they don’t provide strong reference value when you want to work with the bigger guys. Our strategy from the very beginning was to work with industry-leading companies. Our first clients were Honda and General Motors. This means more effort and longer sales cycles at first, but it makes building subsequent relationships much easier.

“We like our office, although we’re moving to a bigger one in mid-July, also in downtown S.F.”

How do you differentiate yourself from competitors?
When you tell friends about a new restaurant that you’re excited about, you describe not just the food but the full experience. It’s the experience that matters and what is most memorable.

The same dynamic applies when you choose to work with a professional services firm. At AnswerLab we’re known for providing a great client experience, from start to finish. Clients are busy, so we make it a point to bring up issues they may not be thinking about and suggest alternatives. We’re flexible in meeting the needs of changing development cycles. We have an independent firm (to remove any bias) call every client after each project to understand what went well and how we could improve. We track our Net Promoter score and compare it to best-in-class benchmarks across industries. We also hold internal debrief meetings after every project to understand the successes and address any challenges we encountered to make sure we can do even better next time.

How much does AnswerLab embrace risk?
When it comes to risk we’re definitely not the Silicon Valley type of company that raises five million dollars in V.C. money and then hires a team of 50 people to try to turn that into a hundred million. That’s risk.

With that model, there’s financial risk of course but there’s also a huge risk that you’ll lose control of your company. Investors expect a return… and quickly. The financial return and an “exit” is the goal.

We took an approach that is lower risk. We grew incrementally. We hired people when there was demand for our services. We grew office space as we needed it. This type of growth doesn’t require investors. So we have the freedom as founders and as a team to make the type of choices that we believe are best for the business.

An AnswerLab website usability session.

You’ve said, “We’re really big on productivity.” Any examples?
None of us are a fan of tedious work, so we make constant efforts to use technology and process to eliminate repetitive low-value-add tasks. A simple example is timelines. We send project timelines in our proposals to clients. While we’re discussing the project the start date often changes, which pushes the timeline out. We used to manually change all the dates, which was tedious. So we built an Excel sheet that automatically calculates new timelines just by changing the start date. When we incorporate twenty small pieces of automation like this, the minutes add up to hours.

We’re also big on checklists. Without checklists everyone has to keep too much information in their heads. We prefer to leave the thinking time for our client-focused work. We have a quality control checklist that we use when reviewing a report before it goes out to a client. There’s a checklist for questions to ask a third-party recruiting firm that’s recruiting international participants. Checklists are also a great way to retain knowledge. If we have an oversight in one project we can add that item to the checklist so everyone knows about it for the next project.

What advice do you have for someone considering starting a business?
The first step is the hardest. Just take the first step and see where that takes you. The first step might be doing some online research and talking to potential customers to discuss ideas. That first step can give you the confidence to jump to another step and another. Sometimes we get stuck when we think of steps one, two, three, four all at once. Just do step one. Then decide what’s next.

When it’s just you it’s daunting to think of competing against large companies. But you’re not really doing that in the early stages. All you need to do is connect with one client and impress that one client with your work. Then they’ll hire you again. Then they’ll refer you to a colleague. And before you know it you have a brand than can stand toe to toe with the bigger guys.

Visit AnswerLab’s site
More “Bootstrapped, Profitable, & Proud” posts [Signal vs. Noise]