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Mike Amos, Founder/CEO of Empathica, talks to the students of Entrepreneurship 101 about how Empathica was founded, how they dealt with investors, how they continued to developed their software, how the company fared during the recession and how he learned to sell internationally.
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The content of this presentation is strictly confidential and may not be shared without expressed written consent of Mike Amos.
10 LESSONS - THE
EMPATHICA STORY
The content of this presentation is strictly confidential and may not be shared without expressed written consent of Mike Amos.
2
BACKGROUND
Founded – 2002, Mississauga ON
Problem – Lack of consumer insight lead retailers to waste billions on failed promotions and attrite billions due to poor operational execution.
Market - $28B market research / $1B mystery shopping
Enabling Technologies – Consumer Internet usage + IVR + flexible POS systems
3
BACKGROUND
4
BACKGROUND
Disruptive Components
- Real – time data collection = speed to market
- High end professional services integrated into a
recurring revenue stream
- Online (ASP) delivery
- Service-based fee structure (SaaS) (+rev visibility / -
customer funding limitations)
- Team mobilization features
- Target buyer and cost positioning
5
EMPATHICA STORY
‘02 Founded
/ Rev.+
– 375k deal
with FP
‘03 – CDN
Inflection Point
booked $3M+ in
ARR
‘05 – Chart a
New Course
- 15% EBITDA
- V2
- UK entry
- JPN entry
‘06 - $7M PE
(2M secondary)
- US / UK
acceleration
07 – Tidal
Wave
$11M ARR
- 89% Rev
Growth,
150%
Bookings
‘08 – Go Message =
1.5M Disaster
-Launch Campaign
- $4M debt
09 – Roller Coaster
- 9M
Bookings
-4M debt covenants
breached
- $6M debt restructure
- 18% decrease in ee’s
- Flat Revenue @13M
- Go Recommend – has
anyone every heard of
facebook?
10 – Team Reboot
- GR sell in first
11 – Sbux –
largest deal in Co.
History @ 2.5M
- Forrester Argh!
12 – Go Recommend
-UX Rebuild
- Social Intell.
- iBank Hired
- Senior Ops
13 – 22M ARR,
Acquisition
‘02 Beach
Head
~$1M SDM
- Angel round
$250k
1
10
5 64 7
9
82 3
11
6
1. I HAVE TO SELL? – HOLY S#*T!
• You need to be your company’s best sales person
whether you close or not
• The sales process informs everything else
• Investors need market validation
• Prospects demand market validation
7
EMPATHICA STORY
‘02 Founded
/ Rev.+
– 375k deal
with FP
‘03 – CDN
Inflection Point
booked $3M+ in
ARR
‘05 – Chart a
New Course
- 15% EBITDA
- V2
- UK entry
- JPN entry
‘06 - $7M PE
(2M secondary)
- US / UK
acceleration
07 – Tidal
Wave
$11M ARR
- 89% Rev
Growth,
150%
Bookings
‘08 – Go Message =
1.5M Disaster
-Launch Campaign
- $4M debt
09 – Roller Coaster
- 9M
Bookings
-4M debt covenants
breached
- $6M debt restructure
- 18% decrease in ee’s
- Flat Revenue @13M
- Go Recommend – has
anyone every heard of
facebook?
10 – Team Reboot
- GR sell in first
11 – Sbux –
largest deal in Co.
History @ 2.5M
- Forrester Argh!
12 – Go Recommend
-UX Rebuild
- Social Intell.
- iBank Hired
- Senior Ops
13 – 22M ARR,
Acquisition
‘02 Beach
Head
~$1M SDM
- Angel round
$250k
1
10
5 64 7
9
82 3
11
8
2. TERMS ARE MORE IMPORTANT
THAN VALUATION
• Understand all the gotcha’s:
– Anti dilution
– Liquidity preference
– Put options
– Board and committees
– ROFR’s
– Drag along dividends
– Covenants? Yes, covenants.
– Who’s the Chairman?
– Number of seats
9
EMPATHICA STORY
‘02 Founded
/ Rev.+
– 375k deal
with FP
‘03 – CDN
Inflection Point
booked $3M+ in
ARR
‘05 – Chart a
New Course
- 15% EBITDA
- V2
- UK entry
- JPN entry
‘06 - $7M PE
(2M secondary)
- US / UK
acceleration
07 – Tidal
Wave
$11M ARR
- 89% Rev
Growth,
150%
Bookings
‘08 – Go Message =
1.5M Disaster
-Launch Campaign
- $4M debt
09 – Roller Coaster
- 9M
Bookings
-4M debt covenants
breached
- $6M debt restructure
- 18% decrease in ee’s
- Flat Revenue @13M
- Go Recommend – has
anyone every heard of
facebook?
10 – Team Reboot
- GR sell in first
11 – Sbux –
largest deal in Co.
History @ 2.5M
- Forrester Argh!
12 – Go Recommend
-UX Rebuild
- Social Intell.
- iBank Hired
- Senior Ops
13 – 22M ARR,
Acquisition
‘02 Beach
Head
~$1M SDM
- Angel round
$250k
1
10
5 64 7
9
82 3
11
10
3. YOUR FIRST CUSTOMERS ARE
WORTH 100X THEIR REVENUE IN
FUTURE ENTERPRISE VALUE
• Over invest in initial customers
• People buy from people they like and
trust
• Get on their side as quickly as
possible
• Be clear in your expectations of each
other
Market Entry Domino’s
Famous Players Shoppers Drug Mart (~ 6M) Cara Foods (~ 3M)/Petro Can (~ 3M) / HBC (~ 1M) / Esso (~ 2M) etc.
McDonald’s Canada
McDonald’s US Brinker (~5M) / Pizza Hut (~7M) / Applebee’s (~3M) / Starbucks (~ 6M)
Mitchell’s and Butlers Boots PLC (~ 12M) ASDA (~ 2M) / Tesco (~ 1.5M) / Waitrose (~ 2M) / TJX / New Look / etc.
11
EMPATHICA STORY
‘02 Founded
/ Rev.+
– 375k deal
with FP
‘03 – CDN
Inflection Point
booked $3M+ in
ARR
‘05 – Chart a
New Course
- 15% EBITDA
- V2
- UK entry
- JPN entry
‘06 - $7M PE
(2M secondary)
- US / UK
acceleration
07 – Tidal
Wave
$11M ARR
- 89% Rev
Growth,
150%
Bookings
‘08 – Go Message =
1.5M Disaster
-Launch Campaign
- $4M debt
09 – Roller Coaster
- 9M
Bookings
-4M debt covenants
breached
- $6M debt restructure
- 18% decrease in ee’s
- Flat Revenue @13M
- Go Recommend – has
anyone every heard of
facebook?
10 – Team Reboot
- GR sell in first
11 – Sbux –
largest deal in Co.
History @ 2.5M
- Forrester Argh!
12 – Go Recommend
-UX Rebuild
- Social Intell.
- iBank Hired
- Senior Ops
13 – 22M ARR,
Acquisition
‘02 Beach
Head
~$1M SDM
- Angel round
$250k
1
10
5 64 7
9
82 3
11
12
4. PROGRESS DOESN’T FEEL
GOOD
• Put your head up from inside the trenches and
get a good look at what’s really happening
• Transformative events are painful
• Benchmark and be BOLD
13
EMPATHICA STORY
‘02 Founded
/ Rev.+
– 375k deal
with FP
‘03 – CDN
Inflection Point
booked $3M+ in
ARR
‘05 – Chart a
New Course
- 15% EBITDA
- V2
- UK entry
- JPN entry
‘06 - $7M PE
(2M secondary)
- US / UK
acceleration
07 – Tidal
Wave
$11M ARR
- 89% Rev
Growth,
150%
Bookings
‘08 – Go Message =
1.5M Disaster
-Launch Campaign
- $4M debt
09 – Roller Coaster
- 9M
Bookings
-4M debt covenants
breached
- $6M debt restructure
- 18% decrease in ee’s
- Flat Revenue @13M
- Go Recommend – has
anyone every heard of
facebook?
10 – Team Reboot
- GR sell in first
11 – Sbux –
largest deal in Co.
History @ 2.5M
- Forrester Argh!
12 – Go Recommend
-UX Rebuild
- Social Intell.
- iBank Hired
- Senior Ops
13 – 22M ARR,
Acquisition
‘02 Beach
Head
~$1M SDM
- Angel round
$250k
1
10
5 64 7
9
82 3
11
14
5. YOU NEED TO BAKE
• 3 Cities, 16 meetings, 8 term sheets, 2 deals
• If you don’t like each other, don’t get into business together
• It’s not over until the wire transfers are completed
• Take secondary if you can get it, negotiate the second tranche
15
EMPATHICA STORY
‘02 Founded
/ Rev.+
– 375k deal
with FP
‘03 – CDN
Inflection Point
booked $3M+ in
ARR
‘05 – Chart a
New Course
- 15% EBITDA
- V2
- UK entry
- JPN entry
‘06 - $7M PE
(2M secondary)
- US / UK
acceleration
07 – Tidal
Wave
$11M ARR
- 89% Rev
Growth,
150%
Bookings
‘08 – Go Message =
1.5M Disaster
-Launch Campaign
- $4M debt
09 – Roller Coaster
- 9M
Bookings
-4M debt covenants
breached
- $6M debt restructure
- 18% decrease in ee’s
- Flat Revenue @13M
- Go Recommend – has
anyone every heard of
facebook?
10 – Team Reboot
- GR sell in first
11 – Sbux –
largest deal in Co.
History @ 2.5M
- Forrester Argh!
12 – Go Recommend
-UX Rebuild
- Social Intell.
- iBank Hired
- Senior Ops
13 – 22M ARR,
Acquisition
‘02 Beach
Head
~$1M SDM
- Angel round
$250k
1
10
5 64 7
9
82 3
11
16
6A. EDUCATE YOUR BOARD ON
RESPONSIBLE GROWTH • No one wants to
rebuild
• Undeniable link between revenue growth and valuation
• Growth = bookings -attrition
• Reputation is critical to future success
17
6B. VALUATION ALCHEMISTS
• Acquirers buy the present value of discounted future earnings
• Correlation does not equal causation
• Timing is everything
• Capitalize on hot streaks
Insert alchemist pic
18
6C.UNDERSTAND YOUR LIMITS /
HAVE TWO PLANS
150% growth in booked sales
+89% growth in recognized revenue
+Successful acceleration in two key geographic
markets
=Failure
19
EMPATHICA STORY
‘02 Founded
/ Rev.+
– 375k deal
with FP
‘03 – CDN
Inflection Point
booked $3M+ in
ARR
‘05 – Chart a
New Course
- 15% EBITDA
- V2
- UK entry
- JPN entry
‘06 - $7M PE
(2M secondary)
- US / UK
acceleration
07 – Tidal
Wave
$11M ARR
- 89% Rev
Growth,
200%
Bookings
‘08 – Go Message =
1.5M Disaster
-Launch Campaign
- $4M debt
09 – Roller Coaster
- 9M
Bookings
-4M debt covenants
breached
- $6M debt restructure
- 18% decrease in ee’s
- Flat Revenue @13M
- Go Recommend – has
anyone every heard of
facebook?
10 – Team Reboot
- GR sell in first
11 – Sbux –
largest deal in Co.
History @ 2.5M
- Forrester Argh!
12 – Go Recommend
-UX Rebuild
- Social Intell.
- iBank Hired
- Senior Ops
13 – 22M ARR,
Acquisition
‘02 Beach
Head
~$1M SDM
- Angel round
$250k
1
11
5 64 7
9
82 3
1210
20
7. NEVER GET TOO FULL OF
YOURSELF
Innovate, Validate, Build, Validate, Refine,
Validate, Scale, Validate
21
EMPATHICA STORY
‘02 Founded
/ Rev.+
– 375k deal
with FP
‘03 – CDN
Inflection Point
booked $3M+ in
ARR
‘05 – Chart a
New Course
- 15% EBITDA
- V2
- UK entry
- JPN entry
‘06 - $7M PE
(2M secondary)
- US / UK
acceleration
07 – Tidal
Wave
$11M ARR
- 89% Rev
Growth,
150%
Bookings
‘08 – Go Message =
1.5M Disaster
-Launch Campaign
- $4M debt
09 – Roller Coaster
- 9M
Bookings
-4M debt covenants
breached
- $6M debt restructure
- 18% decrease in ee’s
- Flat Revenue @13M
- Go Recommend – has
anyone every heard of
facebook?
10 – Team Reboot
- GR sell in first
11 – Sbux –
largest deal in Co.
History @ 2.5M
- Forrester Argh!
12 – Go Recommend
-UX Rebuild
- Social Intell.
- iBank Hired
- Senior Ops
13 – 22M ARR,
Acquisition
‘02 Beach
Head
~$1M SDM
- Angel round
$250k
1
11
5 64 7
9
82 3
1210
22
8. TIMING IS EVERYTHING
23
EMPATHICA STORY
‘02 Founded
/ Rev.+
– 375k deal
with FP
‘03 – CDN
Inflection Point
booked $3M+ in
ARR
‘05 – Chart a
New Course
- 15% EBITDA
- V2
- UK entry
- JPN entry
‘06 - $7M PE
(2M secondary)
- US / UK
acceleration
07 – Tidal
Wave
$11M ARR
- 89% Rev
Growth,
150%
Bookings
‘08 – Go Message =
1.5M Disaster
-Launch Campaign
- $4M debt
09 – Roller Coaster
- 9M
Bookings
-4M debt covenants
breached
- $6M debt restructure
- 18% decrease in ee’s
- Flat Revenue @13M
- Go Recommend – has
anyone every heard of
facebook?
10 – Team Reboot
- GR sell in first
11 – Sbux –
largest deal in Co.
History @ 2.5M
- Forrester Argh!
12 – Go Recommend
-UX Rebuild
- Social Intell.
- iBank Hired
- Senior Ops
13 – 22M ARR,
Acquisition
‘02 Beach
Head
~$1M SDM
- Angel round
$250k
1
11
5 64 7
9
82 3
1210
24
9. MANAGE THE ANALYSTS
Think of 1,000,000 consecutive swear words….
25
EMPATHICA STORY
‘02 Founded
/ Rev.+
– 375k deal
with FP
‘03 – CDN
Inflection Point
booked $3M+ in
ARR
‘05 – Chart a
New Course
- 15% EBITDA
- V2
- UK entry
- JPN entry
‘06 - $7M PE
(2M secondary)
- US / UK
acceleration
07 – Tidal
Wave
$11M ARR
- 89% Rev
Growth,
150%
Bookings
‘08 – Go Message =
1.5M Disaster
-Launch Campaign
- $4M debt
09 – Roller Coaster
- 9M
Bookings
-4M debt covenants
breached
- $6M debt restructure
- 18% decrease in ee’s
- Flat Revenue @13M
- Go Recommend – has
anyone every heard of
facebook?
10 – Team Reboot
- GR sell in first
11 – Sbux –
largest deal in Co.
History @ 2.5M
- Forrester Argh!
12 – Go Recommend
-UX Rebuild
- Social Intell.
- iBank Hired
- Senior Ops
13 – 22M ARR,
Acquisition
‘02 Beach
Head
~$1M SDM
- Angel round
$250k
1
11
5 64 7
9
82 3
1210
26
10. IF YOU WANT TO GET A JOB
DONE FAST – WORK SLOW
• Change from waterfall – agile XP
• Completely different talent profile
• Rebuilt development team
• 4 UX designers
• Rebuilt the customer success team
27
EMPATHICA STORY
‘02 Founded
/ Rev.+
– 375k deal
with FP
‘03 – CDN
Inflection Point
booked $3M+ in
ARR
‘05 – Chart a
New Course
- 15% EBITDA
- V2
- UK entry
- JPN entry
‘06 - $7M PE
(2M secondary)
- US / UK
acceleration
07 – Tidal
Wave
$11M ARR
- 89% Rev
Growth,
150%
Bookings
‘08 – Go Message =
1.5M Disaster
-Launch Campaign
- $4M debt
09 – Roller Coaster
- 9M
Bookings
-4M debt covenants
breached
- $6M debt restructure
- 18% decrease in ee’s
- Flat Revenue @13M
- Go Recommend – has
anyone every heard of
facebook?
10 – Team Reboot
- GR sell in first
11 – Sbux –
largest deal in Co.
History @ 2.5M
- Forrester Argh!
12 – Go Recommend
-UX Rebuild
- Social Intell.
- iBank Hired
- Senior Ops
13 – 22M ARR,
Acquisition
‘02 Beach
Head
~$1M SDM
- Angel round
$250k
1
11
5 64 7
9
82 3
1210
28
IF 10 IS TOO MUCH,
REMEMBER 3
1. Do it because you love: it, the Team, and the
Customers
2. Everything takes twice as long and costs twice as
much
3. Move fast, work slow and build with scale in mind
29
QUESTIONS?