This is part of our “Bootstrapped, Profitable, & Proud” series which profiles companies that have $1MM+ in revenues, didn’t take VC, and are profitable. Note: Seth Kravitz of InsuranceAgents.com will respond today (12/7) in the comments section to reader questions.
The liability of growth
“In 2007 we did $750,000 in revenue with five employees. In 2008 we did $12 million with twelve people,” says Seth Kravitz of InsuranceAgents.com, a site that helps consumers save money on their insurance.
But it was far from a dream, according to Kravitz. “Every time I mention explosive growth as a huge potential liability there are lots of confused looks,” he says. “How could the revenue exploding possibly be a bad thing? All of a sudden our little five person startup went from $750,000 in revenue to $12 million in 11 months. We had to hire like crazy, expand our development platform like crazy, expand our customer service, payment processing, banking, everything imaginable.
“We had never really had HR issues and now all of a sudden we had to deal with employee troubles, benefits programs, and revamping of hiring practices. Our phone systems couldn’t handle the volume of calls we were getting. Our servers couldn’t handle going from processing 500 leads a day to 11,000. Suddenly, it felt as if the company had grown a life of it’s own and we were simply along for the ride. Every day was spent playing catch-up that year and it probably shaved off 10 years of our lives with the stress. Like so many before us, it could have destroyed the company, but we luckily got through it.”
“Suddenly, it felt as if the company had grown a life of it’s own and we were simply along for the ride. Every day was spent playing catch-up.”
The company decided to actively hit the brakes on growth in order to examine all aspects of the business — from the way they hired, to training, to customer service, to the call center. Kravitz says, “We slowed our sales down to rebuild our entire platform, increase stability, and code some new features designed to increase revenue.” Now that process is done, the focus is back on growth again.
The partners meet
What drove Kravitz, a college student when the company was founded, to the unsexy world of insurance? “It’s certainly not the flashiest profession in the world, but it is a very useful one,” according to Kravitz. “Our concept was to build a service where anyone in the US can hop on our site and start comparing rates from up to five local insurance agents.” The site then generates revenue by helping agents find new customers.
Kravitz and Lev Barinskiy, his business partner, originally met at a party on the Ohio State campus their freshman year. Kravitz says, “To be honest, we really didn’t like each other as far as first impressions go. We were both straight out of high school. Really just a couple of kids at that point and we acted like it.”
About two years later, they met again through a mutual friend. “Once we sat down and really got to know each other, everything changed,” says Kravitz. By this point, he had started a small web design company and Barinskiy had started a successful insurance agency. Barinskiy mentioned that he wanted to start building insurance websites and needed a partner to get it going.
InsuranceAgents.com co-founders Seth Kravitz (left) and Lev Barinskiy. (Photo: Jonathan Robert Willis for Inc.)
A shoestring operation
Within a week, they were working together out of Barinskiy’s parents’ basement on a couple of plastic folding tables from Home Depot. “We ran an ethernet cable out of his bedroom window down the outside of the house into the basement to get online down there,” explains Kravitz. “He owned a food cart business serving Ohio State football games, so in his basement he had stacks of candy and chips. That means lunch most days consisted of standing up, walking to the corner, grabbing a Kit-Kat and walking back to the desk.”
“We ran an ethernet cable out of the bedroom window down the outside of the house into the basement to get online.”
It was a shoestring operation through and through. Kravitz took a $500 a month salary, lived in a dirt cheap studio apartment, and used credit cards and personal loans to pay the bills. Barinskiy survived off his insurance agency revenues. As the company grew, they hired part-time workers, contractors, and employees who were startup driven and didn’t care about getting big paychecks or working in a dirt cheap office space.
Since they weren’t spending much, funding wasn’t necessary. They were profitable from their first month in operation and made around $100k in revenue the first year.
More from Seth Kravitz
Find the right business partner
Kravitz says, “You need to balance each others strengths and weaknesses, you need to have a common shared vision for the startup, and the person needs to be someone you feel you can instinctively trust.”
What to do when the money runs out
Excerpt: “Are you out of money because your business model is flawed and/or your management is terrible? Or are you out of money because of an unforeseen problem or something outside your control? Think about that long and hard before you decide to keep going. Sometimes shutting down is the smarter choice.”
Technori.com
A publication Kravitz launched Nov 1st that “celebrates entrepreneurship in Chicago.” (The company now has a second office in Chicago.)
Nonetheless, there were plenty of negative opinions floating around at first, according to Kravitz. “All the naysayers from family to friends to advisers of all sorts telling us to focus on college or focus on getting careers. Competitors and other insurance industry ‘experts’ telling us there was too much competition and that the big players had been doing it for far too long for us to make a dent,” he says. “Most didn’t think we would last even six months. A lot of people didn’t understand the business model so they gave us bad advice, which we luckily recognized quickly.”
The hurdles
That period of rapid growth wasn’t the only difficult time. One of the biggest problem areas the company faced was hiring and training. “That was a big mistake at first. You need to be surrounded by good people, I can’t stress that enough,” he says.
What does he now think are the keys to hiring and training? “Patience,” he says. “Having the patience to sit through 10+ interviews for each position you are hiring to find the right person. At first we just hired as people would come in and we took them at their word. Huge mistake. Never do that.
“As for training, we now have an actual training center in our office that every new employee, no matter what position they are being hired for, must go through. It’s made all the difference in the world. We never had the patience to sit there and train every single new employee early on. But over time, we realized it costs so much more time and money to fix their mistakes later on.”
“We never had the patience to sit there and train every single new employee early on. But over time, we realized it costs so much more time and money to fix their mistakes later on.”
Another major obstacle was signing up agents. “There have been so many fly-by-night lead generators in the past that the industry has slowly built up a love-it or hate-it reputation,” according to Kravitz. “Breaking down those barriers and proving to the agents that we actually sell high quality leads is a big barrier. We do a lot of email marketing and cold calling. It might be the ‘old-school’ way of doing it, but it works over and over.”
Despite its current success, the company’s cash has actually come close to drying up at times. “There have been many months where money got tight for one reason or another, like when we would do a big media buy and they needed to be paid up front,” explains Kravitz. “Those were incredibly stressful moments when you have to hand over the majority of your available cash.”
It all worked out though. Revenue is strong and the company is now ranked #24 on the 2009 Inc 500 list. Kravitz credits the company’s profitability on its frugality and heavy reliance on technology to automate processes.
Ohio State football gameday at the office.
The motivation challenge
As the company matures, a big challenge has been keeping employees motivated and, well, just keeping employees. Kravitz admits, “We have lost some amazing employees and who knows how many hours of work to a lack of motivation. In particular, when I say motivation, I mean losing people because they didn’t feel challenged enough and didn’t find the work fulfilling enough. This is something we have worked very hard on improving and our employee retention is the highest it’s ever been, but for the first few years we struggled to keep anyone.”
Kravitz’ three tips for someone starting a business
1) Be dirt cheap on the things that don’t really matter (office space, computers, desks, etc.) and spend a little extra on the things that do (employees).
2) You don’t have to pick something you love to do necessarily, but it should be something you truly enjoy and get a good amount of fulfillment out of. I love reading books, but I would hate to be a book reviewer. What you love to do in your personal life, many times doesn’t translate well into a business. Instead focus on something you find interesting or something you are very good at. The easiest businesses to grow are the ones that solve a problem because you have an immediate potential pool of buyers.
3) Focus on making a profit from day one. Without profit, you won’t exist after a certain amount of time, so it better be a top priority from day one.
“Insurance is not an exciting industry, but that doesn’t mean the work can’t be meaningful. We had to find ways to make the work more fun, make the environment more family like, and show people the positive impact of what they do. It wasn’t easy, but I think we have come a full 180 degrees from where we were.”
Though it may sound contradictory, the company is trying to build an environment that’s both laid back and fast paced. Kravitz says, “We encourage people to experiment with ideas they come up with and we avoid the strict corporate structure you find all across the insurance industry. It sounds cliche, but like many internet companies we have lots of games in the office. Ping pong, Foosball, pool, Wii, Playstation, etc. We encourage people, if they are feeling flustered or upset, to step away from the computer for a few minutes and relax. We also have company picnics, chili contests, pizza lunches, and costume contests.
“At the same time, we love to work fast and get our products out there. We don’t see any point in developing something for a year before launching it. We like to push our new features live — honestly, sometimes before they are truly ready — to see what the feedback is and what we can improve. So, you can say we like to keep pushing things and never get too comfortable. You get comfortable, you get forgotten.”
“We never get too comfortable. You get comfortable, you get forgotten.”
Related:
Visit InsuranceAgents.com
More “Bootstrapped, Profitable, & Proud” posts [Signal vs. Noise]
Seth Kravitz
on 08 Dec 10Thanks for the great article! You guys rock.
Radford Harrell
on 08 Dec 10I must say I love these write ups. Not only does it renew our focus on profit vs outside capitalization, it reminds me that starting or creating things is messy. And that’s okay.
A great story, thanks for sharing guys. I’m struck by how easy it is to forget that a company is just a unified group of humans. And we all know humans are messy. Focusing on the value of the work for retention surely translates to productivity and quality for the company itself. What a great insight.
Seth Kravitz
on 08 Dec 10@Radford
Thanks! Our startup was very messy. Things never seem to work out the way you think they will when you start a company. Especially the more people you throw into the mix, things can get out of control quickly.
Scott
on 08 Dec 10Thank you for sharing this story and your great insights. I’m curious, how did you come about your interest in Chicago entrepreneurship (Technori.com) when you’re located in Ohio?
Scott
on 08 Dec 10nm, I see you have a Chicago office. Thank you.
Seth Kravitz
on 08 Dec 10@Scott
I moved to Chicago in 2008. Our creative office is here (designers, writers, SEM). Realized really quickly that there are so many amazing tech startups here that I figured someone needs to start talking about this. So, got together with four other people and formed Technori
Edgardo
on 08 Dec 10Well, the site is down now (at least from this part of the world). Hardware failure? :)
Timothée Boucher
on 08 Dec 10I wonder what people around here would think regarding the work environment. Would it be ok to work on a netbook rather than a MacBook because you can get three of the former for one of the latter?
I understand the spirit of what you’re saying (I don’t care about office space and desk myself), but since employees are already so expensive, is the relatively little savings on desk and computer worth it?
Scott
on 08 Dec 10I agree with Timothée that office space, computers, and desks do matter to attract and retain employees and therefore do matter to the business.
Seth Kravitz
on 08 Dec 10@Edgardo We have been pushing some changes live to the site all day. So, yea it has been down for a couple minutes here and there.
@Timothee The point I am making, and I understand it doesn’t come across clearly in my wording, is that we spend the money on bigger salaries and better benefits for our employees. We don’t want to employ someone who cares about the difference between sitting at a $100 desk vs a $500 one. They don’t have the correct mind state for a lean company like ours.
@Scott I think it varies dramatically industry to industry. What works for us, would never work for a law firm, a bank, or an architecture firm. They need to have spaces that feel luxurious, beautiful, and smell of success.
Steven
on 08 Dec 10How did they get the great domain name InsuranceAgents.com?
Seth Kravitz
on 08 Dec 10@Steven We got it the exact way you would imagine; we bought it from another company. Purchased it from a company in Colorado that was using it as a directory of agents. We negotiated for about nine months to close the deal.
Seth Kravitz
on 08 Dec 10@Steven We got it by purchasing it from a company in Colorado that was using it as a directory of agents. We negotiated for about nine months to close the deal and it wasn’t cheap.
David Andersen
on 09 Dec 10These posts are absolutely fantastic. Love them all. Love the (successful) dismissal of all the conventional wisdom BS. Thanks.
Adam Strong
on 09 Dec 10Hey Seth, good to see you get some props. We met in Chicago briefly. I’m friends with HK.
So you say “and spend a little extra on the things that do (employees).”
domains too? How important was the domain to being profitable in the first month? and what’s “wasn’t cheap” ? ;)
Hamid
on 09 Dec 10Dear Seth,
Your story is great and I’ve learned many things indeed. Thanks for sharing it. I’m look forward to hearing from you more.
Wilman
on 09 Dec 10Great article! I love these sort of articles because we can learn from others experiences.
In this case what they commented about motivation is something to keep an eye on. Sometimes large corporations fail at this point, since they only consider bonuses and extra benefits as the only way to motivate their staff and unfortunately they lose focus on the real motivation, which is give actual consideration to what you’re producing.
Extra money is not always the right solution when there are other more important motivational triggers like, congratulate your good results, consider the importance of your work and observe how to improve it when possible.
In a nutshell, a good manager should encourage their team, guide them but also make them feel comfortable with what they’re doing.
IMHO
David O.
on 09 Dec 10How did the media buy perform ? Based on personal experience and reading rework and getting real I would advice most bootstrapped startups against media buying. SEO, guerilla marketing, meritocracy, and having a interesting story are much better forms of marketing. But I suspect insurance market could be an exception because everyone needs some sort of insurance.
Michael
on 09 Dec 10I like almost every profitable and proud, and I REALLY liked this one. Nice work, Seth and Lev.
Seth Kravitz
on 09 Dec 10@Adam I remember meeting you at the Courtyard Marriott. We were profitable when we bought the domain and paid in cash. It’s made a huge difference in our branding.
@Hamid Thanks! Glad I could share.
@Wilman Couldn’t agree more. Making people feel good about their work and giving praise when it’s due is a hell of a lot more effective than just giving someone a gift card to Target.
@David O. As far as media buying goes, they were always very strategic media buys. Not large networks like Yahoo, but specific niche publications or individual sites. Media buys can be a terrible investment if you don’t know what you are doing.
Jake
on 09 Dec 10I want to thank the 37signals guys for doing a profile that isn’t all hugs & roses—that highlights real, nasty challenges of running a bootstrapped business.
To Seth, I’m curious how (or whether) you’ve been able to keep a consistent culture between your engineering and sales/marketing folks and if you could comment on that a bit.
Seth Kravitz
on 09 Dec 10@Jake Honestly, it’s really tough to meld the cultures of a developer team and the sales/marketing team. Just by the very nature of the work and focus, they don’t typically share a lot of the same personal interests, projects, etc… The more you can get any department of your company to intermingle and share a lot of the same goals, values, culture, etc… the better.
I will say though, that if you can find a good coder with a mind for marketing and sales you have got an incredibly valuable person on your hands. A developer that understands the underlying business practices of the company is worth their weight in gold. Not sure that relates to your question, but hopefully that helps.
Duncan Kinney
on 09 Dec 10Your link
More “Bootsrapped, Profitable, & Proud” posts [Signal vs Noise]
This – http://bit.ly/ccc5C7
Doesn’t work
Philipp
on 10 Dec 10Reminds me of The Little Shop of Horrors. You plant, cut a little bit here and there, use fertlizer and all of a sudden the thing comes alive.
Vic
on 10 Dec 10Great writeup. Very inspirational. While I haven’t rebounded quite as quickly as you guys have, I had to stop growth and reboot earlier this year. But it has worked out very well so far and it’s nice to see some validation of the concept. I have been able to properly understand how to do business at a slow pace, rather than at break neck speed.
I couldn’t agree more about hiring. It is really one of those critical “make-or-break” aspects of business.
Great work Seth and Lev, keep it up!
Tom Davenport
on 10 Dec 10Great article! Friend of mine (and fellow basecamp user) @ CDG Interactive shared it with me. Extremely relevant as I started an insurance agency from scratch a few years ago and plan on checking these guys out to help me grow. And – it’s taken me a while too to learn the same lessons. Great people are the key to a great company. Great job guys!
Seth Kravitz
on 10 Dec 10@Phillipp Never thought of it that way, but yea it is kind of like the little shop of horrors plant. We were just pruning one day and the next thing you know it’s trying to kill us.
@Vic Thanks! Hope your “reboot” works out for you guys. Find a good hobby to help you manage the anxiety during it.
@Tom We would certainly love to have you as a customer. Call us sometime soon and we can set you up.
James R
on 10 Dec 10Great series! Love reading these stories, keep em coming!
Michael Jones
on 10 Dec 10Great article! I’m starting my own company from zero and love reading,”At first we just hired as people would come in and we took them at their word. Huge mistake. Never do that.” HA! I can already tell that hiring friends and family who just want a job is going to be tempting. Perhaps this is the motivation I need to hold out for the right person. Thanks!!
David Martinez
on 11 Dec 10Great read. Nice display of tenacity while being flexible enough to see your weaknesses and grow! I was interested in the article since I’d like to have a start-up one day. I do share similar beginnings of having my own web design shop, which was lucrative when I worked my ass off, but I currently have a full time job and and working on some blogs that I hope will generate ad revenue later. Thanks for the inspiration!
Seth Kravitz
on 11 Dec 10@Michael Beyond being patient with the hiring process, I am a big preacher about not hiring or partnering with family and friends. It just brings an entire new set of potential issues, stress, and risk that you don’t have when you just hire typical employees.
@David Having a small design shop can be a big tool to use for bartering for services. We designed websites for our lawyers in exchange for free legal, with our landlord in exchange for free rent, and with our accounting form for free tax filings. It’s one of the most useful skills these days, so use it to your advantage.
yosep
on 12 Dec 10I LOVE THIS ARTICLE!!!! Well, I am not sure if Seth is still answering any questions come up here; I hope he does. :) You mentioned that your company was making $750K in 2007 with five people. That’s really awesome. However, I can’t stop guessing when the company was founded. I have tried to find that out on your company’s “about us” page, but it didn’t mentioned anything about company’s history (it would be really cool to share the story there). Basically, I would love to know how long it took you and your partner to start feeling a strong sense of success as it showed in the year of 2007.
Thank you very much for your insight and the true inspiration!!!
Seth Kravitz
on 12 Dec 10@Yosep As stated in the article above, we started in 2004 out of a basement with two people. By 2007 we had a full time developer, couple sales people, and a designer. Then we made a couple changes to our business model and 2008 was the year we experienced the huge growth. So, really it wasn’t until early 2008 that we really felt like we were finally growing. By the middle of the year things started to grow too fast.
Dane Maxwell
on 12 Dec 10Seth three questions. What sparked your tipping point from 500 leads per day to 11000 leads per day? What were your traffic sources?
2: What do you try and keep your CPL at? 3: Do you shoot for 10% Profit Margin, or higher?Seth Kravitz
on 13 Dec 10@Dane We started an affiliate program and we tripled our PPC. No magic formula or anything. Traffic sources are everything you could imagine (PPC, SEO, email, CPM, social media). CPL is higher on our PPC than anything else and definitely lowest on SEO and email. 10% is an OK starting point, but in the lead gen industry I would say that’s pretty low.
Ace Bhattacharjya
on 14 Dec 10Seth,
What an awesome article—congratulations on your continued success. Two quick questions:
1) how do handle your backlog of new features? 2) What measurement tools do you guys like outside of Google Analytics?
Seth Kravitz
on 15 Dec 10@Ace As far as features go, we learned the hard way that everyone can’t just jam their feature requests in the development queue. In the past, different people would stroll into the dev office and say, “we need this XYZ feature created, make it a priority.” That chain would continue and continue until we end up with ten projects, all 80% completed, and nothing ever getting finished.
So, we decided to implement a few strict policies. 1., we made a development calendar that planned out projects for typically two months forward and we stuck strictly to it. 2., We no longer allowed anyone to bring ideas directly to the coders. They now go through our project manager and delegated if they actually show true potential to make a business impact. 3., We have a set day every week that is our rollout day. Nothing jumps the queue and gets rolled out on any other day.
Outside of Analytics we use a lot of tools. Reinvigorate.net for real time analytics and heatmapping. Unbounce.com for landing page optimization. UsabilityHub.com for design/UX testing. KISSmetrics.com for polling and user feedback. Plus a bunch of internal tools we built for specific functions.
This discussion is closed.