This is Bob. I’ve had the advantage of being a part of a number of successful venture backed companies either as a leader, a board member or both. RunSignup is different – we’ve structured ourselves as an employee owned company with a profit sharing plan. We aren’t looking for a headline grabbing “Exit”, but a sustainable, long term company where employees can have great jobs, make above average pay, and customers actually like us.
One of the advantages RunSignup has is that we are employee owned. This has served us well in the endurance space, and we think it will also help differentiate us as we expand our technology stack to help nonprofits even more.
Employee – Customer Connection
The most interesting thing about employee owned companies is that the owners are also the people in front of the customers. There is not a famous actor, or a corporate investor like Salesforce, or a public company board who insists on making a dozen acquisitions setting the direction of the company. Employee-owners have to live with the public commitments they make to their customers run this company.
This translates into making realistic promises to customers. It means more direct customer influenced development. It means keeping up with investments in customer service. It means a real partnership between customers and employees.
Investors want to earn a return on their money in the form of a capital gain. This means they want to buy the stock at $1 and sell it at $10. The typical way to do this is find product-market fit, and then pump a bunch of money into sales and marketing to grow the business. They typically do not care about profit, and in fact hold back cash compensation to be able to spend more on marketing and sales.
This can be dangerous. I was on the board of a company where we had received a couple of very large customer orders (one was $5M). We then went on a rampage of hiring only to find that we could not get enough other customers like that to pay for all the increased expense. We had to sell the company at about what the investors had originally invested and many of the employees were left with pink slips and nothing to show for their hard work. Customers were jilted out of a good product because resources were stripped over time.
Even when companies do grow and sell, most employees are underwhelmed with their stock sales.
With an employee owned company, we strive to create value over time. That means profit sharing and dividends. And also a positive customer relationship that can last over years – not closing a deal to make a quarterly number. In other words, all the value stays with employees and customers and does not need to be shared with investors.
Our business model is based on recurring revenue. If a race uses us and we make $X, the real value of that customer is holding onto them and collecting that $X every year over many years. This brings stability to a company’s payroll and profit sharing plan. It is a virtuous circle that keeps customers and the employee-owners supporting each other.
The other advantage of this is that the value is about winning the customer in the long term. That means RunSignup can be patient on when a customer chooses to begin using our platform. It does not make much of a difference if they use us this year, since if they use us next year we still get the same amount of long term value from the customer. This means we do not try to force fit a solution or try to overpromise and under deliver.
Our customers depend on us for our technology. If we help them use that technology, and continue to make more and better software to help them in new ways, then our company will be successful. It won’t come from hiring too many sales people or spending lots of marketing dollars. As an example, our largest “marketing” expense is our annual Symposium and our Timer Training for our customer base.
RunSignup for Nonprofits – The Next 10 Years
We recently wrote about our growth strategy for the next 10 years. We’ve listened to our 8,000+ nonprofit customers and will be introducing an early adopter program for several significant new capabilities in RunSignup: Nonprofit Ticket Events, Donation Websites, and a Nonprofit Dashboard. These capabilities will bring us beyond our typical market of just races and walks. We will be coming into a market dominated by companies who have significant investment capital. Our differentiation will come from the technology our employees create and the relationship we have with our customers.
2 thoughts on “Employee Owned vs. Outside Investors”