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 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, a site that helps consumers save money on their insurance.

homeBut 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.

basement 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.”
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.”

More “Bootstrapped, Profitable, & Proud” posts [Signal vs. Noise]