RightNow

How Greg Gianforte turned $5K into a $1.5Bn acquisition

Introduction

In Funding Strategies To Go The Distance, we ask several questions for you to consider as you weigh the merits of various financing options. Today, we’re diving deeper into one option in particular: bootstrapping, with a great case study from RightNow technologies.

Founded by Greg Gianforte in 1997, RightNow Technologies is a software company that was acquired by Oracle for $1.5 billion in 2012. Though he eventually raised venture capital financing, Greg began with as little as $5,000 of his own money and continued to rely on personal savings and friends and family for the next two years.

His decision to bootstrap came as no surprise to me: I have known Greg as a great entrepreneur for many years. As such, it gave me great pleasure to introduce him to a class of Northeastern University student. Ian McLarney, a student in that class, combines the highlights of that discussion with his independent research below.

As you read, ask yourself: Is the impact of bootstrapping limited to the share of equity retained by founders? What other impact is Greg’s approach to funding having?

~ Michael


RightNow Technologies

In 1997, Greg Gianforte founded RightNow Technologies with $5,000 of his own money. As opposed to raising external sources of financing, Greg continued to fund the growth of his business with family and friends’ money for the next two years until, finally, external financing was necessary. Contrary to popular opinion [at least my impression of popular opinion], Greg’s decision to bootstrap is actually representative of the strategy employed by the overwhelming majority of startups (click to tweet), and it was directly responsible for his company’s long-term growth.

In March 2016, the Kauffman Foundation presented its latest research on the most common sources of startup financing at SXSW in Austin, TX. Its ten-year study revealed that only 5.8% and 4.4% of startups received angel and venture capital, respectively. By comparison, 34.9%, 30.0%, and 6.3% financed their growth using bank loans, personal savings, and money from family and friends. (Click to tweet)

Notably, this distribution remains true for even the world’s 500 fastest-growing companies.2 More specifically, only 7.7% and 6.5% of high-growth companies received angel and venture capital. By comparison, 51.8%, 67.2%, and 20.9% financed their growth using bank loans, personal savings, and money from family and friends.1

In a conversation with Northeastern University students on, Greg Gianforte elaborated on this topic. Greg not only acknowledged the prevalence of bootstrapping among startups; he also referred to it as the foundation of a lower-risk, cost-conscious, and customer-focused company culture.

“When you have money,” Greg began, “you’re going to spend it, and you lose spending discipline. Whether it comes from customers, venture capitalists, or a bank, any money you raise comes with strings, and the only strings that pull you forward are those attached to your customers.”

Greg called more than four hundred potential customers before officially launching RightNow Technologies.3 Though each conversation was nuanced, he consistently asked about their pain points, and he learned how he could tailor his proposed solution to meet their needs.

Throughout his fifteen-year tenure at the helm of RightNow (Oracle acquired RightNow for $1.5 billion in 2012, including stock options), Greg championed this same customer-first approach to business, in part, through his decision to delay external financing.

“When you raise money,” Greg told the Northeastern University students, “you get a new set of masters. We were really, really focused.”

Despite his comments, Greg raised $16.4 million from Greylock Partners and Summit Partners in 1999. Admittedly, Greg said there comes a time in the life of almost every successful startup when external financing is indeed necessary. In his case, Greg said that venture capital was needed to fund his company’s expansion into Europe and the subsequent increase in his sales force.

Nevertheless, Greg reiterated time and time again that the impact of bootstrapping on his company’s culture was never lost. In fact, it had firmly instilled the respect for spending discipline that, arguably, enabled his company to survive the ensuing Internet Bubble even as his competitors folded.

As one investor pointed out, RightNow Technologies was a “good house in a bad neighborhood.”

In conclusion, bootstrapping is as much a financing strategy as it is a cultural ploy (click to tweet). Whereas the preservation of equity ownership is obvious, the tendency to increase frugality, accountability, and customer-alignment in the long-term — even as a company’s financing strategy evolves — is less so. As Greg himself said, “Culturally, bootstrapping is just the right way to go.”

~ Ian McLarney

[Continue reading about startup financing! Read How Much Money Should YOU Raise? for a discussion of when and how much money to raise.]


Further Reading

  1. Greg shared specific reasons for raising external financing. What else should you consider before raising external financing of your own? See: How much money should YOU raise?

  2. Greg suggested that culture is an ongoing business priority. Indeed, every decision he made — from how and when he raised money to how he hired new employees — was representative of his cultural preferences. In his conversation with the Northeastern University students, he said that he hired on the basis of three criteria: culture-fit, talent, and experience. Read this related article ”3 steps to making hires that fit” and consider Why does that order matter?


Sources

1 Harrison, J.D. “No, Entrepreneurs, Most of You Don’t Need Angel Investors or Venture Capitalists.” Washington Post. The Washington Post, 16 Mar. 2015. Web. 25 Nov. 2015.

2 “Introducing the Inc. 5000 List of America’s Fastest Growing Companies.” Inc.com. Inc. Magazine, n.d. Web. 06 Dec. 2015.

3 Sahlman, William A., and Dan Heath. “RightNow Technologies.” (2004): 1-26. Harvard Business School, 18 Nov. 2004. Web. 25 Nov. 2015.

Case Examples

RightNow

Givology

Endeca