Part of Bob’s continued ramblings.
TLDR: RunSignup is Employee Owned. That means that we do not have outside investors and all employees own stock as well as participate in a profit sharing program. We were lucky to not need outside investment. Our team wants to continue building software for events and helping make customers happy for the long run.
Employee Owned Philosophy
There are several parts to this philosophy:
- The people who help build the company should be rewarded for their efforts.
- The people who make up the company will be more motivated to work hard over a long period of time because they know they will be rewarded over a long period of time. Think of a marathon rather than a 100 meter sprint.
I’ve written before about the “Three Leg Stool” that provides stability to a company (this lower right virtuous circle of our Guiding Principles). There has to be a balance between Owners, Employees and Customers. There are many cases where owners will become dominant and potentially take advantage of employees or customers. This happens when investors raise prices, or do “workforce reduction to optimize”.
Eliminating outside investors make this much more efficient. It reduces the risk of misalignment between employees and investors. It also maximizes the return to the people who are actually doing the work of the company and overcharging customers for the value we provide.
We all love what we do. We love waking up and having interesting things to do. And if we get the benefit directly and share the rewards of supporting our customers well by sharing a fair profit for the value we provide so we can make a good living, then why not keep doing that?
Our Employee Owned Structure
We have a comprehensive Employee Compensation and Benefit program at RunSignup. This has led to having long term employees, who become more and more productive – over 4 centuries of experience at RunSignup!
Relative to the concept of sharing in the profit of the company, we split the profit three ways. First to keep our working capital robust so that we have enough money for emergencies and to operate a growing business. Second, we instituted Profit Sharing in 2023. All employees received 1.91% of their compensation as a profit sharing bonus – so as the profits grow, that % can grow. Third, is distributing dividends to stock holders.
The question of how to distribute ownership is a bit tricky, the basic idea is that everyone at the company has stock options. This is the cost effective and tax efficient way to pass ownership to employees. It gives the employee the right to convert the stock option into real stock at a price. The price is based on our annual 409A valuation done by an independent firm. In 2018, that valuation was $0.62 cents per share. So we could give an employee say 1,000 options to purchase 1,000 shares at a price of $620. That stock option is tax free, hence why it is so widely used.
In our company where we think long term, the way that there can be value from that stock is via dividends. In 2024 we will pay 5 cents of dividends per share. There is a hope the dividend can increase in future years as we expand the company and keep doing a good job for our customers. We expect to do some things in 2026 that will make it easy and beneficial for employees to convert their options into stock. Right now there are only some employees who have converted and will receive dividends, but we expect that to be most if not all employees within the next couple of years.
Why Companies Take Outside Funding and Why We Do Not Need To
Companies take money for two reasons:
- They need capital to expand their business. They might think a market is very large and they want to be very aggressive in spending money to capture market share – Open AI is doing this now as an example on the high end. Lets Do This is doing that in our tiny endurance market now having taken $100 Million of investor money. Once outside money is taken, the strategy becomes the second reason.
- Sell the company for a large valuation. Investors and early employees with stock options hope to make a windfall from this. Sometimes that is the case, but as most venture investors will tell you it is successful in 1 or 2 out of the 10 companies they invest in. So when companies get the chance, like Race Roster did to sell at a very good valuation of $29M to Asics in 2019, the founders and investors were able to get a great and immediate return on their investment.
We are not taking outside money because our market is not growing fast enough to require additional funding. While we could spend a lot of money and hire a bunch of sales people and do a bunch of marketing, we do not think it would make us grow more quickly. Pretty much all events already have a registration or ticketing vendor. Making change takes time. It has taken us 15 years to get to 50% market share in endurance in the US. We are not sure it would have happened that much faster if we had spent twice as much.
The other reason we are not seeking outside investment is that we would prefer to maximize our value over time. The value comes monetarily via salary, dividends and profit sharing. But perhaps more importantly, we all just like what we are doing. We like our customers, we like our fellow employees, and we prefer doing this our way and keeping control over our future.
Common Outside Investor Mistakes
The playbook is very familiar with investors – they take some combination of three approaches:
- Spend a lot of money in hopes of fast growth, which results in a much high valuation that they can sell the company at and get a great return. For venture backed companies, this is common. Venture funds need to get 2 or maybe 3 of every 10 companies to really pay off. And there is a greater likelihood of a 10X investment if they are forcing growth at any cost. For the 7 or 8 companies who do not achieve exit velocity, they close down. We have seen a lot of those – most recently Enmotive (and IMAthlete), but previously RaceIt, Race Partner, SignMeUp, etc. We obviously are very efficient and watch our pennies, so this one is a Nope for us.
- Increase Prices. Investors know that customers do not leave easily and they just accept price increases. We have seen this with Race Roster making big price increases in 2023 that are beginning to roll into effect. Some customers notice and want to move, but it is a relatively small number – so Asics is certainly making a much higher profit from that division. One growth equity firm that tried to convince us to sell actually had a full time person that does pricing analysis and thought we should introduce subscription pricing and charge for things like email. Nope.
- Reduce Costs. Eventbrite has done this with several rounds of layoffs and offshoring that has decimated their core long term employee base. Yes, a person in the Philippines doing support is less expensive than someone in Nashville. Or a developer in Spain or India is much less expensive than a Silicon Valley developer. But this can impact the quality and speed of progress. Again, for us that is a big Nope.
Being Employee Owned Provides a Unique Advantage for RunSignup
As we look around the registration and ticket market, we see most of our competitors have outside investors of one type or another. The fact that we are employee owned makes us different. It allows us to think long term, and not be subject to the whims of another entity. It allows us to keep our people long term, which allows us to build better software and support customers more continuously.
Combined with our efficiency, we hope to continue to have the best software at the lowest price, as we do today. Over time, this will bring us customers who value our approach.
Valuation vs. Dividends
The reason to have ownership in a company is to receive value for the investment.
In the old days, investments were dividend driven – what’s the present value of the future cash flow from dividends from an ongoing company.
Over the past 30 years there has been an explosion of attention on venture capital and private equity and “exits” where owners of a company are rewarded for fast growth with a buy-out of some sort. A key reason has been the creation of entirely new markets and big bets on growth paying off to the companies that captured a majority – Google, Facebook, Apple, Amazon, Nvidia, etc.
In the case of RunSignup, we are in a mature market where most customers have a registration or ticket vendor already. There is no huge, fast growth that will happen. We believe that we can gradually gain market share in the endurance, P2P and ticket markets, as we have in the endurance market the past 15 years by building a better product, providing better service at a lower cost. We know it will take time, and since we have no need for outside capital to accelerate growth, we will keep ownership ourselves.
Instead of trying to “cash out” by selling the company, our employee-owners feel we can maximize our value over the long term. Not simply via profit sharing and dividend cash flow over future decades, but also by having the enjoyment of working on interesting technology and helping wonderful customers. We value what we do on a day to day basis. And frankly, we would be concerned about an outside investor messing up this wonderful situation.
Our History of Investors
When I founded the company, I knew it would require capital to get started. I had been fortunate to be a part of about a dozen companies where I made money via the valuation method discussed above – I had a few options or share sin these companies and their value exploded and I made some money. I was a a fairly significant contributor to several venture backed companies in particular – Bluestone (Patricof), JBoss (Matrix and Accel), Hyperic (Accel and Benchmark), and CloudBees (Matrix, Lightspeed and more recently Goldman Sachs). I had experienced how they added value with experience and advice, but mostly providing capital to these fast growing companies (JBoss grew from 6 of us to 200+ in 2.5 years as an example). So when I started RunSignup I had some experience and some capital. I did not take any compensation from the company from 2010 until 2018. I also provided about $3M of investment into the company, which allowed us to stay independent.
In 2018-2019 we began to think we had an idea that would require outside capital – GiveSignup. At that time, I knew if GiveSignup was successful in growing outside of the relatively small endurance space, then we would need outside capital. If we took outside capital I wanted to make sure the employees who had been part of building the company would share in that “value creation” – essentially have stock that they would be able to sell.
The pandemic came and we feared for the future of the company, but government assistance with PPP and our quick shift to virtual races saved our company. By the summer of 2020, we were onboarding a LOT of nonprofits who had their galas cancelled and heard they could raise money with virtual events. We had been looking for sources of funding to help save the company, and one of those connections, Payroc, came thru in September, 2020, investing nearly $3M into the company.
We then tried very hard to invest that money and grow GiveSignup quickly. What we found out is that you can not push on a string. Nonprofits and events are mature markets and customers take their time making a decision to move.
In 2024, we actually bought back the shares that had been issued to Payroc. They had been patient investors and did not force us to do unnatural things, and we thank them for that. But they had investors with specific timelines (they were owned by a private equity company who expects returns in 7 years). Rather than have an unbalanced set of expectations, we gave them a good return on their investment. We had never spent any of the money they gave us, and we had turned profitable by 2022 and were saving our cash to be able to do the buy-back. While we could have sold the company and everyone would have gotten a nice big bump, in my discussions with employees, everyone wanted to keep the good thing going and wanted to be patient.
We have a very bright future. Wonderful customers, amazing technology and a very, very good team. So we will keep going for the long run.