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How an Offer to Sell Wistia Inspired Us to Take On $17M in Debt

Chris Savage

Co-founder and CEO of @wistia. Things I love: creative brands, work/life balance, not being able to control the volume of my voice, disaster movies.

Cambridge, MA
Chris Savage

In our society, there's a mythical idea of the ideal founding path: you found your company for hundreds of billions of dollars, then change the world!

Chris and his partner thought they could be like Tony Starke. They wanted to start a company, sell it, and retire at 23.

In preparation, they took some suave photos for Entrepreneur magazine.

The reality was that building a company was two years of hard (but fun) work to get their first ten customers.

To grow, they raised $650k and did what they thought they should do to grow a successful company: they rented an office, bought new computers, and a new monitor.

With this new overhead, Savage and his partner went from paying themselves $1,000/month to losing $30,000/month.

They went from 30 customers to 200 customers in 2 months, but were still losing money. They went back to their angel investors letting them know that they'd run out of money but had found traction, so they raised another $735k to extend their runway.

It worked! They hit profitability.

Profitability meant Wistia was in a much more comfortable position to experiment with content marketing. They spent over $100k building a huge library of content (weekly blog posts and videos).

Wistia started becoming much more predictably successful, though the link between their content marketing and their success. Savage gained the confidence to make more long-term bets.

At one point, they closed down a city street to launch a new pricing plan.

Growth FOMO

Chris Savage's dream home if he could build Wistia even more.

Wistia hit $10M in revenue and several million in profit and was feeling good. Savage started having conversations with people that he could be sacrificing profitability to be growing even faster, so he could actually be like Tony Stark!

Savage started optimizing for revenue growth, and everything broke.

Focusing on revenue growth above everything else meant Wistia was entirely focused on the short term growth over long term stability.

Their key employees got stressed and left, which compounded stress on the rest of the company.

Wistia had over-scaled. They were too focused on the short term financial gain. The company lost confidence in their ability to succeed.

An offer to sell

Over the years of running Wistia, Savage had received many offers to sell, which him and his partner consistently turned down.

They started seriously considering selling for the first time when they realized selling would mean freedom to buy a fancy mansion and build an Iron Man suit. They'd realized their dreams!

They went back and forth on the decision to sell, and ultimately decided doubling down on building Wistia was the correct decision. They became focused on the long term again.

Deciding not to sell created a misalignmnet of incentives with their investors, who would love a large exit and a big return on investment.

Savage and his partner offered investors a stock buyback. Because funded with debt.

It's working

Ironically, pulling back and focusing more on the long term actually increased revenue growth faster than when they were focused on increasing revenue.

Wistia as a company had much more creative freedom to do projects like:

  • Wistia's Greatest hits
  • didn't catch this one and I DON'T HAVE SLIDES YET AGH
  • One, Ten, One Hundred: a series of promotional videos with budgets of $1k, $10k, and $100k.

These projects and Wistia's new long term focus created a better company.

Don't let anyone tell you what suit you should wear. Do you want to wear the Iron Man suit? Great! Pay attention to what you care about and optimize for that.

Questions

What's your experience talking with debt collectors?

There are a wide range of options for debt depending on the risk in your business.

Did you valuate your company when you were considering selling? Valuation is dependent on revenue at the time.

Valuation is a negotiation. We gave a few different types of investors some of our data and triangulated our valuation from what they thought the business was worth.

How many people opted to take the stock buyback offer?

90% of investors took the offer to some degree - angel investors don't really need the money, so some only sold 20%.

A GlassDoor post said "Wistia is a sinking ship - you should jump"

Could you talk more about your profit sharing structure?

We set a goal for EBITA. If we outperform that goal, employees get rewarded based on tenure.

At a meeting improving infrastructure, people went wild when they heard they'd improved gross margins by 2% beacuse that meant they got more revenue sharing.

Did you have to fire people to improve profitability?

No - but people that were going to leave the company anyway left the company faster.

How do you manage profit sharing with your shareholders?

Our agreement with shareholders is that Brennan and I can make decisions that we think will grow the company. If we issue ourself dividends, we'll also issue you dividends.

Do you think it would've been possible to not lose profitable confidence in the first place?

Yes. I could've changed how we evaluate projects and set clearer goals about what I love to do.

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