Amith is a serial entrepreneur who believes in combining purpose, passion and profit. He is the founder of Aptify, a purpose-driven company focused on providing technology and services to the not-for-profit sector around the globe. More recently, Amith founded Association Success Corporation, a group of businesses rooted in a shared purpose of helping associations achieve greater success. Association Success’ companies include rasa.io and AssociationSuccess.org. You can follow him on Twitter @AmithNagarajan.
I'd love to hear about your background and how you started your first business.
I am a Silicon Valley native. I was born and raised in California and grew up with computers. My dad taught me how to write programming code at a very early age. I've always wanted to be an entrepreneur, so early on, I had a variety of businesses a kid. I started my first real business when I was a junior at Cal Poly, San Luis Obispo, which is in the Central Coast of California.
That company turned into a business called Aptify, which I scaled globally over 23 years and ultimately sold in 2017. That was a really long chapter of my life and a fantastic experience. I grew a lot as an individual. The company grew tremendously, and it was a big success. There's a number of elements in that experience that shaped my perspective on entrepreneurship and the role I should play in entrepreneurship.
Aptify evolved in many ways, as companies do over that long of a period of time. Roughly 15 years into the journey in the late-2000s, I thought the company was in a place where my own direct involvement was becoming less important on a day-to-day basis. I was still very much the strategic, visionary driver of the company. I loved the creation of innovative, disruptive new things, the team, and the culture, but I didn't really like the operations side that much. At that point, the company already grown quite a bit, with offices all around the country and starting a global expansion. I was fortunate to have a great executive team that was far better than I was at operations.
I should mention I never raised money or took on debt at Aptify. That approach has its pros and cons. The bootstrapping process taught me a lot of valuable lessons at various points in time.
I realized that I wanted to get involved in earlier stage businesses again and started investing in early-stage companies as a way of giving back. My investment process was about finding entrepreneurs who I thought had great potential, decent ideas and were solid people. I wanted to take on the highest possible risk at the earliest possible stage because that's where I felt that there was a need.
That’s my story. Aptify has been a big part of it, as has investing in companies over the last ten years. Since selling Aptify, I have been actively focused on an artificial intelligence startup called rasa.io. It is a platform for content personalization, specifically in the form of (what we call) Smart Newsletters. That’s what I spend most of my professional energy on.
I'd love to talk a little bit more about the bootstrapping angle. You mentioned it didn't necessarily make sense to raise money for your company. How do you get a sense of whether or not early stage companies are what we would refer to as venture scalable or whether the business warrants taking outside capital?
Well, I think that it depends on how you want to focus the business. In product-led companies where products are capital-intensive to create, there's a significant ramp-up period of time before there's any noticeable revenue. In those types of businesses, you typically need funding.
What I ended up doing was doing a mix of products and services. The DNA of Aptify was always a product company, but we supported ourselves through professional services. You could argue that approach is great because it allows you to bootstrap and reinvest services profit into product development. You could also argue that slows you down tremendously because you're distracted from the product development. But then you can argue that by doing services, you're on the front lines with the customer, with a far better understanding of the customer’s problems. You can craft a product solution across multiple customers based on that pattern recognition that people who are in the ivory tower of pure product development couldn't do. So, you can go back and forth on that.
I think it depends on the intentions of the founders. It's obviously the cool thing to do to say ‘Hey, we're going to do a venture scalable business. We're going to have an exit or an IPO,’ and those are great businesses on a number of levels. But the probability of success in that format of business is usually significantly lower. The risk levels are higher intentionally since they are going after the bigger opportunity and deploying a lot more capital earlier. In the other business model where you're starting a little bit slower, you can have a hybrid model of services and product, funding part or perhaps all of it yourself.
Then you're calibrating to figure out where the product goes. That model might lead you to large scale, but it can also become a business that just has an evergreen kind of a feel to it, able to generate significant cash flow and wealth for the founders and other stakeholders.
I don't think there's a single formula for venture backable companies. A lot of times people who are looking for funding look at services as being a toxic element to their business model, and I think that's an unhealthy approach as well. There are a lot of situations where services can be a strong complement.
How do you think about Advisory Boards versus Boards of Director? And what advice do you have for entrepreneurs on setting those up and managing them effectively?
My companies haven’t had outside investors, so I haven’t needed an official board of directors. I have a group of advisors as opposed to a group of directors. Regardless of what the terminology is, I believe that outside advisors should be active in experience sharing, deliberation and even decision-making, in some cases.
I don't like advisory meetings where everyone gets together once a month or once a quarter to say, ‘Hey, here's all the great stuff we've been doing,’ and for the advisors to say, ‘Oh, good job.’ Everybody loves to get a pat on the back, but the point of advisor meetings is to take you to the next level, to coach you up, to drive you harder, and sometimes to take you to places you wouldn’t have gone on your own.
For my meetings, we send a brief ahead of time and expect advisors to invest the time to study the materials beforehand and come into the meeting with questions. We start the meetings right off the bat with Q&A. Then, we go into two or three discussion areas where we expect to have a vigorous conversation and leverage particular advisory expertise. I construct the groups by looking for industry experiences or skill sets as well as networks for introductions. And I set the expectations that in addition to attending the meetings once a quarter, we're looking to the advisors to help us connect with partners and prospects and occasionally roll up their sleeves a bit to help on projects.
We're looking to them to engage in a very limited way in terms of project work, as we don't expect people to be part-time employees or anything like that. But if they end up putting in an hour a week, that's a pretty big commitment over the course of a quarter. That's 10-15 hours per quarter as opposed to just attending an hour-long meeting once a quarter. And that's a different level of expectations that most advisors have, but my point would be that if all you're going to do is meet with advisors once a quarter for an hour or two, it's almost impossible to get a lot of value out of them, no matter how great these people are. So, I give my advisors a bit of equity, and then I expect them toto be a part of the team.
How did you end up in the market segment of associations? Was that incidental, or did you seek out a mission-driven or social impact-related industry?
It was really dumb luck. When I started off in ‘93, I had no idea what an association was. I had no idea about pretty much anything. All I knew how to do back then was write code, and then I figured if I want to start a business, I better take on a business major. I knew fundamentally a lot of the basics, but I was a really good developer. I started building products. And our products were actually fairly successful the first couple of years.
We didn't make a ton of money, but we had over a thousand organizations adopt the low-priced tools that we were selling. It sounds impressive to say 1000+ companies, but they were buying either products for hundreds of dollars or services. A lot of these companies would call us up and say, ‘Hey, we purchased your tools and they're awesome. But we need you to come help us take advantage of them.’ We didn't know what professional services were. We helped our customers use our tools and checks started to come in for much larger dollar amounts, for tens of thousands of dollars. Eventually, six-figure checks started coming in for services, and we thought that was fantastic.
Then we started to realize how hard it is to scale a services organization. The DNA of the company was always focused on intellectual property and product development and building a consulting team was a very different thing. One day we got a call from an association that had come across our tool suite and wanted us to help them build a reporting application. Our tool allowed programmers to more rapidly build all types of business applications. By then it was the mid-90s. We ended up doing a lot of service work for them and realized that selling a very generic product like ours across all verticals made it fairly difficult for a small company to find a product-market fit because you're selling anything to anyone. Anybody could be your customer.
It got us thinking, ‘Hey, what if we built some applications? We've got this platform that's so incredibly fast at building apps that rather than selling the platform, what if we picked a couple of specific applications that did a lot more for people and would be valued higher than just tools?’
And that was around the time when we met this association. After working with them, we realized this could be an interesting space because it was obvious that they were spending a ton of money on custom application development. It didn’t seem like there was anything good at the enterprise level for this market.
It also just so happened that the person who was our main contact with that association decided to change jobs, went to a different association, and took on a new job. The association he moved to was looking for a new CRM system, and he knew that we were thinking about building this type of application.
He agreed to be our first app customer in 1998. At that point in time, we stepped on the gas and grew very quickly. We were beneficiaries to the fact that Y2K was in full swing, and people were replacing systems rapidly. We grew like crazy in those couple of years and from that point forward. We thought we would go after multiple verticals, but we really never looked back from the association space as it was a large market that served people in a way that we really enjoyed.
The nonprofit and association space often gets a bad reputation as being a small market, and I think it leaves a lot of white space for founders to build interesting things.
It really does. It's viewed in two ways. In the first way, people look at it and say, ‘We want to do some pro bono stuff. Let's go help these guys out.’ In the second way, people look down their noses at it a little bit. And the result is that the technology in this space tends to be behind. It's usually more than five years behind that for mainstream companies. It's tough for those people, and that creates massive opportunities.
There are hundreds of thousands of associations around the world. In the United States and Canada alone, there are tens of thousands of sizable associations. We had sold our product to hundreds of the largest ones by the time we sold Aptify. Our focus was on the largest groups because our platforms strengths appealed best to that part of the market. There's a lot of space in the market for people who have a truly innovative idea and are willing to help solve big problems. Associations are hungry for good ideas.
You mentioned that you started making angel investments. We’re seeing more and more startup founders starting to make angel investments relatively early on when they're still building their own business. What are your thoughts on that in terms of opportunity cost, focus, and pros and cons? What would your advice be?
I think it depends on how involved they are. If it's ultimately purely an investment, and they are putting a little bit of money into something because they believe in it and are not really putting a lot of their time into it, I would probably fine with it. If a founder I had invested in was diluting their attention by serving on boards and doing a lot of other things, that would concern me, because startups are all-consuming and no matter how good the founder is, there's not enough time in the day to do what you need to do in your own business. That being said, I do think it's awesome that founders are starting to pay it forward.
When you're evaluating your venture activity, how do you think about making fund investments versus direct investments?
As an early stage investor, the deals that I do are more based on founders I believe in or want to support.
I am purely focused on driving entrepreneurship forward. It is not intended to be a donation. It's intended to be an investment, but it is much less financially driven than an LP investment into a fund. That, to me, is investing in an asset class. As an LP, I'm putting dollars in looking for a return in that fund just like any other investment in any other asset.
As for the individual investments I make, I do see returns on them, too. I've had a couple of exits already, which have been great. To me, it's more about being supportive. It's a way of giving back to entrepreneurship, which has been something I feel incredibly fortunate to have had success with. When I started out, I didn’t have any support or resources so I try to be helpful to other entrepreneurs.
Tell me a little bit about your process for making investments.
I like to see at least two founders because there's always a benefit to a balance between people. I like to see founders who are fully committed. They have to be either full time or willing to be full-time upon receiving the investment and not looking back.
I also look for people who not only have the commitment bu also have the stamina, the determination, the grit to persevere, and the emotional intelligence gained from having been knocked down a few times. People who have unbelievable talents but have had nothing but success in their lives or have been insulated from defeat don't recognize signals from the market quickly enough to react to them. There are a lot of really smart people who don’t succeed because they're so full of themselves that they have a hard time figuring out when they have it wrong.
Part of what I do is interview founders somewhat similarly to how I interview potential employees for various companies. I try to give them some critical feedback, directly in the meeting; it is very rare for people to get feedback like that, in terms of their presentation or something else. Then I can see how they react to it. Are they coachable? Do they take feedback well? I look for people who react positively to feedback in the sense that they are open to the input. Not that they are willing to change their view immediately as that would be something that is concerning too. I want people who have conviction in their beliefs while at the same time are open to hearing opposing thoughts. In these types of discussions, you can usually tell pretty quickly if someone's genuine or not.
I look at the idea, of course, but I don't do massive amounts of diligence on the idea at the stage that I invest in because it's so early. And idea is going to evolve tremendously. I look for a good core of an idea, and I look for a rock-solid group of people that are passionate about it.
Are there certain values that are important when you're selecting entrepreneurs to invest in?
Definitely. Social purpose is my preferred way of describing it. Essentially, I invest in companies that exist to do something positive outside of just making money. Just making money is something of a hollow victory. My companies have always been aligned with that way of thinking, much more so in the last 10 years than before that. The success that we had with Aptify and what we’re doing at rasa.io is very much driven by this idea of a purpose that fuels the team and provides the bedrock of the culture. I look for entrepreneurs who have a belief system. I want them to be extremely motivated and driven by financial return, but I also want them to be looking for something bigger than that. I'm hoping that they are people who want to drive positive social impact as well.