Why this Chicago founder thinks bootstrapping comes at a cost

January 13, 2017

“Bootstrapped” is a label many startups apply to themselves with pride, carrying connotations of grit, hard work and business savvy, but the coveted label can sometimes come at a cost.

A lean startup budget can make it difficult to advertise and build the name-brand recognition required to establish dominance in an industry, leaving innovative companies vulnerable to “me too” competitors with VC-infused marketing budgets.

That is the position Adam Ochstein, founder and CEO of Chicago HR software provider StratEx, found himself in a few years ago.

Founded in 2005, StratEx makes software that lets HR departments manage all aspects of the job — resume reviews, background checks, payroll and benefit administration, performance reviews, and so on — on a single platform.

When StratEx launched the first version of its product in 2007, the HR software ecosystem was still in its infancy, with most companies focusing only on parts of the HR puzzle. Having few competitors was a big advantage, but selling a new kind of product was a liability, too. The company’s sales team spent a lot of its time educating potential clients about what the application did and how it could help them.

In retrospect, Ochstein thinks StratEx could have owned the HR software market if it had raised capital to grow faster and raise awareness about its services.

“When we completed our application, launched it and were getting clients on the platform, we didn’t go out and raise capital. And we should have,” said Ochstein. “It was frustrating to see, five or six years after we’d built out our product and had 200 plus customers on our platform, that companies were marketing themselves as the first end-to-end platform for pre-hire to fire.”

Since then, HR software has become far more competitive, with companies like Zenefits and Chicago’s Paylocity receiving billion-dollar valuations. Re-orienting itself in the new landscape, Ochstein’s team discovered that its solution was resonating with a large yet woefully underserved market: companies whose workforces were distributed across multiple branches, like hotel chains, restaurants, healthcare facilities and the like.

Ochstein said the unique HR needs of these industries make StratEx a perfect fit. Employers tend to have large workforces, complex scheduling needs, high turnover rates and a large variety of HR events like promotions, raises and disciplinary actions. For them, using a single system to manage the entire employee lifecycle can significantly streamline operations and cut down on overhead costs.

Upon discovering a niche for itself, StratEx decided to double down on its strengths and hone in on that market with a singular focus — this time with venture backing. Ochstein said he’s hired more than 30 people in 2016 and will be adding another 50 or 60 in the year to come.

“If we’ve uncovered the next big opportunity for us, let’s not make the same bad decision twice,” said Ochstein. “We’ve identified a really good roadmap to take us from $12 million or $13 million in revenue, to $50 million or $60 million in three to five years. Let’s build out our sales team, let’s get our marketing chops going and carve out that market and say that we own it.”

Ochstein said the round was finalized in December of 2016 but declined to provide exact figures.

Image via StratEx.

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