Jon Nordmark founded eBags.com in 1998 as one of the first Internet e-commerce companies and grew it into the largest online retailer of luggage, bags, and travel accessories. Jon was previously a successful corporate executive who led marketing for Samsonite.
eBags raised $30 million of VC funding in 1999 and survived the dot-com boom and the 2001 bust era, but the crazy growth expectations of VC investors often felt misaligned with the profitable growth path of the company and the market. eBags was eventually acquired by Samsonite in 2017 after selling $1.65 billion worth of products.
Jon’s second software company is Iterate.ai, a low-code enterprise innovation platform allowing big companies to integrate, test and scale new technologies quickly and efficiently. The company was initially funded by services revenue and then by software sales. Jon eventually raised $3 million in angel funding and a strategic investment from a large customer.
Iterate.ai has grown to over $10 million in revenue with no salesperson and an $82,000 marketing budget. It is now profitable, with no plan to raise outside funding from big VC or PE investors. This company overcame the recent challenges of the COVID-19 pandemic and emerged stronger.
Best quote from Jon:
“eBags was actually best-in-class for the whole group of companies that our VCs invested in–most of the others went bankrupt. But that wasn’t good enough to get the return our VCs needed to pay their investors.
We were growing 27% profitably. And I was told by one investor, ‘This is not good enough. We would rather have you go bankrupt than grow at this rate.’ They’ve got to deliver money back to their investors. I get it.
But this is the only company that me and all my employees and my co-founders are in. It’s 100%. This is not going bankrupt. That is not an option for me.”
Edited transcript of the Practical Founders Podcast interview with Jon Nordmark, founder and former CEO of ebags.com, and cofounder and CEO of Iterate.ai.
Greg Head: And we’re live with Jon Nordmark, the CEO and founder of Iterate.ai and way before that, eBags, for a much longer time. So, Jon, welcome to the podcast.
Jon Nordmark: Thank you, Greg. I’m super excited to get to talk to you. And I’ve met you now; I’m super excited about that because I’ve read many of your posts out in LinkedIn, and appreciate it.
Greg: Well, likewise. You’ve been preaching the gospel of start ups and new technologies and innovation and the practical funding approach. I think we’re both the older guys who’ve done a lot who are seeing the benefits of, of course, continued innovation, but not doing it the old fashioned way, just overfunding it there. Jon, let’s start with eBags, which I remember very well. I remember when it launched, I bought many things on there. This was suitcase and luggage and other kinds of bags, online e-commerce. Before you got into the SaaS world, you were founder, CEO and then Chairman through all the phases of life, almost 20 years. Where did eBags end up?
Jon: You know, we sold $1.65 billion worth of travel products, mainly luggage and bags. Over 20 million products, so shipments… We drop shipped, which is, I think one of the amazing things. You know when we got started, we worked on what was called a negative conversion cycle. A negative cash conversion cycle, sorry. And what that means is we would take a credit card, a payment, and then we’d send the order to a manufacturer. The manufacturer would ship it from their warehouse. Their warehouse, not our warehouse, but they pretended it was our warehouse. And after the consumer got it, they’d pay with the credit card and then we would pay the manufacturer about 30 days later. Actually, it was more like 60 days later, I believe, on average. So that was one of the really, really big innovations that we were involved in, building this dropship model. In the end, we had 1,000 warehouses in Europe and the United States. So it was a very complex thing and it dealt with everyone from Samsonite, which is a sophisticated warehouse system with VDI and all the way down to a handbag designer that’s shipping out of her basement, you know, but really artistic bags. Yeah, we had 1,000 vendors.
Greg: And it was huge. It was one of the e-commerce success stories based in Denver where you are. If you’re old enough, you remember the year 2000, the dotcoms. Everybody was going online, Pets.com and all the hype and funding around that and that most of them didn’t make it. But eBags made it through this negative cash conversion and all the other innovations you’ve done, the gritty, sophisticated things here. Take us back. How did eBags get started and why did you want to do that?
Jon: This is a fun story. I was head of marketing at Samsonite.
Greg: The big, old company.
Jon: A multi-billion dollar, large company. Everyone thinks of it as a gorilla company, but it wasn’t that. But it was the best, biggest brand name in that industry. Still is. But anyway, I was in charge of marketing. And marketing there is product development as well as, you know, Leo Burnett advertising type stuff. But the product development really teaches you. You develop products for many distribution channels. In that case, we had like 21 of them that I was in charge of.
Greg: Luggage stores, department stores, all the normal stuff.
Jon: Yeah, department stores, warehouse clubs, premium channels, military channels, etc., etc. And one of them was catalog. I used to climb mountains, so I was down in Ecuador climbing a mountain. And afterwards I stayed at a family’s house in Guayaquil. And when I got home, I wanted to send them a gift and I couldn’t figure out how to do it. I ended up logging onto Amazon. This is like mid-1990s. And I decided I’d send them a coffee table book. And I could do it off Amazon at that time. And I thought, “Oh my gosh, that was the easiest thing in the world. This needs to happen.”
Greg: The future is here.
Jon: Yeah. This needs to happen for luggage. And I was at Samsonite, so I tried twice to get their CEO to do that. The last time, just to create a Samsonite.com. And my idea was really to liquidate products, because at the time we were selling to T.J. Maxx.
Greg: You don’t want to compete with all your distributors, your retailers.
Jon: Yeah. And we could control the distribution, we could control the pricing. But even more than that, we could get full margin on discontinued products that, at the time, were selling at cost. So, I tried to get them to do it. And the second time, I went to dinner with the president, and after like 45 minutes he said to me, “Jon, I’m hearing what you’re talking about with this Internet thing. But John, I have email, and I guarantee you no one will ever buy a bag through an email.”
Jon: So at that point, I kind of mentally quit and started to think about how to do my own thing. I thought if there was ever an opportunity to start a company, this was it, because I really understood bags. It sounds like such a random thing to start, eBags, but to me it was so natural because we knew that 13% of sales of bags went through catalogs. And I just thought, “This is a supercharged catalog. The Internet will be.”
Greg: It’s unusual for corporate executives to quit their job and fund an experiment with this new-fangled technology. You obviously were successful in the corporate environment, but you’re really a crazy mountain climbing entrepreneur, apparently.
Jon: Yeah. I always think that the time I spent at Samsonite, which was pretty long time, I was there 10 years, was so good for me because they trained me a lot. I learned about discipline and planning and the way they think about products. I had to know the cost of every little thing that went into a product from what every little screw cost, every rivet, all the different types of materials. I kind of learned to understand all the distribution channels.
Greg: The complexities of big, established companies. They’re not dumb and slow, they’re just big and sophisticated and very challenging.
Jon: Yeah. Plus millions of dollars flowing through. You’re making millions of dollars of decisions on inventory and you can’t let it get overstocked. Anyway, that time ended up being super special. And I actually really missed a lot of the people from there when I left. But in the end, I’ve always been trying to start something and I think my blood is full of this entrepreneurial spirit. And I think there are a bunch of us people out there. I’m sure people listening to this are that way. But at the same time, I’m really super grateful for the time I spent in the large organization. Today, my company works with a lot of big companies and I think that I’m able to understand them because of the years I spent in Samsonite. I can work in both types of environments.
Greg: Speak both languages.
Jon: Yeah. I think I’m better at the startup.
Greg: Now it’s your first language, right? That’s great.
Jon: But they’re very different environments, you know? One works with and they expect a lot of certainty. The startup is from the gut and a lot more experimentation and a lot of open mindedness around people’s ideas as you’re trying to form a company. Big companies have more trouble with that.
Greg: Yeah, they have trouble with that, that’s for sure.
Jon: Which is why I started eBags.
Greg: So you quit your day job. I don’t know if you recommend that to many people. You quit your day job. You and some former Samsonite execs who had left earlier kind of put in some chips and said, “Let’s get a website going. We think we can get this thing going and it’ll be fun.” And you actually got it going. So, what was it like before this was obvious and everybody in your neighborhood knew what the internet was and before funding seemed natural? Like, that was kind of frontier thinking.
Jon: At the time, there was no Internet company that was profitable, not even close. And so no one knew how to build a business on the Internet yet.
Greg: And this was the late ’90s, and the internet meant e-commerce, generally speaking, or media or something. Not SaaS yet.
Jon: Yeah, that’s exactly right. One of the problems back then was because there was no SaaS and because there weren’t code libraries like in GitHub or whatever, everything had to be built from scratch. So, hiring people was pretty complicated. You had to find kind of the cowboy developers who could build from scratch and build in this new environment.
Greg: You had to build developers and employees from scratch. There was nobody who said, “I need somebody with 10 years experience in internet conversion or platform development or something.” Nobody had any experience at any of that stuff.
Jon: That’s exactly right. And I remember when I left my job, the very night I quit, I went out with two friends and my friends asked me, “How was your day?” And I said, “I quit my job. I’m going to start this thing called eBags.” And I told them and they just said, “Oh my God. Good luck.” It was this feeling like they weren’t that supportive. Yeah, I’m sorry to hear that. My memories going back are that 95% to 99% of people just completely disagree with what you’re doing, can’t see it. But it’s kind of led to one of the things I believe and that is that an idea is an idea when no one else agrees with you. That’s when it’s a true idea. And so if you’re doing something that’s on the cutting edge, you should just expect there are going to be a lot of people that don’t agree with you. So you have to just drive on.
Greg: You have to be both contrarian and right.
Jon: That’s right.
Greg: You knew enough about luggage and enough about online, you said, “It doesn’t have to be big yet, but I think I can get it going.”
Jon: Yeah. And it’s a gut feel that it’ll work. But it’s also embedded in a lot of thinking, right? It’s not like a wild and crazy idea because people have said, “That sounds like it was such a crazy idea, eBags.” To me, it wasn’t crazy at all.
Greg: You were right in the middle of it.
Jon: Yeah, it’s like the catalog, and we know catalogs sell a lot. And I’ve run through the financials. I know we can make this work if we can get it to a certain size. But the hard thing back then was you had to buy the servers, you had to buy the developers, you had to figure out what software to write it in, code everything. Like the dropship system, we coded our own ratings and review system because we had that seven years before it was SaaS.
Greg: That was a big deal for you guys. Right.
Jon: We ran websites for other companies like Tumi and then Case Logic all over the world. And all this was written in our office. Nothing was a library. Like my mom, I remember calling her after I’d left my job and she would say every time, “Have you written your resume? Have you put your resume out?” Because it was just a lot of fear in when you when you stop working completely. And there were real touch-and-go moments too. They’re probably too long probably for anyone to listen to here. We came two weeks from running out of money. We actually couldn’t pay our developers for a few weeks.
Greg: And what stage was that? So you got something up and you started to dropship it, all those manual early adventures and you got some revenue going. Did you almost run out of money from the founder funding and a little bit of cash, or was this the dot com, the 2001 bust and then 9/11 and all those ups and downs?
Jon: We had a guy who was going to fund our company; he offered us $10 million. We knew him, but a very wealthy person. He wanted to give us $10 million. And back then, there was no LinkedIn, there was no Facebook, there was no… There was no Greg Head.
Greg: There was no Google search.
Jon: Yeah. You couldn’t find a playbook. And I didn’t know what an accredited investor was, so I didn’t realize that you had to get this certain class of investor to invest. But in any event, each of my co-founders put in like $50,000 bucks. You know, I put in a lot in kind of even before them. But when this one guy committed $10 million, he pulled the rug on us. We had signed a no-shop, which is one of the things I would tell everyone, never do that. But we did it. And then he had all our financials, so he timed everything. He kept saying, “I’m too busy.” He said, “The money’s coming. The money’s coming.” And we ran out of money. But he said, “It’s still coming.” Well, two weeks after we couldn’t pay people from our own money, he pulled the rug completely. And then he said he wanted 80% of the company if we wanted to fund it versus the 40% we were negotiating for.
Greg: Oh, investors.
Jon: And we told him to pound sand. Thankfully, we were able to pull it out there and get everyone paid. It took another couple of weeks to a month. But that was one issue. And then in the dot bomb, too. I was trying to raise money. We’d raised $30 million, at that point, from top VCs out of Silicon Valley and New York City. We weren’t profitable; we thought we were going to need more money, a Series C round in 2000, 2001. And the money was… There was nothing there. Like, nothing. I flew all over Europe, I flew all over the United States trying to find money.
Greg: So you were a top-tier, VC funded, dot com era, boom e-commerce, new frontier world. World class, right?
Jon: Yeah. And what was kind of fun was we went with one of the big venture firms who everyone knows. We had this big summit down in Santa Fe. It was super cool. But what was so cool to me at the time was half the CEOs there were these really famous people. And then there were a handful of us, like 30 who no one knows who they are, and that was me. But then, once we got through the dot bomb, guess what? All the celebrity CEOs were bankrupt and we few companies that were kind of led by, I guess, operators, just in the weeds operators, made it through. And that was a huge lesson for me too. I don’t look at celebrity too much. It doesn’t make me feel excited in building.
Greg: Well, give us a little contrast. Because you’ve got a new venture, it’s doing quite well with no outside funding. You did the funding game and lived for the long term. It wasn’t just to raise funding and then a year later we bombed or we sold it. You led eBags as CEO then Chairman for another 17 years. You did the long run on this. You lived through another economic funding cycle and the rest.
Jon: So, when you raised funding, you obviously needed it to expand operations and start to grow and marketing and get the word out and so forth. But, what was the expectation that this little $1 million then $2 million, whatever company, would grow to be a billion dollar company and then pay back investors in seven years? What were they thinking was going to happen?
Jon: You know, what I’ve learned is that if you’re venture backed, at least by the top tiers, and I think by most, it’s a batting average game. What they’re expecting, if they put 10 investments into companies out of one fund, let’s say. You become one of the 10. You no longer have the a name. They know that right out of the bat that seven of them are going to make no money. And the minute you start appearing like one of those, they just as soon get… I mean, this is my opinion, just bankrupt you and move on. Because, they want to then find one of those top three again, and especially the top one to reapply their thinking to their attention to and their money to. And since they’re already planning to lose money on seven of the 10, or get just a tiny bit, pennies on the dollar back, you just do not want to be one of those.
Greg: That’s the penalty box, right?
Jon: And it’s almost even worse than a penalty box. I mean, there’s a high likelihood if you’re the founder or CEO, you’ll get fired. I think it’s in the 40% range, 50% range that within two years you’re going to get fired. And it keeps increasing.
Greg: And it’s not because your company isn’t reasonably successful, it’s because it doesn’t meet the criteria of success for the big fund.
Jon: That’s exactly right.
Greg: Mega growth rates.
Jon: Yeah. And so, if you aren’t going for the billion dollars, then they’d just soon bust you. And it’s their model; it’s not right or wrong. If they’re going to put $30 million in a company, yeah, go for it. Like, you’ve got to get it to a billion dollars; you’ve got to do everything you can. And the problem is, along the way you’re going to hit like what we’re in right now, this economic downdraft. You’re going to hit it. And if you need funding during the downdraft, you’re going to do a down round or never raise any money. And if you do a down round, there’s a chance it’s going to wipe out all the common stock including all the founder stock, including all your employees. And I had a lot of friends where that happened to them in the dot bomb. Thankfully, at eBags, we tightened the belt and we got through it without a down round, remained profitable and grew fast, kept it going. But you’re going to go through some tough spots along the way.
Greg: You turned into… you were a funded growth company. And then the dot com happened and people don’t really realize… There’s funding contraction right now, the economy is slowing. But in 2001, almost 50% of the tech IPOs that went public on NASDAQ were gone. Companies were gone. Stop funding, rug pulled. It was really quite amazing. So you went through this transformation of go, go, go. And then, unlike everybody else, you got off the drugs, got lean and mean, got super practical, managed your cash, managed your conversion, managed your marketing spend, managed your drop shipping. You became an efficient growth company that was almost profitable.
Jon: That was profitable.
Greg: Okay. Very nice.
Jon: Not even almost. Businessweek wrote an article…
Greg: That was unheard of, by the way, to be profitable.
Jon: Yeah. Businessweek wrote an article in, I think it was 2001, and they named us as one of the first four profitable dot coms. And it was us, Overstock.com, Amazon and Blue Nile. We were one of those.
Greg: Isn’t that amazing, Jon, how that became cool in about six months? A year earlier, it was, “You can’t raise enough money, you can’t spend enough, you can’t get enough eyeballs.” And then a year later, profitability is king, otherwise, well, you’re dead.
Jon: Turn a profit or die. When we had a party when we hit the profitability, we called it blackjack to black. In other words, we always had these goals and blackjack meant we needed $21,000 a day in gross margin to become profitable. And so we were just driving at that. So when we hit the number, it was a blackjack to black party. There was the Men in Black movie that had just come out and just a great time.
Jon: But the thing is, the work to get there was unbelievable and our marketing team, which was primarily these kids out of University of Colorado, we’re a Denver-based company. And I call them kids because they were really 25 and under, they just figured it out. I mean, they were led by a couple of more senior people, but they figured it out. When we started out, in a period of about a year-and-a-half, we went from spending $1 in marketing to get $0.50 in revenue… So think about that. The marketing alone puts you into massive losses. But within a year-and-a-half they got it up to $13 in revenue for every $1 spent in marketing.
Jon: And that’s when we became profitable. It was a remarkable period of time and the achievements they made.
Greg: And it wasn’t because you discovered some new… You were the first to Google SEO or something like that. You had an extreme discipline of measurement, testing, experimentation that big companies struggle with that. And a lot of startups, they just rely on their intuition and just being early, and savvy or something like that. But you were like a direct marketing company, like catalogs were, who was extremely disciplined about measurement. We’ll try 100 things and we’ll keep three.
Jon: That’s another amazing story. And this is how startups have to behave. So, I remember one night I was working late and a guy named Val Agostino, he was a young 25 year old engineer. He came into my office and he said, “Jon, I think I know what we could do to to make this work.” And I was like, “What is it, Val? Sit down. Tell me what we’ve got to do.” And he said, “Well, you know how direct marketing companies will send out a mailer with one headline and then another mailer with another headline?”
Greg: Yes. They’ll test 20 things before scaling.
Jon: Yeah. So he said, “Do you know what that is?” And I said, “Of course, I’m a traditional marketing guy.” And he said, “What if we could do that with our website? We could change the headlines and we could change the pictures.” And I was like, “You could do that? You think we could do that?” And he said, “I think we can.” And I said, “How?” And he said, “Well, if you could give me three weeks, I think we could write the code that could create this ability to test.” And I said, “Val, go home. You don’t even need to come to work. Go home for three weeks and come back with that.” And lo and behold, they did it. I don’t remember if he stayed home or did it at work, but then we launched it.
Jon: So it was A/B split test platform that we built internally. And it was before… I mean, the term didn’t even show up in Wikipedia until 2007, I believe. So we started doing that about seven years before it even showed up. And it was this internally built system and we tested everything. And so we moved our conversion rate from like 0.7% on a daily basis up to about 7%, and it would go from 5% to 7%. Now, that took years. But the thing is, it was just an incredible discipline.
Greg: So your website, instead of having one static website for everybody, people would show up as, you would get to a page or a button or an image or something, and you would swap it out. Every other one, you’d switch it or something. Then you’d see which one was better and keep going that track.
Jon: Yeah, and it was really sophisticated. We made sure every traffic source was A/B split tested. We tested the number of pictures a product should have. Should it be five, should it be seven, should it be three? We tested everything. We tested everything. And anyway, that discipline taught us a few things. It was culturally good because we decided that anybody could have a good idea, like anybody could have it. And I learned myself, because we’d also place little bets, not like money bets, but we would say, “Hey, Greg, we’re going to write it down. What do you think is going to happen on this one?” And I started telling people, “One thing that I know is I’m only right half the time. So, is this a good idea, a bad idea? I don’t know. The only way we’re going to know is let’s test it out.”
Jon: And we were a machine on doing that. We were recognized by Nielsen as being one of the top 10 converting sites on the whole internet by 2007. But that was Val Agostino and that little group, and the whole company had embraced that.
Greg: That’s amazing. In that late ’90s to 2007 when you were CEO, how big did the company get with employees?
Jon: We were about 100 employees while I was CEO, up to 100. Or maybe it was like 120, but it was a little over $100 million in revenue.
Greg: And what was the margin, gross margin, like on that? You’re obviously reselling bags. It’s not like a SaaS product.
Jon: 38% gross margin after shipping and everything like that. And then our marketing spend was about 13%. You know, we were running, I think, pretty efficiently. And we always grew… Like, our CAGR, our average growth rate was about 34%.
Greg: Was that good enough for the VCs?
Jon: So, I was just going to say that’s not good enough. It was actually best in class for the whole group of companies that they invested in. Like, the 30 companies that we were in a portfolio with, most of them went bankrupt. So, okay. We were top of those, but it’s not good enough to get the return they need to pay the investors, their investors. And it’s not right or wrong, but I remember having a conversation that… We were growing 27% at one point when it was really tight economically, and profitably. And I was just sort of told, “This is not good enough. We would rather have you go bankrupt than grow at this rate.” And yet I’ve got to maintain the profitability and 90% of the investments were bankrupt. They’ve got to deliver money back to their investors, so, you know, I get it.
Jon: But my thing was, Greg, I remember this conversation so well because we stopped on a street side in the dark. Felt like teenagers, you know, sitting in the car talking. I’m told 27% isn’t enough, and I said, “You know, the one thing I’m not going to do is take this company into a loss situation when we can’t raise money because then we’re just in jeopardy of bankrupting things.”
Greg: 2008, 2009, the funding doors closed again, and you hadn’t raised since your early days.
Jon: Yeah. And the second thing is, this is the only company that me and all my employees and my co-founders are in.
Greg: It’s 100% of your bet.
Jon: It’s 100%. This is not going bankrupt. That is not an option for me. And by the way, the other thing is I’m making like $70,000 a year. That’s what I made for seven years. That was my average, $70,000 a year is just a joke.
Greg: Were you ever able to take any money off the table? Because that wasn’t common at all back then, the secondary.
Jon: I was invited to join YPO. I asked the board to pay for it; they wouldn’t do it. And I was making $70,000 a year and it costs like $7,000 a year to be in YPO. You know, I think the thing was they wanted alignment with “you sell the company and you make money on the sale of the stock,” and that was it.
Greg: That’s what it was back then. Nobody was making money before there was a big sale. Hurry up and get to an exit. You didn’t get to an exit right away. Hung in there, and I guess your investors hung in there.
Jon: This is kind of interesting because we actually had a couple options to sell it, a couple of opportunities. And one was very good.
Greg: But not good enough, I’m imagining.
Jon: Right. I mean, the first one that came in was when we were six years old. For a lot of our investors, it would have made 10X their money back. But guess what? Like, not good enough.
Greg: VC investors didn’t let you do it because you didn’t meet their criteria.
Jon: Yeah. But in all honesty, I didn’t really fight for it either because I figure they know what they’re talking about.
Greg: Yeah. You’re playing the game together. You’re trying to make this happen for everybody, yeah.
Jon: They must believe in it. But looking back, I’d have a whole different way of maybe looking at this today. And what you learn too is, just like we’re in this economic downdraft now, these opportunities to exit a company come and go.
Greg: In waves.
Jon: And we had three. While I was a CEO, we had three real opportunities to sell the company. One would have been very good from my perspective. One would have been good from my perspective, because it was it good as we got in 17 years and it would have happened in like eight. But it was the same amount of money kind of thing. And then, one was really bad. So we would have walked from that one anyway.
Greg: So you were CEO of this company and it was growing. You weren’t CEO forever. You transitioned out of that. Was that your choice?
Jon: I got fired.
Greg: Oh, okay. There we go.
Jon: But get this. We were making all our numbers, like everything in the budget, the profits, the growth, the top line. And this is something that I can’t go into much detail on, but the thing that I think I wasn’t focused on was getting it sold. And I wasn’t accomplishing that at the level that they needed.
Greg: You were running a great business and not solving the VCs’ problem, I guess.
Jon: Right. And what you find is that at a 10 year number… Basically most venture funds are about 10 years in length, right? That’s what they’re built to do, return all the money within 10 years and they’re out of fund…
Greg: Invest it and get the money back.
Jon: So if you have a company that isn’t sold within 10 years, they can get some extensions on that, but you become… You’re violating their business model, basically. And I think I was viewed as someone who would be happy running this.
Greg: Which you were.
Jon: Probably was. That’s right. Well, more than that, I wasn’t going to sell it at a loss. And get this. In a company like ours which had raised $30 million, if we sold it for $40 million, actually the way all the preferences work, the earliest investors actually come out quite nice with pretty big returns. And then the other ones get most of their money back or whatever. But the people in the company and the founders don’t really start making, at least in our company, didn’t really start making any money unless it got over $70 million. And so what that does is put you at odds, too, because the investors would be willing to…
Greg: The founders are last in line. When you sell a company and the price is low, they get their cut first. Their liquidation preference and so forth.
Jon: Yeah. And in our case, not only their cut but a cut plus a pretty big upside. And so, when you start looking at that, you’ve got to be very careful because the investors might be incentivized to dump it, dump the company and still make a good amount of money, whereas everyone who worked there and the founders lose everything. So anyway, my life revolved around that for a while. And actually, we did very, very nicely in managing that. But I learned way too much during that process, probably, about the way all these things work.
Greg: You stayed on the board, I guess, and there was a new CEO. Did that work? Because dot, dot, dot, you sold it in 2017, but…
Jon: I like to say I kind of got fired three times and hired… I was fired multiple times because I got fired then, but they tried to fire me off the board, but then the way the documents were written, the only people that could fire me were my co-founders, so I got reinstated. Then I was removed as Chairman. And then I was invited back by our investors to be the Chairman again.
Greg: Oh, interesting. The same investors?
Greg: Well, they tried another horse and then they said, “Oh, that didn’t work. Let’s bring him back.” So that’s very interesting.
Jon: Well, and the funny thing was we went through three CEOs between after me to the end. And when we brought in the very last one, actually, some of our investors sold their stock at like half of what they put in in the beginning because there were differences in how to run the company at this point from my perspective and their perspective. But 18 months after they sold out, we sold the company at… The people that bought the the venture firm’s stock made, I think it was like 15 times their money back in 18 months.
Greg: So there was a little transition of the funding there.
Greg: Wow. That’s really interesting.
Jon: I’ve been through many secondary sales after leaving and also the moving…
Greg: Changing out the investors and all of that.
Jon: Changing investors, bringing in new investors. We had founders buying back into the company at that point and making bets that it would grow. And they grew it really fast once we got the board reconfigured and the venture people changed.
Greg: Isn’t that interesting?
Jon: It went like crazy, just through the roof, fast. And then we sold it.
Greg: Wow. So the innovators turned into the old guard, and you had to replace them to get the new innovation wave going and get that going. That’s really amazing. So you learned a lot of lessons, built a very successful company. It’s still going; it’s still a massive thing.
Jon: Well it’s actually cratered, I think, after it was bought. But you know what? It’s doing what the the acquirer wanted it to do and that is it’s selling their brands.
Greg: So you learned a lot of lessons from that, had an adventure that went on and on and on. In the end was that successful for you? Did you and the founders and the employees win the prize? You finally effectively did it on your terms, I guess?
Jon: For sure. I mean, I wish it would have happened six years in because that would have been even a lot better. But you know what? I’m a lucky one because what is it? You know, 1% of companies get funded. Within that, you know, it’s like, just 30% of them end up making money for the entrepreneurs. I’m in that group, and it was actually a good outcome. It was a meaningful outcome for me, for my co-founders, for our employees. We had employees, a few of them make in the millions of dollars from there.
Greg: Yeah. That’s great.
Jon: Yeah, it was good.
Greg: So it wasn’t a six year thing, which some people think that’s a long time, that’s a quick one in the big scheme, to create a big and a bigger company, a funded big company. Unlike practical founders, they can get a few million in revenue and sell it and get out. But if you raise funding, you have to make it big. How many years were you involved with eBags?
Greg: 17 years. That’s like a whole career. The prime time.
Jon: Yeah, 10 years as CEO and then seven more years as Chairman and not Chairman, but on the board.
Greg: We’re going to play the contrast game here because then you started helping crazy startups. There’s an active tech ecosystem in Denver, Boulder there, and around the world. Now you’ve got a new venture, Iterate.ai, which I presume you looked at the lessons you learned from that adventure and where the world was going and had control of your universe and wanted to play this game. What is it now and where is it going? And then we’ll go back to how it got started and all the bumps and bruises to get that up and running.
Jon: We call it a low-code AI platform. We’ve named that Interplay, but it’s a drag and drop platform that includes a lot of really customized AI modules, integrations into legacy tech stacks where we can integrate into Oracle, SAP, Salesforce.
Greg: That big companies use.
Jon: The big companies use it, yeah. Circle K, Ulta Beauty, companies like that. We’ve got a couple of banks over in Asia we’re signing on. We just got a really interesting entertainment company yesterday that we’re starting to work with. But what we can do is help companies develop digital applications that are 17 times faster to build than traditional ways. Up to 17, I should say. It could be 2 to 17 times. But it’s very complex applications. We have about 90 people here now. And we just got our very first salesperson in the last year. We had an $82,000 marketing budget a year ago. Now we’re starting to do a little bit more marketing, mainly PR. You know, we’re mainly technical people, 13 of which have like Ph.Ds and master’s degrees in stuff like A.I., physics. We build this really complicated stuff for the big enterprise. And we believe that’s our target. It’s the big, complicated enterprise companies.
Greg: Helping them utilize the new technology, the new wave to move faster and experiment and do all the things that startups do without doing it the old fashioned way, which is take a long time, only buy from big companies, plug it in slowly and so forth. You allow them to connect… You have a platform that connects into their systems and then you have, say, an ecosystem of apps they can try and play with and test.
Jon: We have 500 pre-built apps, like IoT connectors, AI modules, like random forest classifier to different regression algorithms and stuff like that. Then we’ve got the connections into the big legacy stack systems like the Oracle, Salesforce, SAP.
Greg: Salesforce is legacy now.
Jon: Well, yeah, I guess. But you know, we can connect into all that. And then, messaging apps, commerce-like payment applications, all these are color coded on the platform. We have 500 of those that we’ve built, internally. And then we’ve got all these connections…
Greg: That you guys built. They’re not external apps. So this isn’t like an AppExchange marketplace that you attach to big ecosystems and you can choose apps to run it. You actually built the apps. It’s a plug and play.
Jon: It’s our. Like we have, I think, 20… We have a number of patents that have been granted. One of them is a drag and drop AI patent, that’s ours. We have a really sophisticated… We wanted the web developer to be able to access these and use them. And by the way, like our developers, my co-founder Brian Sathianathan, he’s an ex-Apple secret products guy. He has a patent on the first iPhone. It was a tiny team, but he led the team that built all the security software and the tethering to AT&T for the very first iPhone. In my mind, he’s a technical genius. If you asked him though, he would say that these people that he works with are the technical geniuses. And we have two guys on our team, both of them are from Apple, that write code at the kernel level, like they can write ones and zeros; they change operating systems. So we do that to make our our low-code. Our low-code is not like a workflow low-code. It’s very advanced in that you can develop inside of it. You can develop really advanced applications on top of it that are super custom.
Greg: So it’s drag and drop with some deeper sophistication in there. So is that a SaaS business, meaning they’re paying for a platform and then they’re paying for the plugins, which is different than e-commerce, right? You’re a software business now.
Jon: We’re a software business. And we actually can attach into like 4,000 more applications from the open source community. So it’s very customizable. But anyway, yeah, it’s a platform. An enterprise would buy the platform, or license it I should say. But then on top of it, the way we work, every application you put on top, we don’t charge for those. It’s just, you can put as many applications on top of that as you’d like.
Greg: So it’s a flat fee kind of thing, right?
Jon: But then we charge based on volume. What we want to do is encourage experimentation. Going back to the old eBags days, we want people to build as many apps as they can on those, and then as the ones they build work, they scale out into their organization. As they scale and get used more, we get paid more. But we don’t want to make the experimentation piece of this a barrier to doing more experiments. We want them to do as much as they can.
Greg: So they have a sunk cost. So there’s a free marginal cost of trying a new plugin so they could continue to experiment.
Jon: Yeah, and usually they’ll rent some of our developers. They’ll do a sort of a retainer. And then they can access almost any of our developers and they’re really specialized. As I said, a couple of them can write kernel-level code. And then we have the AI people that some of the large organizations have trouble hiring. But we give them access to all those people and then we help do thought leadership with them to try and figure out what are some unique applications we could build to really differentiate your business and take it into the modern digital world.
Greg: So you’ve created an innovation, test and try and see if it’s effective. And if it isn’t effective, that try something else. And then if it does work, then you can scale that. I hear a lot of that innovation and iteration mentality that’s so difficult for big companies. Are you just serving the big retailers and e-commerce providers now, or is it companies of all industries?
Jon: Yeah, we started out sort of in retail, and that’s probably because of my background. I’m not technical, I’m just a business guy. My team, the guys and ladies that I work with are incredibly talented technically. But we work with retail, CPG, consumer packaged goods. We’re getting big into the banks and insurance companies, but mainly over in Asia for starting out. We’re working with telecom. So we can operate as a model off the Amazon Cloud, Google’s Cloud on the edge, on a company’s own computers. It’s really versatile.
Greg: That’s amazing. So you’re doing global growth. You’ve got a mature platform. You are doing A.I. and all the modern buzzwords of the next waves of technology. You have world-class Ph.D.s in A.I., you have enterprise, name-brand customers. That sounds like a no-brainer for funding, Jon.
Jon: But we’re profitable too.
Greg: Oh, I’m sorry to hear that. I’m so sorry to hear that.
Jon: We actually have been through two little types of funding. One was angels in the very beginning. And that was actually $1.5 million. So in all, it’s not nothing, but it’s not very much either.
Greg: I call that practical funding. It gives you some funding, but you are not indentured to the VC business model like you just described.
Jon: Exactly. And the other type of funding we do have though, is our very first big customer, Ulta Beauty. We worked with them for two years and then they wanted… Well, we all wanted to do a larger agreement with them. We did a three-year, fairly large, multi-million dollar agreement. And with that they wanted to invest some money in us and we agreed to that. So that was like another $1.5 million or so. So we’ve raised about three. And that was actually a little bit of a blessing because it allowed us to forward invest in our platform. We did go into a money-losing phase for about a year and a half.
Greg: To accelerate when you thought you knew what the plan was. Did that work out? Did that get you there faster or was that wasted time and money?
Jon: No, it worked. And that’s the one thing. Going back to eBags, we raised $30 million, and I always say that half of it was wasted. But by wasted, we don’t know. Like, we spent money in marketing; it didn’t work. Like, we did an AOL agreement for $1 million in the beginning of that one and we probably got like 10 orders on a $1 million type thing. But in this company… Well, at eBags, we became very measured too, but at this company we’ve been very measured from the beginning. Like, everything we do, we’ll try a lot of things. We experiment an awful lot, but we cut our losses. But anyway, Ulta, they’ve been a phenomenal investor and partner.
Greg: Would you call that a strategic investor? Like, a big customer wants a piece of a company and sometimes there are some blessings and some curses with that. It seems to have worked out well. Is there a secret to your success with a strategic big customer investor that you could share?
Jon: This isn’t just about investors. I think in anything, it’s all about the people. The people that are involved with us from Ulta are just… I think they’ll be good friends of mine, forever. Like, when this is all done one day, I can imagine if I go to Minneapolis, I’ll want to have coffee with Michelle. It’s that kind of thing. They’ve actually helped us strategically. In the beginning, we would take any deal we could get for $25,000.
Greg: Say yes to everything, right.
Jon: Yeah, everything. And then as we started getting bigger, their Chief Digital Officer, a woman named Prama, she said to us in a board meeting, because they come and watch our board meetings, she said, “You know, why don’t you guys go back and think about who your customer really should be. Like, think hard about that.” And we did come out of that saying, “You know what? We build really complex software for complex systems but we simplify its usage of it for the enterprise. We are great for the enterprise. We’re not so good for a smaller company, like a $200 million company that’s paying us $25,000 a year. It’s probably just not…”
Greg: Little guys. Isn’t that interesting? A board member, an advisor, asks a question. They don’t give you the answer or tell you, but they think. They ask a question to you, and this was your focusing heading towards product-market fit question. Just to these people that just have this problem, we just have this solution.
Jon: Yeah. For a lot of smaller companies, we were doing a lot of thought leadership for them. Just spending a lot of time helping them think through things and not getting very much money for it. But our contracts have gotten into the multi-million dollar numbers per year. And we just thought, “Gosh, we spend the same brain activity on these big companies where the outcome for us is so big as we do for the smaller companies.” And even though we love the business and the people who have stakes in this business, we should really focus. And just so that we’re doing the same thing for many, many companies, I mean, we’ve got a process, we should focus on the enterprise.
Greg: Do you call that product-market fit now? Like, do you know who your customer is and you know what their problems are and you know how to deliver it and you can multiply by 100?
Jon: You know, we’re about a nine-year-old company now, and I would say we hit product-market fit two years ago, a year-and-a-half, two years ago, where we know, “Oh, wow, we can really serve the enterprise in a world-class way. We’ve got world-class software. We’ve built world-class applications that they love and their customers love. This is where we belong.” But it took a long time, seven years, to get there, I think.
Greg: A founder asked me on LinkedIn this week, “Greg, how long does it take to get to product-market fit? Out of all the people that have been on your podcast, what’s the average?” And I would say, some little ones find it in a couple of years. They never say “I got it in the beginning.” It’s always a wandering, as Jeff Bezos says, right, the experimentation and saying yes to everything. And then it’s a narrow ink. I said, you know the average is three to five years. But you’ve got a very ambitious thing. You could make literally anything for anybody with these bright minds and big customers. You were very lean to get there. You didn’t take rounds of funding to keep throwing in waves, or “Maybe we’ll try this,” and everything. You just kind of did it at your own pace.
Jon: You know, Greg, what was interesting to me… One, my co-founder, Brian, is… I mean, I couldn’t have been more blessed than to get to work with him.
Greg: Technical co-founder, right? This is obviously very advanced technology, and you have a technical brainiac.
Jon: Yeah. And he’s so… Like, he’s a visionary on tech. I think I’m kind of that way a little bit on businesses themselves, but he can teach me so much about AI, about low-code, about these things that I didn’t know about, where the world’s headed technically, and I listen to him. But anyway, what he does though is… We did our early business model, which could have been product-market fit there too, because we were consulting, doing a lot of consulting for companies, thought leadership. We’re good at that; we’re really good at that. And that could have been our business and we would have said maybe five years ago we got product-market fit. But what Brian would do is he would listen to our customers and he would be looking for their problems. I don’t know if he’s looking for them or he’s just listening really well. But we were seeing that they were having a real hard time taking these ideas that they wanted to bring to market, getting them into their IT team and prioritizing them and getting them done. And that’s when Brian said…
Greg: The innovator’s dilemma. It’s very painful to try little things at big companies.
Jon: Yeah. And Brian was going to a wedding in Australia one day. This is back in 2017, I believe. And he said, “Jon, when I’m at the wedding, I am going to build the beginning of a low code.” We were calling about this. “I’m going to build the beginning of this platform we’re going to have.” And I was trying to figure out what he wanted to do. I know Brian, so I’m like, “Go.”
Greg: Take three weeks. Don’t come to the office, yeah.
Jon: It’s exactly that, there you go. It’s now all over again to some extent. But Brian, he built this thing. He got it started with another guy, John Selvadurai. He’s got a Ph.D. in swarm computing, it’s AI, big data and IoT. But they built the beginning of that platform. But it came because of this need. We were having such trouble just getting projects completed. And that’s when Brian said, “We can build a layer, like this completion software, this ability for them to build outside their legacy stack, but it works with the legacy stack.” And so, when we build even prototypes today, they can go to production.
Jon: We built a little prototype, the first one we built for a $60 billion company, it’s a convenience store. They looked at it when we were done in three weeks. And it includes a lot of computer vision and payment systems and everything. But we built it in three weeks. And when we were done, their engineers looked at it and said, “This isn’t a prototype. This would go to production.” And we were like, “Well, yeah, sure. I mean, it’s all integrated, but it’s a prototype.” And they’re like, “Well, we’re going to try to take it to production.” And so they spent four months actually testing security, privacy, because it went live in Europe first, and scalability. And they tested it for four months and it went live and now it’s in 4,000 stores for them over in… That one little prototype. 4,000 stores over eight countries in Europe. And that’s how we built Interplay.
Greg: Interplay, your platform, that’s part of the Iterate company. Jon, what is the vision for Iterate to grow this thing, I don’t know, be independent forever, IPO, sell it or something, that helps you attract these world-class technologists and that’s worthy of your time and adventure.
Jon: Well, I do think since most of our talent is technical, I credit Brian for that because he worked for Apple in their secret products area, which is a tiny new product introduction group. It’s a tiny group within Apple. They’re the ones responsible for all the stuff, you know, the cool things that come out. When you work with him, you can see why he worked in that department. And he’s attracted people from that department that work with us today. But then we have other people that just love being around that creative energy and this ability, this drive to create new things. And I’ve heard this many times, great engineers, a lot of times… Not that they don’t care what they’re paid, because they do, but what’s even more important to them is the mental stimulation. I think it’s this openness to solving problems, and that’s super attractive to these great technical people.
Jon: And then that feeds off into the business because our business people, they want to be here because… Like this first salesperson we hired, he’s so excited because he’s been in the startup community for a long time with big, heavily funded companies. He said, “A lot of times you’re having to sell stuff that doesn’t exist in these other companies and then you have to pray that the developers will get it done in like six months or a year.” And he said, “The delivery is so hard. But in our company, we deliver what we promise.” So for him as a salesperson…
Greg: You guys can ship faster, not just hoping for bigger customers. You can build that plugin on top of…
Jon: We ship to the big customers, fast. And the other thing is we never have to ask for permission. You know, I remember having to go to board meetings and you’ve got to like go through these strategies and try to explain what you’re hearing. And then they’ll tell you too. “Oh, you need to hire someone from a massive company to be in this one certain position.” Anyway, it just becomes really complex management in that case. And in our case, we’re just so lean, we can make decisions in minutes, just a phone call. We could do a board resolution fast and everything’s just easier. And we’re all involved with the customers. Brian always says, “We’re not a company of managers and doers, we’re a company of doers and doer-doers.
Greg: Extreme doing, extreme doing. So, congratulations on your success there. I know that’s going to continue to grow. Innovating quickly at scale for big companies is going to be a perpetual problem, and you’re helping them do it with amazing technologies. Because you’ve got so much going on, I could go on for another hour here. I want to kind of wrap things up here because, you know, it’s amazing. You’ve done it in e-commerce and SaaS, you’ve done it with the new frontier technologies backing the internet and cloud and AI and computer vision. You’re kind of a frontiersman on the cutting edge, bringing big businesses and established industries into the future. You’ve been a founder, a CEO, you’ve done startup at scale inside big companies. Let’s talk about the funding game for founders. Because they’re asking me, “Should I take funding? Should I get funding? Should I expect funding?” So even if you were a top tier founder with a great idea and a little traction and sexy to investors, what do you recommend to founders about funding? Stay off the funding drugs or only use funding in these circumstances or funding is okay if you’re this kind of founder in this kind of thing? How do you talk about funding to all the founders you’ve helped?
Jon: Well, my belief is every business is different, so there are going to be certain businesses that require money and outside funding. And then there are other businesses that don’t. So if you’re building a hardware product and you’re going to have to go get molds built, you may need outside funding. But no matter what, I think the best thing to do is get as much traction as you can without any funding. If you can do consulting as part of your business in the beginning to fund the growth, do that. And Iterate did a lot of that. We would charge for just our thought leadership services and that paid a lot of bills and gave us time to build. We actually own two software platforms. Interplay’s one of them, but it gave us time to build these platforms.
Jon: I think another thing is make sure you get a founding team where people are overlapping a little bit, but also very different. And I think Brian and I are a great example of this because Brian is super technical. He’s also a business guy; like he operated as a VC for a little bit, two years.
Greg: He speaks both languages.
Jon: He can speak both. I’m more of a business guy and a marketing guy. I cannot write code. I actually was pretty good at math and stuff, but I’m not a developer. But the thing is, we have really complementary skill sets, and more than that, respect for each other and a respect for all the people that work with us. But anyway, if you can get a person who’s technical, who can build, and he’ll build or she’ll build without… They don’t need to be paid, because you’re consulting or whatever, game on. Like, that’s the best way to build a business. And the longer you can go and start producing KPIs, the better. If you can produce KPIs on your own dime, that’s good. Because the thing is, usually, at least this is my experience, the minute you raise money you start getting all the opinions and ideas and stuff like that from the people that you raised money from. And guess what? You are obligated to listen and you and you’re going to do it anyway.
Greg: It’s a new customer you have to serve.
Jon: Yeah. And they’re a customer who’s not using the product too. They’re a customer with just theories and spreadsheets. That’s what you’re listening to. And it can be really dangerous.
Greg: Jon, does that include the practical funding, your angel investors? Would you say that same caveat applies to the little guys that invest?
Jon: Not nearly as much. I mean, we had, believe it or not, 200 angels at eBags. We have like eight or something in Iterate. And some of them, they do provide advice. They give really good ideas. I go to lunch today with a couple of them that live near me probably every couple of months, and I’m all ears. I want to hear what they think. But you know what? They don’t have board seats. They don’t have so much money in it that they feel like they need to really beat you up if you don’t do something that they thought about. It’s a whole different dynamic. And the other thing is, on the strategic side, yeah, they want to make money. I know they want a good return on their investment, but you know, it’s not like a venture firm where it’s live or die by that investment. They look at us, they wanted to be close to us just because we’re strategic to them. We’re bringing them a really interesting software capability.
Greg: And almost make sure you don’t go away.
Jon: Yes. They want us to live. The only negative side to that is that we do have some restrictions on a couple of companies we can’t work with because we’re working with the strategic. But it’s tiny. It’s tiny; it’s nothing. In our world, it doesn’t matter. And they’ve brought us great advice. But again, they bring it as operators, not investors.
Greg: So it’s not “never funding.” I call it procrastinating funding. Just say often, get as far as you can, and improve as much as you can, because founder funding fit is really important. But would you ever raise funding now that you’ve got your product-market fit and perhaps just add more sales guys, or?
Jon: Yeah, I take calls. We’ve got a couple strategic companies, customers that ask us… We get calls from growth investors all the time now. But the thing is we’re not leaning in any direction like that. We’re just trying to build a great company that doesn’t get distracted. We don’t want too many… The minute you take money, at least me, I feel a real obligation and you feel a real debt.
Greg: If you do it right. Yeah, you are responsible.
Jon: You’re responsible. And you owe, and it just becomes such a… Not a burden, but it’s a feeling. And just back to your first question though, Greg, I have just two stories. Well, one especially. After I left eBags, I got a call. Somehow I got connected with Toby Lütke, the founder of Shopify. When when we started talking, it was 2008 I believe, there were eight people and he was sending me emails from jadedpixel.com. It wasn’t called Shopify. They were already like four or five years old, I think it was, but eight people working there. And it was starting to gain momentum. And I have this in my emails today because they had 5,000 customers. We talked a lot for a year. He actually asked me to help them, advise them and stuff like that. And I declined. But what he wanted help with was exactly what you’re talking about right now. Should we raise money? We have 5,000 customers now. We’re trying to figure out what to do going forward. What should I be careful of? What should I do?
Jon: But the reason I tell you this story, though, is I think he did it right from the beginning. Because they went five, six, seven, I think it was actually eight years without ever really raising money. They got up to 5,000 customers. Of course, they were all tiny customers and they might have gotten to 10,000 by the time they took money. I don’t know; I don’t remember. But the thing is, then they raised a lot of money and it became $100 billion company. $100 billion. Over $100 billion. But the thing is, no one really understands that thing was built for seven years with nothing. Just these guys up in Canada, scrappy, if you called them, Toby would answer the phone putting it together. And I have many stories like that. That’s probably the biggest one. Well, for sure, the biggest one. But Omnitor was built that way, bodybuilding.com was built that way. AllPosters, which is one of my all-time favorite stories was built that way. Just by these scrappy entrepreneurs doing it without money.
Greg: And the way to say it is they were building something that could be a rocket and then they didn’t add funding rocket fuel, big funding, until they had a rocket.
Jon: That’s right. They had the rocket before they put the fuel in.
Greg: For eight years they didn’t have a rocket. “Is this a rocket?” “No, it’s not a rocket.” “Does it have the right fins?” “No, if we put rocket fuel in it, it would blow up.”
Jon: That is a hilarious analogy. I like that. Is the rocket built yet? And you know what’s funny? I actually think Iterate has the rocket built now.
Greg: Yeah, that’s what I’m asking.
Jon: It’s like, do we want fuel or not? But we’re fueling ourselves and…
Greg: But you have a choice. And I’m hearing one thing is that you could do it efficiently, right? You could add salespeople and manage the cash and do this. And then you have some light funding options there. But you don’t want to inherit that whole weight of the board and this layer of reporting and control and “I have to sell this in five years.”
Jon: Because of your obligations.
Greg: Yeah. Which by the way, that’s what you agreed to when you raise funding. It’s like, I’m going to play your game. We’ll do this together. You know, we’re playing in the NFL; it’s a pro game. If you want to do this for the next 20 years, you don’t get to raise big funding that needs to get out in seven years.
Jon: No, obviously we want to take care of anyone who’s involved in our company. We want it to be a great outcome. But at the same time, we don’t want that driving the… You know, we want to build a great business. Like, our number one objective is to build a great business that could last forever through any downturn. And you know, this is how I started reading what you write. And I was thinking, “Oh my gosh, we are in this spot where if I were at eBags right now, I’d be panicking because I’d be worried about a down round, worried about having to do layoffs, worried about all these really negative things.”
Greg: It’s life or death because of the funding.
Jon: Life or death, yeah. But you know what? Iterate’s the opposite. Just right now, we’re hiring seven people. That doesn’t sound like a ton, but we’re closing deals. We’re not laying people off. We’re just trying to forecast how much money we’re going to make and how much to reinvest. It’s completely the opposite of what I dealt with in my old company. And it feels so much better.
Greg: And the amazing thing… And this is one of the reasons I’ve converted as well, is because, I mean, first of all, software is very high margin and now it doesn’t take you big funding rounds to build a product, a big funding round to get into market. You could build it efficiently. It should be a pretty efficient growth machine. If it’s amazing software, it ought to grow pretty fast and pretty profitably because it can. Pretty amazing.
Jon: Absolutely. I remember when I was at eBags and I was watching. I’d made many, many friends in software companies because they were our vendors. And I used to sit there thinking… I would be jealous of these people.
Greg: Their cool valuations and their margins.
Jon: I always thought if I do this again, I want to do software. But then I need the proper partners to do that. And I got lucky, you know, because here I am.
Greg: It’s amazing, Jon. I’m going to link to a few of the articles and podcasts where you’ve told the larger story and talked about your lessons. We picked off a few of them here today. A link to that in the show notes on practicalfounders.com. Jon, is there any last thing that you’d like to share with practical founders out there who are building products and companies and serving customers and thinking about changing the world and doing it efficiently?
Jon: I do believe this. It’ll probably be harder than you expect, but the other side of it is there’s nothing more satisfying professionally than building a company and watching it go from nothing to actually… Like with eBags, I go in the airport today, I still see eBags every single time, a number of them. And I just get a little sense of happiness when I see that. And also the camaraderie you build with your employees and all the people that you build with is kind of, in my view, it’s unmatchable. Like with eBags, I’ve been gone from that for a long, long time, but we still get together about once a year and just everybody’s so happy to see each other. We’re all like that. I mean, it’s just a super special thing. So I think for the practical founders, go for it. Network like crazy. Listen to people like Greg and all these people that he talks to. Get as much advice as you can and just enjoy the journey.
Greg: Founders that I’ve worked with, Pat Sullivan, we did ACT! and SalesLogix together, fellow Entrepreneur of the Year, E&Y Entrepreneur of the Year award winner from Phoenix. But he used to say that changing the world with people you want to work with every day, against all odds, is pretty much the best thing in the world. And you describe your version of that.
Jon: You know what you just said is so funny because when Ulta invested in us, one of the questions they asked me was, “What do you want? What do you want from this company? What makes you excited?” And I said, “Well, I really only want one thing, and that’s to work with people I really like.” You know, they were looking at me like, “What? What kind of an answer was that?” Well, they actually asked me like, “That doesn’t seem like… That’s not that great of an answer.”
Jon: I said, “Well, the thing is, I’ve done this. And it’s really a truthful answer because if I’m working with people that I enjoy working with every day, I’ll probably work longer, I’ll work harder because I want them to win, me to win, we win together. We’ll have a better outcome. I don’t choose people to work with that are couch potatoes. We all share in this work.” And so it really is. If I work with people I like, I think we can build great things. And just the other day, one of their leaders, she came to me and said, “Jon, you know, I’ve thought about that one answer. We’ve all decided we agree with you.”
Greg: So we got rid of the people we didn’t like.
Jon: Yeah, yeah.
Greg: Changing the world is done with crazy teams that lock arms and work together. And Jim Collins, fellow Coloradan, he talks about the right people on the bus. And these are the people you’re going to go through the wars with and do it. His good to great is it takes a long time to change the world. And if you’re swapping out team members every two years, it doesn’t work. These are people that have to build these companies for a long time together that can do very sophisticated things that eventually seem simple to the outside world.
Jon: That’s right. I think that’s true.
Greg: Well, John, it’s been amazing here. I want to share all of your insights and your story here on the Practical Founders Podcast, and I appreciate you sharing it here. Maybe we’ll have you back for more topical discussions at some point. I know you post as well on LinkedIn, so we’ll link to all of that.
Greg: Thank you, Greg.
Greg: Appreciate your time, Jon. Thank you.
In this episode, Jon explains:
- How he started and grew eBags.com into one of the largest and the only profitable online retailers in the early 2000s
- The brutally frustrating challenges he faced after raising big VC funding when the company was growing but didn’t meet investors’ extreme expectations
- How he kept returning as a board director and a second-time Chairman of eBags after retiring, then eventually sold the company
- Why he is staying away from big VC funding with his second company, Iterate.ai
- How they approached a strategic investment from their largest customer
- Why it took them 7 years to get to real, scalable product-market fit
eBags.com Company Facts
- Founded: 1998
- Description: eBags is the world’s leading online retailer of bags and travel accessories.
- Number of Employees: 120
- Funding: 200 angel investors at first, some investment from Mitsubishi and Dain Rauscher Wessels and then a $30 million in venture capital investment in 1998 and 1999 from Benchmark, Technology Crossover Ventures, and Amerindo Investment Advisors
- Acquisition: Samsonite acquired eBags for $105 million in cash. eBags generated $158.5 million in sales in 2016, up 23.5% from $128.3 million in 2015.
- HQ and Team Location: Denver, Colorado
Iterate.ai Company Facts
- Founded: 2013
- Description: Low-code enterprise AI and innovation platform allowing big companies to integrate, test and scale new technologies quickly and efficiently.
- Revenue: Just passed $10 million in profitable annual recurring revenues
- Number of Employees: 75 employees
- Funding: Self-funded and customer-funded, with $1.5 million in angel funding, then $1.5 million strategic investment from their largest customer. The company is growing and profitable now.
- HQ and Team Locations: Based in Denver, Colorado, with an office San Jose, CA; three offices in India; one in Sri Lanka
- Jon Nordmark on LinkedIn
- eBags.com on LinkedIn
- eBags.com website
- Iterate.ai on LinkedIn
- Iterate.ai website
The Practical Founders Podcast
Tune into the Practical Founders Podcast for weekly in-depth interviews with founders who have built valuable software companies—without big funding.
Subscribe to the Practical Founders Podcast using your favorite podcast app.