We get a lot of questions about why RunSignup is employee owned and if we intend to sell or get acquired. This comes from three angles:
First, our customers and prospective customers have a strong desire for stability. They want to make an investment in a technology platform that will continue to grow and get better. They like what they have seen over the past 9 years, hope that continues, and sometimes worry it might not.
The second angle is from curiosity seekers. There is a perception that getting acquired or going public is the goal of every company. This interesting article in the NYTimes about startups not taking money refuted that premise. As venture capitalist Josh Kopelman of First Round Capital says “I sell jet fuel, and not everyone wants to build a jet.”
The third group are all the private equity companies looking to do a roll-up in our space or leverage our technology in other areas that could provide more return.
So let me (Bob) address these issues in a Q&A format, in our typically open fashion. I will take the biggest and easiest question first.
Is RunSignup looking to be acquired or go public?
No. I will provide more context in the questions and answers below, but we are happy making great technology for the endurance and nonprofit communities and are building the company to operate for the long term. We don’t need outside capital and can make a good return operating the company independently.
I’ve heard you say RunSignup is in this Goldilocks position. What’s that mean?
RunSignup has emerged as a kind of Goldilocks – not too big and not too small. This is partly for financial reasons. The fact is, the endurance market overall is pretty small and the registration market is even smaller. There is simply not enough return available for much capital. So companies that take a lot of capital, like an Eventbrite, have to go after multiple markets and eventually need to provide a return to their investors. Yet the specific needs of races are too varied and too complex for generic software to meet those needs. That means smaller companies focused only on this market, like RunSignup, have a competitive advantage over much larger firms.
On the other side, there is a need for critical mass in the technology business to afford the software development and technology infrastructure required. (BTW, I HATE it when people say “anyone could develop that”. Software is an art, and totally unique and not simple to scale). In other words, if you make more money, you can afford more and better developers, who will produce more and better features for races to do more and better (people always like more and better). Since we are 3-10X larger than the smaller competitors in the market, it gives us a natural advantage. As long as we keep producing great software and have a good focus on races, it will be hard for smaller companies to catch up.
Is that Goldilocks position something that you can hold onto?
We think so. If you think about it, investors do not want to put money into a small market that is flat or declining. So the chance of new serious competitors is somewhat limited by capital. Given our low cost model (no per participant fee and extensive set of free services like email, analytics, txt messaging, photos, etc.), it would be tough for a new competitor to come in and underprice us. And it would take many years of development to build the breadth of features in our platform.
We could, of course, lose our position if we changed our business model and upset customers, or stopped developing technology, or cut our customer service. Those things are under our control, and of course we have no intention of slowing down or changing course.
What do you mean by Employee Owned Company?
Our employees own the company, and there are no outside investors. We used to be a single owner LLC completely owned by me. In January, 2018 we became an S Corporation. This provided a structure where I could give options to all employees as a tax efficient and low risk way to transfer ownership. I did this for two reasons. First, it is the employees who made the company successful and in my mind they deserve to share in the ownership. I’ve written in the past about the three legged stool model for companies with equal power and partnership between owners, employees and customers. Second, it is a way to motivate, attract and retain employees. Being an owner makes a person that much more ready to spend the extra effort to create great software, or help customers a “bit more”. This also makes it attractive for people to choose to work at RunSignup, and helps us attract great people to join our team.
Why did you start RunSignup?
I was a race director for a couple of races. I have had a long career in technology and specifically startups. On the technology front, I felt there was a need for better technology to tie together all of these tiny little intersecting communities – races, clubs, stores, timers, etc. It seemed none of them were big enough to afford good technology and no one was truly focused on this market who seemed able to build out a long term technology stack. On the business side, I felt there was a need for two things. First, a more open approach where we would integrate with other technology and allow people to integrate with us. Second, we wanted to be a pure technology company, not an advertising company. We felt that owning customer data and trying to leverage that for building an ad / marketing business put us at odds with the communities we were trying to serve.
Why haven’t you taken outside money?
Well, when we started, we did not know that much about the endurance market or what we could do. With cloud technology, the costs are really just development time. I had been lucky from previous technology startups and had enough capital to get us started. We figured we would just develop some stuff and see if people liked it.
As we have grown and begun to understand the market better, we realize it is just too small for professional capital like the types of VC’s I have worked with in the past. We also do not like the idea of debt, or using the float of our customer’s money. While limiting our capital, it does protect us against over investing in something that is unrealistic from a return perspective. Plus, we want to have control over what we do rather than having an investor dictate our direction. This way we can do the things that make our customers happy.
Why do you think the Endurance business is too small for private equity or venture capital?
We estimate that the endurance market in the US is about $1B. That is a total of the amount collected by races from fees and sponsorships. That needs to be divided between a lot of different entities; police, port-a-potties, timers, medals, shirts, credit card fees, technology fees, advertising, donations, profit, etc.
$1B is a pretty small market, and when it is divided across all of those various sub-markets there is very little room for large profits, growth or replication. WTC/Ironman is the only real company that has proven any scalability in this market. Other companies that tried to grow had issues, like Competitor Group. Or, they have sought broader markets, like Active and Eventbrite have.
How will you make money?
I will take a salary this year, and will not need to invest any money for the first time! Additionally my shares (and other employee shares) in RunSignup will generate Dividends. Basically, the company will be profitable and cash flow positive this year and we will split that profit between profit sharing bonuses to employees and dividends to stockholders (mostly me right now). Over time this becomes a steady annuity, hopefully.
While making money is not necessarily the primary motivator, I think of it as important to demonstrate the value we are providing to our customers. We work hard and should see benefit from that hard work.
Has anyone ever tried to buy RunSignup?
There have been several fairly serious inquiries in the past, and I get a call from a private equity company every week or two prospecting in the fintech market. A couple of timing equipment companies expressed interest several years ago and I quickly let them know we had no interest.
A year and a half ago, there was a flurry of Private Equity (PE) interest, with two firms doing a lot of work to understand the market. Their thesis was to do a “roll up”, taking us and a couple of the next largest vendors and merging them into a single company. The single company would lay off some of the combined staff, and then move into other areas like youth sports so the PE firms could put enough money to work to earn a decent return.
There were several problems that led us to reject the two term sheets we were offered:
- They wanted to own a majority of RunSignup and there would be inefficient arguments about how to grow in the future, and that would cause me daily frustrations. Plus we would have someone looking over our shoulder and asking for all sorts of reports and meetings that are really not interesting to us.
- They wanted to create “synergies” by combining us with other competitors. This is the code word for laying people off. I had to do that at HP and I have no interest in doing that in the future. I also didn’t think the combination of technology would benefit our customers.
- They wanted to move to youth sports and investigate buying timing companies and selling shirts. I didn’t think any of these ideas would benefit RunSignup and our customers.
Anyway, we rejected the offers and are very happy we did.
How old are you? How long do you intend to work? What happens after you are gone?
I am going to be 62 in March, 2019. Knock on wood, but I am healthy and energetic and happy and I have multiple family members who have lived until 100. “Retiring” is boring and not on my wish list. Alan Jones is one of my role models and he is still going strong at 82, so hopefully I can contribute to RunSignup for another 20 years, and with good fortune more.
RunSignup already runs largely without my direct involvement. While I typically work on RunSignup everyday even on weekends and on vacation, I do not have any responsibilities that are operational. In fact in 2018 Marlise and I took 8 weeks of vacation (we have a family cottage in Canada my great grandfather originally built we spent 5 weeks at). We will probably expand that vacation time in future years, and there are no worries about things going astray. There is a next generation of really good people that handles much of what is going on in the company today, so RunSignup is in good hands for a long period of time.
Where do you see RunSignup in 20 years?
The one thing I know is there will be change in technology and change in how people spend their time. I hope we help our customers make that transition with our technology platform, while providing fun and good paying jobs for our employees, as well as a steady dividend stream.
I also hope more of our customers use more of our platform. In the next 5 years, we will continue to build out our endurance business and technology. If successful and our growth trajectory stays intact may get to something like 50% market share. I also hope we are able to help our nonprofit customers more, as we see a lot of them struggling with their technology roadmaps. Mostly, I hope we continue to come up with innovations that are available to every size of customer to make their communities a bit better.