No venture capital, no Bay Area presence, no crazy burnrate: MailChimp’s founders built the company slowly by anticipating customers’ needs and following their instincts.
ATLANTA — The typical start-up fairy tale goes something like this: You begin with young entrepreneurs from Stanford or Harvard who have come up with some novel idea for disrupting restaurants or dog walking or whatever else.
After creating a prototype, the guys (they are almost always men) enter start-up boot camps like Y Combinator, recruit a group of early investors, and perhaps launch a Kickstarter with a slick video. If the initial plan succeeds, the founders go into heedless expansion mode, which usually means selling off huge chunks of their company in exchange for gobs of money from venture capitalists. Then, after a few years, if all goes according to plan, they hit the big time — an initial public offering and a chance to be the next face of the future.
Well, sometimes. What’s often left out of the start-up dream story is any mention that there’s another way.
In fact, it’s possible to create a huge tech company without taking venture capital, and without spending far beyond your means. It’s possible, in other words, to start a tech company that runs more like a normal business than a debt-fueled rocket ship careening out of control. Believe it or not, start-ups don’t even have to be headquartered in San Francisco or Silicon Valley.
There is perhaps no better example of this other way than MailChimp, a 16-year-old Atlanta-based company that makes marketing software for small businesses. If you’ve heard of MailChimp, it’s either because you are one of its 12 million customers or because you were hooked on “Serial,” the blockbuster true-crime podcast that MailChimp sponsored.
Under the radar, slowly and steadily, and without ever taking a dime in outside funding or spending more than it earned, MailChimp has been building a behemoth. According to Ben Chestnut, MailChimp’s co-founder and chief executive, the company recorded $280 million in revenue in 2015 and is on track to top $400 million in 2016. MailChimp has always been profitable, Mr. Chestnut said, though he declined to divulge exact margins. The company — which has repeatedly turned down overtures from venture capitalists and is wholly owned by Mr. Chestnut and his co-founder, Dan Kurzius — now employs about 550 people, and by next year it will be close to 700.
As a private company, MailChimp has long kept its business metrics secret, but Mr. Chestnut wants to publicize its numbers now to show the road less traveled: If you want to run a successful tech company, you don’t have to follow the path of “Silicon Valley.” You can simply start a business, run it to serve your customers, and forget about outside investors and growth at any cost.
There are downsides to this approach. MailChimp’s path was circuitous, and it came without the glory of enormous funding rounds. But it is also suffused with a basic common sense.
Start-ups fueled by venture capital often need to figure out how to run like ordinary businesses; they embark on unsustainable growth, they forget about earning money, they don’t learn how to weather tough times. From LivingSocial to Pets.com to the half-dozen on-demand companies that blew up last year, the tech economy is littered with companies that raised too much money — and suffered for it.
“One of the problems with raising money is it teaches you bad habits from the start,” said Jason Fried, the co-founder of the software company Basecamp, who has written frequently on the perversions of the venture capital industry. “If you’re an entrepreneur and you have a bunch of money in the bank, you get good at spending money.”
But if companies are forced to generate revenue from the beginning, “what you get really good at is making money,” Mr. Fried said. “And that’s a much better habit for a business to work on early on, to survive on their own rather than be dependent on money people.”
For MailChimp, these lessons didn’t have to be learned — they were simply a necessary part of running the business. “The whole point of this business is to prove to small businesses that you can do this, because we did it,” Mr. Chestnut said.
MailChimp is run out of two sprawling floors in the Ponce City Market, a massive complex in Atlanta’s Old Fourth Ward neighborhood that was originally built as a Sears Roebuck warehouse. “A lot of people think it’s cool and vintage, but it’s actually a neat reminder of disruption,” Mr. Chestnut said. “Sears used to be the biggest thing, and then it went away.”
On a recent visit, I found all the trappings of start-up life seen in countless offices in the Bay Area: Stylish décor, kitschy accents (there are paintings and sculptures of MailChimp’s logo, a chimp named Freddie, all over), and zany conference room names. The walls of MailChimp’s boardroom are covered from floor to ceiling in vintage skateboards, which Mr. Kurzius collects. Get it? It’s a “board room.”
MailChimp wasn’t always this fancy. Mr. Chestnut and Mr. Kurzius founded the company in 2000, at the crest of the dot-com bubble, after they had gotten laid off from corporate web design jobs. They used their small severance checks to start a firm they called the Rocket Science Group, which offered design consulting for large and small businesses in Atlanta.
Credit Dustin Chambers for The New York Times
Late in 2000, some of those customers started asking for ways to reach their customers by email. Mr. Chestnut thought he could repurpose some old code he had used to create a failed online greeting card business. One of his old greeting cards featured a drawing of a chimp, so he thought he would call the new email service ChimpMail, but the domain name was taken. So he went with MailChimp.
For years, the pair ran the email service as a side project to the main web design gig. Around 2006, they began to grow wary of web design; the business was growing, but not very quickly, and they weren’t passionate about it.
What Mr. Chestnut and Mr. Kurzius were passionate about was helping small businesses grow. They had both been raised in entrepreneurial families — Mr. Chestnut’s mother ran a salon out of her kitchen, and Mr. Kurzius’s father was a baker whose business was forced to close after Wonder Bread moved into town — and they thought that maligned as it was, email presented a low-cost marketing channel for companies on small budgets. In 2007, they stopped doing web design and focused exclusively on MailChimp.
At the time, MailChimp faced a host of larger and better-capitalized rivals, including Constant Contact, which went public late in 2007. But Mr. Chestnut said MailChimp had a proximity to its customers that its competitors lacked. Because MailChimp was itself a small business, it understood what those businesses wanted out of their marketing tools. Its offerings were cheaper, it added features more quickly, and it allowed greater customizations to fit customers’ needs.
Though Mr. Chestnut insists that he isn’t worried about the longevity of email — people have been predicting its death for years, and email just keeps getting more important — the company is also pushing into other channels, including social media. The next phase of MailChimp, he said, is to become a one-stop shop for the entirety of a small business’s marketing needs.
Its future is far from assured — new modes of communication like voice and text messaging could undermine email, and there is always the threat of some large platform like Facebook or Google building a rival to MailChimp. Still, to Mr. Chestnut, MailChimp’s future is more secure if he and Mr. Kurzius control the company, rather than run it at the behest of outside investors.
“Every time we sat down with potential investors, they never seemed to understand small business,” Mr. Chestnut said. Venture capitalists always wanted MailChimp to serve “enterprise companies,” large businesses with thousands of employees and, potentially, thousands to spend.
“Everybody we talked to said, ‘You’re sitting on a gold mine, and if you pivot to enterprise, you could be huge,’” Mr. Chestnut said. “But something in our gut always said that didn’t feel right.”