How I grew and sold our custom software development company in 5 years
Humble Beginnings … for 10 years.
I started a software development consulting back in 2004. The aim was to build an organization focused on excellent customer service. There was no real USP. I was 30 years old. The goal was simple — be my own boss, control my own destiny, have independence in life, grow the company, eventually have a good work-life balance…the works, that every entrepreneur dreams of.
It was nothing like that.
For the next 11 years we only had 1 customer — a very large account that supported me and a handful of offshore developers. The relationship with our 1 customer was very strong and although I say 1 customer, in reality they are a conglomerate of hundreds of companies, so we could sustain our revenues through the network. We would do anything for them given the allegiance as well as the dependency. It was a symbiotic relationship.
It had become a lifestyle business for me. My 30s were safe, comfortable and by 2014, I had a decent suburban lifestyle with my family, wife and 2 boys, home, cars, along with a complacency that bothered me only once or twice a year when I would meet other entrepreneurs who had grown their businesses beyond a 1st customer!
Then hit my 40s.
Year 1: Partner in crime
My younger brother had joined the consultancy in 2011. He had a few customers of his own, but similar to mine, 1 major customer. We did not work with each other on a daily basis — we would just use the same office in our offshore development center and have our individual customers here in America.
By end of 2014, I was ready to get out of my comfort zone. The choice in my mind was to join the corporate world or take the systems we had developed for our 1st customer and make a product out of it — the business was servicing a very niche model and there were no products like that in the markets.
My brother and I stood outside a party discussing this. His idea was to continue doing more of what we were doing — develop custom software, but on a larger scale — he would handle operations and I would handle sales, marketing and business development.
I told him “what if we do not succeed?”
He said “what if we do?”
Our maiden voyage
January 2nd 2015 we set sail for the unknown although the waters were familiar. The goal was to keep doing more of what we have done for ourselves. It could not be difficult — we would redo the website, write blogs, setup SEO, buy lists, cold call, email blast, do social media, do joint venture deals while we streamline operations and services.
It was far from being easy and familiar.
It was uncharted territory. Marketing seemed overwhelming and business development seemed uncomfortable.
After making a lot of mistakes in year 1, we managed to get 3 new customers, all through references and word of mouth, grow revenues by 40% and reduce our expenses by 45%. We celebrated in December, made notes of lessons learned and look ahead into a big 2016.
Word of mouth dried up quick
If you do not have a big network that can help you grow your business, which we did not, word of mouth will dry up, especially in this type of business. We needed newer lead generation sources.
By 2016 we were helping our customers with digital transformations and digital marketing. We had led some very successful transformation projects and we knew it was a definite way of growing ourselves, but it was expensive, required dedicated resources and takes time. Especially, for a consulting company that seemed all things to all people. For the most part, we were one of the thousands of offshore/onshore software development companies out there, operating in perfect competition.
By the end of year 1, we had exhausted our network. We had bought lists and realized everyone owns the same lists and targets them at the same time. We had joined marketing programs, some really good and that boosted some sales, but none that would build the proverbial oil well that churns out quality leads and prospects, especially for our type of business.
Year 2: Enter partnerships
Riches are in the niches
Instead of being all things to all people we started changing our branding to 2 very narrow niches in year 2. It was scary because the addressable market was tiny compared to what we were targeting before. But we realized that if we could even capture a very small portion, we would be very successful.
Next we stared looking for oil wells.
We found that 1 of our customers could become a partner by up-selling our services to their customers. They were also in IT, but did not provide software development services.
Next we reached out to industry thought leaders and joined one of the largest associations in one of our niches.
We kept nurturing our relationship with our 2 new partners and kept providing our services to the best of our ability, regardless of how it helped or not. The returns were manifold.
By the end of year 2 we had grown to a 7 figure business.
Our operations were extremely streamlined through automation, tools and processes. Our culture was starting to take shape and our messaging stared becoming clearer. We started attracting better talent in our offshore company and the December celebrations kept us excited.
Year 3: Sharpening operations and services
We kept the peddle on our regular marketing and business development efforts through email campaigns, cold calling, and web searches. With a 1-person Sales and Marketing department, we could not focus on other avenues like establishing thought leadership, SEO, events or attend networking events.
After quarter 1 it was evident that we needed to focus on operations and scaling. Scaling is a challenge for every business, but one that is even more amplified in a consulting company, especially a software development company. Good capital is hard to come by, hiring good talent is harder and the balance of supply-demand is unknown and unpredictable.
With our 2 partnerships providing us with quality leads and prospects, we decided to dedicate more time to tightening our services, offerings and operations.
By the end of 2017, we had streamlined most of our processes, reduced our expenses by an additional 30% and kept growth at a steady rate of 50% adding 5 new customers. It was not rocket growth, but with very high margins we were ready to take on year 4 as a lean organization.
Year 4: Growth year
We needed a new oil well.
We joined a Marketing program that was geared specifically for IT companies. It taught us how to do direct mail marketing. We hired a Marketing person to lead that effort.
We started with our house list — people we knew, networked, met, exchanged cards, friends, family, anyone. We put them into a CRM. We bought a list in our 2 niches and added them to a new list as well.
We followed the marketing program. Cleaning calls, precursors, qualifications, perk-ups, writing content, direct mails, email campaigns and follow-up calls. We got a lot of qualified leads — it started to seem like that this would be an excellent year.
We closed 2 new accounts very quickly.
By the middle of the year, we were up to our necks trying to churn out work and projects that kept piling.
It was the scaling challenge again. We hired project managers here, but it was hard to find someone in a short period of time that would fit our culture and put in the same level of effort, right away, the level of effort and care the early employees did which got us to where we were.
We kept our heads down and decided to push through. It was the most excruciating of the 5 years. At one point I was selling, coding, testing, project managing, attending events and my brother was travelling offshore every few months, attending seminars and rolling up his sleeves to help with operations as well.
It paid off.
By the end of year 4, we had started a new service offering, had a new business partner, got several industry certifications, kept the growth rate and increased our margins. December celebrations did not disappoint again.
But we were tired and felt the burn.
Year 5: The decision year
January 2019 was a rough month. We lost some revenues from a big customer, lost some key employees in our offshore center who had joined bigger organizations and we were feeling the fatigue and hangover from the prior year of hard work.
The 3 partners met at a weekend retreat and after several decisions we agreed that we would look for investments with an option to sell if we could find the right buyers.
The key was to find the right partner. Someone that understood our customers, our relationships, our culture, our values, our beliefs and would support all those that came along for the ride, equally or better.
Once we decided to embark on a strategic transaction, 2019 became a year of immense learning and an amazing experience for all of us at Medullus.
We had to clean up our processes, dress the company and stage it for a transaction — investment and/or sell. That entailed tightening up our operations, brand, customer communication, funnel management, sales and marketing processes and vendor management.
By the middle of the year, we had recovered lost revenues from January, gained 1 large customer and grown our revenues by 100%. We got 4 buyers who had bid for our business and eventually we had a signed LOI from a prospective buyer and also secured a big unsecured line to grow the business.
On Dec 30th we signed an Asset Purchase Agreement to exit to a strategic buyer. As the dollars hit our account we could not believe what had happened. 5 years of intense work, many ups and downs, many unknowns, blood, sweat and tears and emotional roller coasters came to fruition. We could not have been happier with our new owners who understand our business, our values and culture and they have already started scaling the organization.
Anything to improve on?
If someone asked me what I would have done differently, my answer would be that I should have enjoyed the journey more. It was an awesome ride and we had a lot of fun times together as a group, but I would enjoy the journey a lot more going forward, knowing what I know now.
If you have read this and have any questions please do ask me. Happy to chat! Good luck to those that are looking to pursue similar journeys — the good news is that goodness and hard work always pays off.
