Braintree’s Bryan Johnson will answer your questions in the comments section.
In 2003, Bryan Johnson (right) was hired for a commission-only job selling credit card services to businesses. “I was broke,” says Johnson. “The job was brutal. Business owners were tired of the industry’s deception and trickery and didn’t hesitate when given an opportunity to vent.”
Johnson quickly excelled, though. He became the top salesperson out of 400 nationwide and broke the existing sales record during his first year. His secret? “I simply figured out that businesses were looking for thee things: honesty, education and reliable service. I filled that gap and was received warmly. I also worked my tail end off.”
But by 2007, Johnson was sick of working for a big corporation. He says, “I concluded that I’d rather live poor and hungry than work in a large, bureaucratic and political environment where I personally couldn’t see how my efforts created value.”
He started figuring out what it would take to do his own thing. “I figured that I needed to make at least $2,100 a month to leave,” he explains. “My wife and I had learned to live quite frugally. I had started a few other businesses before, so this uncertainty and financial risk was something I was accustomed to. I had a single objective: Get back into the saddle. I was going to do whatever it took to get there.“
He took a few days off work and flew out to Utah, where his old customers resided. He asked them if they’d switch their processing to his new company, Braintree. Quite a few of them did, collectively generating $6,200 a month. Braintree was officially up and running.
Premium, not freemium
Early on, Johnson decided to stay away from the freemium model so popular among tech companies. “My experience in the payments industry told me it wasn’t for Braintree,” he explains. “We offer exceptional service during the sales and application process that continues after a merchant is set up with us. This level of service is too costly for a free account.”
So Braintree went the opposite route and charged a premium. It started with a $200 monthly minimum, which it’s since lowered to $75. “At $200, our minimum was 4 to 8 times higher than our competitors,” says Johnson. “Applying a floor helps the right kinds of customers self-select our services. After all, we’re as interested in having the right customers as they are in having the right provider.”
Who are the customers Braintree decided to write off? “It was a fool’s errand to try selling medicine to those who hadn’t yet experienced pain. Payment processing is complex. It’s difficult for inexperienced merchants to recognize value. We’d spend countless hours trying to explain ‘pain’ and our cure but some just didn’t care because they hadn’t felt it yet. With our limited resources, we had to figure out a way to work only with those who valued the medicine we were offering.
“We did take some grief for our higher minimums, but when we did, we’d politely explain that there were other, less expensive options in the industry, which may have been a better fit. I think staying firm often created an inverse effect, causing people to value us more than they did initially.”
The formula is working so far. In 2010, Braintree generated $4.5MM in revenue, grew from 15 to 24 employees (now over 30), and doubled its customer base, according to Johnson. It powers payments for companies like LivingSocial, Github, OpenTable, and Animoto. And 99% of its customers come through word-of-mouth. “We’re on track to do $8 or $9 million in revenue during 2011,” Johnson says. “We also expect to rank among the top 50 on this year’s Inc. 500 list.“
Johnson is quick to note the difference between Braintree and other emerging payment companies. He says, “Four of these companies have raised around $40 million each and have roughly 3-6 times the personnel we do.”
Johnson feels that necessitates a different approach. “For many, raising a lot of money is accompanied by baked-in assumptions for how a business should be built,” he says. “The playbook typically calls for a large executive team and a few layers of management, which is very expensive. I think VC-funded companies are more inclined to throw money and people at opportunities and problems. This approach works for some, but there are other ways to build a successful business. Growing on our own dollar has granted us the freedom to do what we want, when we want, and how we want.”
It also forces Braintree to embrace constraints. “Without outside capital, we have to make do with less,” says Johnson. “Constraints are a beautiful thing because they force creativity and precision. We don’t have the resources to throw after hit-or-miss hires or strategies. Bootstrapping a business requires a different mentality. It’s taught us to be frugal, hire slowly, and exercise caution as we grew the business. While companies that take funding can do those things, people have a tendency to behave differently when it’s not their money on the line.”
“People have a tendency to behave differently when it’s not their money on the line.”
More than revenue matters
Braintree avoids chasing revenue simply for revenue’s sake, according to Johnson. He explains, “We believe that success is also measured by what our customers say about us, how people feel about working at Braintree, and how our contributions are making the industry a better place.”
Focusing too much on revenue can be dangerous, he believes. “That pursuit can take on a life of its own and — if left unwatched — can undermine the very things which made you successful in the first place. I think there is a great lesson in The Little Shop of Horrors,” he explains. “After conceding just a single drop of blood, Seymour’s peculiar plant begins a radical transformation from cute to terrifying. In the end, the beast’s insatiable thirst costs Seymour everything, drawing his brutal demise. In a similar way, chasing revenue at the expense of other values is a slippery slope fraught with danger.”
The Braintree office.
An insane industry?
Braintree is also trying to improve what Johnson sees as “an unscrupulous and broken industry” that he says lacks sanity, fairness, and transparency. Credit Card Data Portability is one especially sticky area. “Just as you couldn’t transfer your phone number before 1996’s Telecommunications Act, payment providers had been holding customers’ stored credit card data hostage,” he says. “To address this significant problem, we created a Credit Card Data Portability Initiative and wrote an open letter to the CEOs of two big providers, inviting industry cooperation. Many industry insiders initially dismissed the effort, but, in the last 90 days alone, we’ve worked with every major provider to facilitate a data transfer to us.
“The issue is important to us because first, it’s the right thing to do. Second, we are the newcomer and the little guy – relatively speaking – and are therefore at an unfair advantage when existing merchants working with large, incumbent competitors want to switch to us. The size and scale of our competition has, in the past, allowed them to throw their weight around and hold data hostage, simply to avoid competing on merit alone.”
An eclectic office
Braintree has an eclectic office in Chicago that consists of two large, open rooms, and pixelated old-school Mario decals on the walls. There are no offices, no managers, and no dividers. “It does occasionally get chaotic, but it’s a trade-off we make for collaboration and enjoyment,” says Johnson. “We all make an effort to spend time together outside of work. We eat lunches together, have events at each other’s houses, and organize outings for everything from cooking classes to concerts. We also organize and pay for after-work activities, such as Whirley Ball and Bulls’ games. We try to do one per month.
Establishing crystal clear expectations: We try to bare it all because we’ll be waking up together for some time. For example, in our job postings we have a section titled, “What you would have done last month had you been with us” (which can include as many as 30 bullet points). We also have a “DO NOT APPLY if…” section, which we believe speaks louder to those we’re targeting than those we’re trying to deter.
Requiring a “connection” to ensure they “get us”: We look for people who jump out of their seats to say, “This is what I’m looking for!” We expect this to happen because we send enough smoke signals in our job posts to connect with people on meaningful levels. We want passionate people who care deeply about their work environment and value the same things we do. Lukewarm applications don’t survive.
Predicting future behavior with past experience: Trusting good intentions or best guesses is worse than flipping a coin. Our belief is that past performance is the best predictor of future success. We want all the context and details of an applicant’s prior work experience.
“For us, ‘culture’ is the totality of social behavior, beliefs, thoughts, work, and organization. It’s not created from a company retreat and it doesn’t take shape from a vision statement. Instead, we treat it as a living organism – the sum of all inputs.”
It hasn’t been all smooth sailing though. “Hiring has been our most difficult challenge,” says Johnson. “We’re extremely picky about who we hire, and we’re growing so fast that we’ve been treading water to keep up. We used to hire when it hurt, but have since adjusted to stay ahead of the curve wherever possible.
“We’re not only fanatical about hiring the right people, but about determining if they’re the right fit once they join. Fits and misfits are readily identifiable. A bad hire can’t be swept under the rug or ignored because they can’t be sent to a different department or overlooked.”
These days, there’s lots of talk of “following your passion.” But can you really be passionate about credit card processing? “I’m not particularly passionate about payments, but I am passionate about trying to build a good company,” says Johnson. “I tell entrepreneurs to ask themselves ‘What do you think about when you are not required to think about something else?’”
Johnson also advises starters to be wary of trends. “It’s easy to get caught up in the latest fads, what’s considered ‘sexy,’ and those getting all the attention today. Chasing these things can—at times—be right on, but they can also be a fool’s errand. Often, the best alternative is simply finding and solving an old, boring problem.”
This is part of our “Bootstrapped, Profitable, & Proud” series which profiles companies that have over one million dollars in revenues, didn’t take VC, and are profitable.