As Unicorns Multiply, Bootstrapped Tech Businesses Holding Steady

[Corrected 12/11/18, 11:20 p.m. See below.]
Why do unicorns get all the attention?

Brian de Haaff wonders this sometimes, especially as compared to his own tech business, Aha. It’s not a “unicorn”—a business with a valuation of more than $1 billion—and it’s not even close.

Instead, Aha is a bootstrapped startup. Founded in 2013 by de Haaff and Chris Waters in the Bay Area, the company announced in July it had surpassed $40 million in annual recurring revenue from the subscribers to its software-as-a-service. Aha makes a program that helps product managers develop new roadmaps, which are used by others in the customer’s business, from sales teams to engineers. [Corrected to clarify the program targets product managers here and throughout.]

That Aha bootstrapped is something that matters to de Haaff—and it’s also one of the reasons he wonders why unicorns get all the attention when bootstrapping may be a more notable point of discussion. In July 2018 alone, seven U.S. companies took venture funding at unicorn valuations, according to CB Insights, earning startups from Lime to Freshworks big headlines. And what kind of interest did Aha get from media when it made its revenue announcement that month?

“We heard mostly yawns,” de Haaff says. “Why is there so much written about valuation and so little written about profitability and revenue?”

Part of the reason is that unicorns are often targeting big markets with big budgets from big-name investors. Lime has a large potential market, and its $335 million investment in July from Uber and GV was attention-grabbing. (Uber is reportedly now considering acquiring Lime or competitor Bird.)

Bootstrapped companies, meanwhile, don’t get the luxury of a chunk of cash—or the warm attention that comes along with it. Bootstrapping can be a lonely existence.

Aha is not the only company to have done it, of course, nor is it the only one to have garnered some media attention. Cognitive Medical Systems in San Diego grew its healthcare software business without venture funding, in part because its founders wanted to retain control and also because they believed they were better stewards of their own money. Code Works is a software development business that a South Bend, IN, coding school created after getting inundated with requests for programming help. Those are just a couple of examples.

Meanwhile, some investors have developed investment strategies around self-funded businesses—an attractive prospect since the founders are likely the only other money in. Volition Capital in Boston invests in small but established tech companies that have strong revenue growth and, ideally, have raised little to no outside capital. Bootstrap Venture Partners (formerly Bootstrap Incubation) near San Diego has invested millions in (mostly) local healthtech and marketing startups.

It can be a hard sell to convince self-funded startups to take on venture money, but it does happen. Web infrastructure business Dyn, based in Manchester, NH, raised $38 million in 2012 after spending 11 years as a bootstrapped company. Dyn was sold in 2016 to Oracle. Another even bigger example is e-retailer Wayfair (originally called CSN Stores), which was bootstrapped for about a decade before taking venture money in 2011; now its market cap is $10 billion-plus.

Aha’s de Haaff says a big check and a big valuation isn’t as valuable to him as running a company that gives customers what they need and takes care of its employees (such as with its profit sharing program). That’s not to say venture firms aren’t making themselves known to him.

“We get approached by venture, private equity, debt almost daily,” he says, adding that the company doesn’t plan to change it’s strategy. “We don’t imagine really wanting to work on anything else.”

In addition to announcing the $40 million in recurring revenue, Aha says it has signed on more than 5,000 customers and 200,000 users to its SaaS platform. The company doesn’t have a specific headquarters—de Haaff and Waters are based in Silicon Valley, but everyone works remotely.

The company’s product can be used across industries, from finance to retail, and is primarily targeting product managers in software, de Haaff says. Businesses in almost every industry are investing in software, and de Haaff argues that, to do so smartly, managers need to invest in planning software like his to develop it successfully.

Aha automates the process a product manager follows when planning out which products should be developed, and when they might be launched. Currently, managers typically store ideas and data about new products in programs such as Excel, de Haaff says, and they use other programs like PowerPoint to prepare presentations about new products. Aha’s software replaces and streamlines that work, he says. The program also connects with tools that developers and salespeople use—such as Salesforce, for example—so that product managers can easily send and receive information to and from other departments. That’s particularly useful, de Haaff says, for getting ideas for new products, which often come from the sales and development groups.

“Product managers have to manage an incredible amount of information,” de Haaff says. “The hardest thing they have to do is decide what has to be built next.”

Aha now has 85 employees, and de Haaff says he plans to hire more, in everything from customer service to engineering. The goal was to build a sustainable business before ever taking on other employees, and de Haaff and his co-founder have done that, he says. [Corrected to clarify where new hires will be made. Aha does not have a sales team.]

“We started the business on April 1 of 2013, and by March of 2014, we had over 125 enterprise customers and hired our first person,” de Haaff says, adding that he believes the company’s ability to grow without outside capital can encourage others to do the same. “We’ve become more confident that the approach we took is possible: to put people and profit first and to be a high-growth technology company.”

David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at dholley@xconomy.com Follow @xconholley

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