A Window Into the Mind of NC Serial Entrepreneur Aaron Houghton
Aaron Houghton likes to build things.
Sure, it was exhilarating running his previous company, Morrisville, NC-based iContact, after the e-mail marketing firm had grown well past the point of an initially bootstrapped startup formed by a pair of University of North Carolina at Chapel Hill students in 2003.
At the apex of Houghton’s and co-founder Ryan Allis’s tenure—before they sold the company to Vocus in 2012 in a deal valued at up to $180 million—iContact employed more than 275 people, had 80,000 customers, and was doing about $50 million in annual revenue, Houghton says.
“It was a big scale,” Houghton says. “That’s a big challenge and keeps the pace fast.”
He has been enjoying the slight breather post-iContact. His less frenetic schedule allows him to informally mentor fellow entrepreneurs, and the iContact payout gave him the means to dabble in angel investing.
But he says he feels most at home in the role of entrepreneur. He’s currently trying to build another successful company from scratch, the two-year-old BoostSuite, which has five full-time employees.
“I don’t like investing,” Houghton says. “I like being an entrepreneur. I’m an operator.”
It’s still too early to tell if Houghton can repeat iContact’s success with Durham, NC-based BoostSuite, but the Web marketing startup is getting some initial traction. BoostSuite is generating less than $1 million in annual revenue (Houghton declined to be more specific), but it has 19,000 users, including “several hundred” customers paying for premium BoostSuite services, Houghton says. The company is raising $1.5 million in convertible debt, according to a July SEC filing, marking BoostSuite’s first outside financing.
I spoke with Houghton recently to get his take on North Carolina’s tech startup scene and to learn more about what makes the serial entrepreneur tick. Here are a few of his lessons for entrepreneurs, followed by some fun facts about Houghton.
—Is there a secret sauce for growing a company to the point of an exit?
Not really, Houghton says.
“For the growth, it was really simple, looking back on it,” he says of iContact. “We had a good product. In the early years, we were ahead of the market.”
Once the market got more crowded, iContact got “really good” at acquiring customers using paid search and display advertising, he says. When competitors were reducing their digital marketing budgets in 2008 and 2009 due to the recession, iContact was boosting its budget to $2 million.
“We were doubling and tripling down on our ad spend and getting a great return,” Houghton says. “In 2008 and 2009, we were one of the top-10 B2B advertisers in the world, outspending B2B advertisers like Cisco.”
The trick to attracting an acquirer, Houghton says, was growing the company without an acquisition in mind.
“We built the business by focusing on the long term and building a company that could be taken public,” he says. “We were never trying to build a company that we could flip quickly. At board meetings, it was always, ‘How do we prepare this company to go public, reduce risk, and increase growth?’ By focusing on that, we were a great company to be acquired.”
—Vocus took some flak for downsizing iContact after the acquisition, although it has reportedly started growing again. Does that make Houghton think twice about selling BoostSuite, or at least question the consequences of selling a startup?
Houghton’s response is nuanced. He characterized the initial layoffs by Vocus as more a product of iContact’s poor hiring strategy in the three years leading up to the acquisition, and less of a ruthless head-chopping by the new boss. In retrospect, Houghton thinks iContact weighted the staff too heavily toward software developers, and not enough toward marketing.
“When an acquirer came along, they probably had that same conclusion,” Houghton says.
And he cautioned startups not to fall into the trap of hiring too many people with “analyst” in their title. Those are “very important and very smart people,” Houghton says, but there comes a point where it’s overkill.
“People should analyze their own data; that’s part of being a professional,” Houghton says. “And I think I would’ve done that differently.”
—When should a startup raise capital?
Houghton has been a vocal proponent of waiting to raise outside capital until a startup is profitable. For one, canvassing investors for money can suck up a lot of time not spent building the business, and the entrepreneur might end up walking away with no cash anyway, Houghton says.
He thinks aspiring tech entrepreneurs are smart to do their first startup during college because even if it fails, they’ll come out the other side with better experience than an internship, and they can choose to start another company or take a job with an established firm.
“The second you take outside investment, you have ratcheted up the risk,” Houghton says. If the venture fails, “the case is going to be investors take everything out of the business and you get nothing,” he adds. “That’s not bad, and it’s not saying anything bad about investors, that’s just what happens with a startup.”
Houghton challenges the mentality that the first step in starting a business is finding capital, particularly when it comes to tech companies.
“Today, when the U.S. is leading based on software and soft innovation and the information economy, you need good ideas, you need smart people, and you need software,” Houghton says. “A lot of those things can come pretty cheaply. We built iContact and had customers with zero cost other than the time to build the application.”
Houghton certainly isn’t saying entrepreneurs should never take venture capital. (iContact raised $65 million over five rounds, although only two were pure equity deals. The rest were some form of debt funding, he says.)
“At a later point, it’s totally reasonable to trade off some of those things,” Houghton says. “When you’re still figuring it out, it’s great to have the flexibility.”
—Houghton has said it’s a waste of time for North Carolina tech startups to try to raise VC in North Carolina. Huh?
Houghton says this is a byproduct of North Carolina being what he calls a “sub-capital equity market”—a term for the emerging tech centers around the country that have their sights set on the success of Silicon Valley and Boston. These nascent tech ecosystems have burgeoning groups of angel investors and small venture capital funds that have stars in their eyes from the billion-dollar tech exits of Silicon Valley, Houghton says.
“That’s what gets them motivated to get in the startup game, not necessarily the startup down the street that sold for $2 million,” Houghton says.
But when these local investors come to the table with entrepreneurs, they “want the upside” but are “not willing to take the downside risk.” That’s a problem because the result, in Houghton’s opinion, is “less sophisticated investors beating up on the entrepreneurs.”
He says he knows a startup from another part of the southeast that tried to raise money from North Carolina investors. The company, which Houghton declined to name, had $7 million in annual revenue at the time, but North Carolina investors valued it at just $1 million, he says.
“If you’re not someone asking for less than a $2 million pre-money valuation, they’ll laugh in your face,” Houghton says.
Six weeks later, that company sold for $110 million, he says.
“They miss out on all that opportunity,” Houghton says of investors. “It’s less sophistication on the investing side. It makes it hard” for entrepreneurs.
Now that we’ve got a picture of Houghton’s entrepreneurial mindset, let’s take a closer look at the man himself.
—Midwest roots: Houghton was born in Oconomowoc, WI, and moved to Madison while his dad finished a PhD in curriculum and instruction at the University of Wisconsin. For the first seven years of Houghton’s life, his family lived in Wisconsin. His grandparents lived in the Baraboo area in southern Wisconsin, and his family often vacationed in Door County, the gorgeous tourist destination in the northeastern part of the state.
After Wisconsin, his family moved to Arkansas, where his dad taught at the flagship university there. They moved to western North Carolina in 1997, where Houghton finished high school. He went on to study computer science at UNC and graduated in 2003.
—Closet songwriter: It’s not likely to make him quit his day job, but in his spare time, Houghton likes to write country music songs on his guitar.
“I’m not actually that good at it, but I love doing it,” Houghton says.
Houghton has never played in a country or rock group, but while growing up, he played trombone in the school band. “I did once go to band camp,” Houghton says. He also sang in choir at school and his church, took some music theory classes, and took piano and percussion lessons for several years.
He says he plays guitar “not well, but efficiently.” “Just like an entrepreneur would play guitar, I know enough of it to do it, but I’m not great at it,” he adds.
OK, so he probably won’t become a touring musician when he’s done running tech companies. But he says he would consider being a “small-time music producer.”
—Aspiring investor, kind of: When he calls it quits as an entrepreneur, a more likely path than professional musician would be formal investing, despite his earlier comments. He has made $25,000 investments in a handful of companies, including Chicago-based SimpleRelevance and Durham-based Argyle Social, he says.
He has also toyed with the idea of starting a small VC fund focused on software companies that sell to small businesses, which would draw on his experience and passion for small businesses.
“That’s one that I would do,” Houghton says. “The small business market has always fascinated me.”