Is there an old saying about the grasshopper and the unicorn? If not, I’m inventing one: “Stay focused on the right things, little grasshopper, and you will go much further than that bloated unicorn.”
These days, unicorn is term for a privately held company that is believed by its investors to be worth $1 billion or more, even though many have never turned a profit. That includes companies like transportation app Uber, lodging marketplace Airbnb, and Square, a payments startup planning to go public next week.
And the little green insect? That would be Grasshopper, a Needham startup founded by two Babson College students, David Hauser and Siamak Taghaddos, in 2003. It was acquired earlier this year by Citrix Systems of California. Grasshopper was never bathed in the same glory as today’s unicorns, in large part because it never raised money from venture capitalists or boasted about its initial public offering plans.
But Grasshopper made its founders incredibly wealthy just the same — and the company’s story holds lessons for today’s entrepreneurs.
“What they did is just unbelievable,” says Seth Rosen, a Cambridge entrepreneur who followed the company’s growth and is friendly with the founders. “People are so focused on unicorn mania, and what they did was to build a profitable company from scratch. The guys are superstars.”
Like all good entrepreneurs, Hauser and Taghaddos saw an opportunity before others did. Small business owners were increasingly running their businesses on the go or from their homes, relying heavily on cellphones, and they had employees or part-timers doing the same. The company they started, originally called GotVMail, gave small businesspeople a phone system that helped them seem like a big company — without buying or managing any telecom equipment. Before people understood what “in the cloud” meant, GotVMail was an office phone system in the cloud. Today, prices run from $12 a month up to $199.
“We focused on one thing, and we did it well,” Taghaddos says. “Just provide amazing service and get out of the way.” The initial funding to get the company off the ground came from his father, a Newton entrepreneur who was born in Iran.
They identified Google’s online advertising service, AdWords, as a good way to acquire customers inexpensively. When shock jock Howard Stern launched his show on Sirius satellite radio in 2006, GotVMail was one of the first advertisers. “We were able to negotiate crazy rates,” Taghaddos says. People who owned satellite radios, it turned out, “were people who had newer cars, or installed the radios themselves. They were more tech-savvy and comfortable with new stuff.” The perfect customers for GotVMail.
Acknowledging that they needed to get out of the “startup, college-kid mentality, running a business by winging it,” as Taghaddos puts it, they hired a business coach, and started building a management team around them. One key hire was Don Schiavone, who eventually became the company’s chief operating officer.
When Schiavone joined the company in 2008, Grasshopper’s growth was stalling. “The honeymoon was over,” Schiavone says. “David and Siamak were very conscious of their own skills sets, and what they weren’t good at was managing people.” As companies like RingCentral and Google began to compete more aggressively with the company’s cloud-based phone systems, GotVMail’s founders got better at hiring people with experience in a particular area — and learning how to delegate.
The company’s costs were also “getting way out of control,” says Schiavone. Hauser and the engineering team redesigned the company’s technical foundation
so that GotVMail could maintain a healthy profit margin even when selling to price-sensitive small business owners.
In 2009, they acknowledged that their name was too confusing, and became Grasshopper. Taghaddos explains, “We didn’t have money to promote the name change, so we bought 25,000 grasshoppers, dipped them in chocolate, packaged them, and shipped them out to 5,000 influencers, bloggers, and reporters.” The whole campaign, which included a YouTube video celebrating entrepreneurship, cost them $68,103. It yielded about 1,500 tweets and seven mentions on national television.
A service outage in 2011 lasted for a day and a half, and cost the company some customers. “Being a small team, it took us a lot to come back from that,” Hauser says. “But we had a lot of customers who stood up for us on social media.”
Still, the company was growing at more than 20 percent a year, with high profitability. “We were printing money,” Schiavone says. With fewer than 50 employees, Grasshopper brought in nearly $30 million in revenue last year, Hauser says.
Around 2013, Silicon Valley-based Citrix, which makes the popular GoToMeeting collaboration software, began talking to Grasshopper about a promotional partnership, Schiavone says. Those discussions evolved into acquisition talks last fall.
The purchase was announced in April, but the price tag wasn’t disclosed by Citrix until a later quarterly report. Citrix shelled out $165 million in cash for Grasshopper, plus about $8.6 million in stock that would vest over time. Grasshopper’s cofounders still owned about 90 percent of the company; Taghaddos’ father, Schiavone, and other key employees owned the remainder. Compare that to the founders of tech companies like Box or Zendesk, who both held less than 10 percent of their companies by the time they went public.
In announcing the acquisition, Grasshopper barely emitted a chirp. Schiavone wrote a post for the company’s blog, and a few industry publications covered the deal. But Schiavone says the company didn’t seek more ink because he didn’t want the acquisition to “upset or cause undue uncertainty for our customer base,” or make them wonder whether the service or customer support was going to change.
Even in being acquired, the focus remained on the customer.
Yes, Hauser admits, the amount of money he made on the sale was “life-changing.” But he says that he and Tagghados drive the same cars and live in the same houses as before. But they’ve started a small investment firm, based in Las Vegas, where they now live, and they plan to help other entrepreneurs get started.
Hauser says they “highly encourage entrepreneurs to build profitable and growing businesses,” compared with those that raise a lot of capital, grow fast, but — like Square — are still in the red even when they make their stock market debuts.
Scott Kirsner writes the Innovation Economy column every Sunday in the Boston Globe, in which he tracks entrepreneurship, investment, and big company activities around New England.
Follow Scott on Twitter - Facebook - Google+