How taking on $17 million in debt made us a more creative (and profitable) business

Loknath Das

Woman accountant counting money dollars banknote, business financial concept

As co-founder of a tech company, I’m no stranger to the Silicon Valley dream of building a startup that becomes wildly successful almost overnight — with the potential to sell for billions. But, chasing the billion-dollar dream comes at a price; you’re forced to put short-term revenue above almost everything you care about, including your employee experience and the ability to take bigger creative risks (without the promise of immediate ROI).

This dream was so close to me, in fact, that just a year and a half ago my co-founder and I had the opportunity to cash it in. We were presented with the option to sell the business for a life-changing amount of money. But the thought of selling felt more like a failure than an opportunity. At that time, we weren’t enjoying the process of building the company and all of our efforts were focused on short-term rewards, with no creative fulfillment. If we wanted a chance at fixing what was broken, and making the company what we wanted it to be, we couldn’t subject ourselves to further pressure from investors. We had to try to make things better.

So, we decided to go all in on taking a the path less traveled in tech and do things our own way.

To do that, we had to make some big changes. We had to carry out a stock buyback and replace our employees’ stock options with a profit-sharing program. The only problem with that decision was that we’d been running at a loss (for several years) to fuel our fast-paced growth. And without nearly enough money to buy the stock back, we had to find another way to raise the funds.

Most of our advisors encouraged us to take on a new equity investor, but we knew that strategy would lead us right back to the position we were trying to avoid. Eventually, that investor would want a return — just as our current investors did. So, instead, we decided to raise $17.3 million in debt for the payout.

With this plan, our ownership of the company would increase, but so would the risks: We’d be on the hook for paying back a large sum of money, and if we missed payments, we’d risk losing control of the business completely. Plus, we’d have to pump the breaks on the hiring we’d been doing to support our growth. Taking on this debt meant we’d have no choice but to grow the way we wanted to: sustainably, with a focus on creative, long-term solutions for our customers and our team.

For us, the reward was worth the risk. Taking this path would allow us to reinvent the company and make it a place where we and our team actually want to come to work. On our previous growth-fueled path, we felt forced to make the cheapest products on the market, and that had a negative impact on both our culture and the way we did business. By taking on the debt, we had the flexibility to focus on our products, our customers, and our culture, without losing the potential for profitability.

We talked to a number of tech-focused private equity firms and, from the four offers we received, chose the one that offered us the right amount of debt and favorable terms and was also were enthusiastic and supportive about what we wanted to accomplish.

Abandoning ‘growth at all costs’

Luckily for us, this strategy seems to have worked. We’d raised the debt we needed by early 2018. Since then, our revenue has been growing faster than ever before (over 40% year-on-year in the first quarter). And our new product — a Google Chrome extension — is gaining traction.

By reigning in advertising spend and slowing down hiring, not only are we the most profitable we’ve ever been during our 13 years, but we’re also doing what we love: building simpler, faster, and more useful products, and taking bigger — and more creative — risks along the way. Because it’s worked out for us, we’ve already been able to refinance our debt at a better rate, which is essentially the easiest way to raise money without giving up control of your company.

Previously, when we were outspending our growth rate, every creative investment had to deliver ROI. That meant we spent a lot of time playing it safe, working on unremarkable things that delivered  unremarkable results. Instead of the creative, long-term risks we relished, we took financially motivated, short-term risks.

The “growth at all costs” approach shifted our priorities toward projects that would accelerate our growth in just a few months, instead of working on more meaningful projects (like overhauling a buggy users’ dashboard). But that’s all changed since we decided not to sell.

Exploring creative risks

One big creative risk our new flexibility allowed us to take was making a four-part docuseries — essentially ads for our product — that involved substantial people-hours and investment. Because each of the ads had roughly the same storyline, length, and themes, our goal was to uncover if increasing the budget from ad to ad ($1,000 to $10,000 to $100,000) would result in a higher quality production value, and a better-performing ad.

We could never have run this kind of experiment had we not decided to restructure the business. And that would’ve been a shame because it’s turned out to be the most successful piece of brand marketing we’ve ever done, and scooped up a Webby Award for “Best Original Series.”

Where do you want to place your bets?

It’s taken us a long time to figure out what we wanted to be and how we wanted to structure the business. We were fortunate to find our voice, and a successful approach, early in our journey and even more fortunate that our choice to abandon “growth at all costs” didn’t result in complete failure.

What have we learned? While having an idea of what success looks like for a project is important, you should never use measurable financial gain as the only metric of that success. Instead, you might find that when you place your bets on your team and your desire for innovation and exploration, your business has the potential to become more creative — and even more profitable — than you were before.