Bootstrapping Using Services: James Kane, CEO of RWS (Part 1)
We’re big believers in Bootstrapping Using Services, as you know. Here’s yet another story of an entrepreneur who has scaled to over $10 million in revenue using the method.
Sramana Mitra: Let’s start at the very beginning of your journey. Where are you from? Where were you born, raised, and in what kind of background?
James Kane: I grew up in a very small town in far northern New York. It’s a college town of about 2,000 people. My father was a university professor. He taught Mechanical Engineering at Clarkson University.
Sramana Mitra: What did you do for college or university?
James Kane: I left high school early at the age of 16 to attend university. I studied Math and Computer Science at Clarkson University. I ended up leaving Clarkson when I was 19 which is when business had picked up to the point where it had exceeded what I had expected to make working as a programmer.
Sramana Mitra: You started doing jobs while you were still in your undergraduate program. You were making so much money that you decided you wanted to quit.
James Kane: That is essentially the case. I had applied to several top tier universities. I had been accepted into Carnegie Mellon and Cornell. I wanted to study there, but our family didn’t have the money for me to go do that. I could attend Clarkson for free. The original plan was to go to school at Clarkson for free and start doing some side work to earn enough money to transition to a more prestigious school. The plan ended up being invalidated at the point where the amount of money I was making through working exceeded the amount of money that I can reasonably expect to make with a degree at a more prestigious school.
Sramana Mitra: What year does this bring us up to?
James Kane: Roughly 1998 in the beginning of the dot com boom. I finished around 2011.
Sramana Mitra: What happens next?
James Kane: The initial business that we had ended up failing.
Sramana Mitra: What was the business idea?
James Kane: During school, we built a computer algebra system called Calculus Machina for John Wiley & Sons. The purpose of that was to be able to build a computer system that could solve calculus problems in a way that students could reference to see step-by-step solutions. All throughout college, I was working on that software. It was ultimately released but was largely unsuccessful. Right around that 2011 timeframe, the relationship with John Wiley & Sons came to an end.
Sramana Mitra: What was your next move?
James Kane: I didn’t have a particularly good next move. I went and learned how to fly airplanes and I worked, for a couple of years, as a pilot.
Sramana Mitra: Why?
James Kane: There was no good reason. I was quite young at that time. I always liked learning new things and it was very different from what I had been doing before, so I threw myself into it. I really enjoyed it.
This segment is part 1 in the series : Bootstrapping Using Services: James Kane, CEO of RWS
Sramana Mitra: After two years of piloting, it brings us to 2003. What happens next?
James Kane: I decided that I had to get back to what my avocation in life was, which was the design and creation of software. I made the decision to sunset flying and to begin the search for a new concept to build a software company around.
Sramana Mitra: What form did that take? What was that new software company going to be?
James Kane: I didn’t have a vision. I needed to find a validated concept to build my company around. What I did is, I assembled a very small group of two or three developers. We went out and worked as consultants. In particular, we were looking for failed software projects. We’d look for a project that was failing or had recently failed. We’d get the details. We would then go and make an offer saying, “You have a recent failed project. We believe we can repair/replace this failed project. If you let us try and you like the result, you’ll pay us this amount. If you do not, you owe us nothing and we’ll walk away.” We went on to win some contracts like that.
They had a chance of leading to a good idea because, at least, the company had enough need at the beginning to want to initiate the formerly failed project. Our intent was to try to do that until we found a validated need out there. We’d then stop consulting and build a business around the discovered validated need. That is what we did.
Sramana Mitra: What did that turn out to be?
James Kane: It turned out be software for distributing inventory and merchandising information to appliance dealers. It was, I believe, our fourth project that we successfully took on. We probably evaluated about 20 projects and then we took on a failed software project called Retail Deck. It was to produce a program to electronically distribute the inventory levels along with merchandising information to a group of appliance dealers. There, we saw the seeds of an idea that a business could be built around. In the end instead of collecting our fee and walking away, we offered to lease the solution in a SaaS model. They agreed and that was the beginning of the business.
Sramana Mitra: You had this first client because you had spec’d it out based on their needs. Once the software was ready and you had this first client, what did you do to acquire the next set of customers?
James Kane: We engaged in a fairly classical bootstrapped business development methodology. DMI is a warehouse. They serve about 50 retailers. Within the New England region, there are five similar warehouses that serve orders of 500 retailers. We quickly took our SaaS solution to those five additional warehouses and we won all of their business. We kept going like that, expanding across the United States.
Sramana Mitra: What was specifically the customer acquisition strategy? Were you calling these people? Were you visiting these people? Was it direct? Was it channel? How did you sell?
James Kane: The primary customer acquisition strategy was in-person sales at trade shows. The appliance retailing industry is cyclical. They have two buying seasons – in the late summer and in the very early spring. Appliance retailers have big buy fairs where they come together at those two times to buy new merchandise for their store and also to evaluate new business services. Almost all of our initial sales were through those kinds of trade events.
Sramana Mitra: How did the business ramp given that strategy?
James Kane: It was a very small team at this point. It was two or three people in a bootstrapped setting. We grew our revenues from zero to half a million a year over that time frame.
Sramana Mitra: That’s a very respectable growth for a bootstrapped company.
James Kane: Thanks. We also were not paying an overly large amount of attention to it, to be fair. The attitude during this period was very much lifestyle kind of a business. People made decent money. We had no real expenses. We divided that revenue up. There wasn’t a lot of ambition to grow the company until 2006 when we reimagined the business.
Sramana Mitra: What changed in 2006 that made you take this more seriously?
James Kane: Prior to 2006, the purpose of the company was the creation of software that let independent appliance retailers know about stock status levels at various warehouses and also merchandising information. It’s a SaaS subscription. We had maxed out our reach. The revenues from this were quite low. You’re talking $60 to $70 a month or so.
In 2006, a couple of things happened. There was a man by the name of Michael Gross. He started a company called AJ Madison. His goal was to become an online-only independent appliance retailer. He wanted to have a novel take on being an appliance retailer. He wanted to do most of his business online. This was novel in the post-dot com crash era. He may have started in 2005 but he became serious about it in late 2005.
He happened to belong to one of the buying groups that we serve with our retail product, which is a product that shows inventory and merchandising information. We spent a lot of time talking before he launched AJ Madison. He originally used a lot of the data from our software to power his website. He became enormously successful with that online retail operation. It galvanized the industry to recognize that an online presence could be a major component of success for a local independent retailer. That came into the zeitgeist of the independent appliance retailer in very early 2006. That represented a very logical opportunity.