Constant Contact: From Spring Break at Fort Lauderdale to Startup Millions
If you're reading Pride and Prejudice on Kindle, say thanks to Randy Parker. As part of the team that built the Kindle prototype, he was looking far beyond it - his goals were much bigger, and he considered it a beginning. But for what?
Well, being raised by two generations of entrepreneurs, it's no surprise he turned out to become one himself. While most of his friends were busy partying, he was developing IT solutions and working on his MIT degree because he knew that's how he wanted to make his money.
For Randy, working for himself was always the ultimate goal. Constantly searching for new opportunities to challenge his knowledge, he discovered that his parents had a gold-mine business – the only thing he needed to do was to adapt it to the Internet world!
Here's how he did it.
The Love for Software Engineering
It was the beginning of the 80s in Fort Lauderdale, Florida, about a mile away from the spring break central. Randy Parker was just a plain highschooler, with low interest in the spring break movement and parties. Instead, his passion was education - but it wasn't always that way!
Artificial intelligence was Randy's first love. As a kid, he spent hours reading about innovations in AI, seeing the process of software creation as the ultimate creative act. Imagining something that doesn't yet exist and then making it happen, using nothing but pure logic. The concept was awe-inspiring - but reality hit quick, and hard.
The only place he could go and study this was MIT, and it wasn't going to be easy - but so many successful startup stories have begun here, and so does this one!
He graduated in 1986 and immediately started building his career through companies like Palladian Software, Gold Hill and Scenario Inc. He worked as a consultant, software developer and technical staff.
Eat What You Kill or Work for Others
MIT wasn't all fun and games for Randy, but once he graduated and settled into a full-time well-paid job as a software engineer, he started to look ahead. In the early nineties, this kind of employment seemed like a great shot. During the four years in this company he even had a chance to work on a product that would meet the public eyes only a decade later - the Kindle prototype.
However, Randy was the entrepreneur's son, and receiving a little paycheck envelope every month wasn't really his thing. He knew he would eventually continue the family chain by starting his own business, although he was fully aware that the entrepreneurial world had different rules: you eat what you kill, or you become eaten. He didn't want to live for an envelope arriving at his desk every month.
Randy had his first solo gig as a consulting practitioner in the late 80s. He chose an emerging niche: mobile computing, and his first major client was Microsoft, whose mobile computing projects were slowly taking off. It seems like Randy was always in line with the innovations in the tech industry!
Getting sick and tired of his 9-5 job, he started thinking about creating something himself.
No more envelopes. No more consulting clients. He wanted to build.
Building Something Himself
Randy's entrepreneur parents raised their son to have a sense of business, and they were great teachers. His father ran a financial newsletter publishing business, which was the old time's version of what's today known as an email newsletter. Randy saw the digital era coming and connected the dots: what would his father's business look like if it was digitized?
Led by this vision, in 1995 Randy founded Roving Software, his own software company, and gathered a team of professionals, including soon-to-be CEO Gail Goodman. The goal was to create tools to help medium and small businesses run their email marketing more efficiently.
See what he did there? Apple didn't fall far from the tree - he just upgraded!
The first product Randy, Gail and the rest of the team built was Constant Contact.
Resolving the First Issues
As you've probably figured out by now, today's digital marketing is constantly reinventing the 50-year-old analog marketing ideas in the digital sphere. Randy was one of the pioneers in digital marketing and helped make this happen.
He figured it out: why would a florist send out thousands of postcards to their customers and pay hundreds, or even thousands of dollars when they could just collect email addresses and send even better postcards electronically?
This way, a small business could save tremendous amounts of money, and the winning formula for Randy's business was born: being a relationship mediator between small businesses and their customers.
The narrative pivots go like this:
While working as a consultant, Randy had some high-tier clients, like Microsoft. This was quite tough to manage so he figured he'd rather keep his work focused on small to medium-sized companies.
Although he learned a lot about building digital marketing tools while working as Microsoft's consultant, mobile coding wasn't going to become a thing for two more decades, and he realized it. That's why he wanted to enter a new niche.
The first one he looked up was the emerging ecommerce industry. The idea of running web stores was getting more and more popular, and Randy's company wanted to help them switch from printed mail marketing to email newsletters. This way of marketing was far cheaper, and the possibilities were endless: clients could easily send out birthday cards, hold gift giveaways, promotions, etc.
All he needed to do was plug in his company's software into each of these e-Commerce stores.
Sounds easy, right?
Well, it wasn't. Back then, if you wanted to make this kind of plug-in, you had to either work with that online store or own it, so this issue was the first obstacle, and it needed to be resolved quickly.
Luckily, the solution was simple: instead of creating plug-ins, they could just make integrations. They were a bit more complicated, but worked out in the end.
Another challenge to be resolved was getting software into a central server to serve millions of customers. There wasn't a business in the world that couldn't use their service for their email marketing campaigns - and they had nothing up!
Randy and the team were trying hard to make these problems disappear for users but they had the same big challenge as all other startups - money!
Solving The Money Problem
Even if you have a rock-solid idea, investments are always problematic for startups, and Randy witnessed it first-hand. His type of business hadn't existed before, so he couldn't just pitch as SaaS, or as any other business model on the market at the time. Therefore, any access to capital funds was denied again and again.
Luckily, he had Gail onboard. She knew a lot about scaling a business. They first charged $30, then $35 per month as more and more people showed interest in the product. Soon, they had 100 customers paying some $3000 per month. But Gail also admits that none of this would work if it wasn't for word of mouth referrals.
However, this was very slow, and unexpectedly, fate turned, and as we know, fortune favors the brave! It wasn't too long before the first investors saw the brilliance in their idea and started appearing out of nowhere.
The lead investor was Greylock Partners, who put a total of $23.2 million into Randy's idea along with 5 other investors, in 2006. It wasn't much, but it was more than enough to get the engine running and scale his business idea!
Constant Contact Materializes
Led by this vision, Randy and his team decided to take the next step. The Constant Contact tool was doing so well on the market that in 2004, they renamed 'Roving Software' to 'Constant Contact', emphasizing their focus on their top-tier product.
From this moment on, Constant Contact has mostly seen exponential growth. Although this was more than they could dream of, growth does bring challenges, and they faced their fair share!
First problem? The changing market conditions.
Constant Contact's small-business structure wasn't doing the trick, so they pivoted from their earlier organizational models and adopted an attitude of expansion, which meant they had to begin operating in a different economic environment, where the competition was far bigger.
This slowed growth, so they had to push deeper into the market. Moreover, there was an emergence of startup competitors, such as MailChimp, Campaign Monitor, or Active Campaign who managed to scale up their businesses really fast. Finally, Constant Contact faced the emergence of substitutes for their services, such as using Facebook or Twitter to communicate with customers. Seeing how people incorporated their tools into broader suites hurt Constant Contact the most, as many of them already had email marketing in their back office solutions.
Also, once you go big you face sustainability issues, which closely relates to the law of large numbers. For example, once you hit $90 million per quarter growth, further on, you have to get a lot of growth. If they'd lose 5% or 10% of customers to competitors (out of hundreds of thousands, or millions of customers), that's a big loss - in both customers and money! If that would happen, they'd need to replace each of these customers, before even thinking about growth.
So these were some pressuring points the company had to deal with in order to expand.
They resolved these problems by setting up realistic goals. This would be impossible to achieve without proper and rational use of analytics. As Gail explains: understanding revenue, existing channel performance, needs for improvements, and so on, leaves very little space for uncertainty. That's how Constant Contact managed to push every channel and every piece of their growth funnel into continuous improvement.
Splitting your company's targets into various channels, and setting a separate target for each of them is crucial, because that way you leave some space for your hypothesis about growth to be wrong, without sending your entire business into a bottomless pit.
By 2008, Constant Contact had acquired e2M Systems, a company that built cutting-edge event management systems, so they could easily handle their seminars, conferences, and workshops. During the late 2000s, the world of digital marketing was already blooming.
It was obvious: Constant Contact was on fertile ground for future product growth, and they weren't going to let that opportunity go to waste. Between 2010 and 2012, CC acquired several other companies: NutshellMail for monitoring social media accounts through email; social CRM startup Bantam Live; CardStar, a mobile loyalty app, and SinglePlatform - a digital storefront provider.
The Chaos of Digital Business
Constant Contact released several new features such as Social Stats, used for tracking shares on social media, and their Toolkit platform used to integrate multi-channel marketing options.
But the changes were just beginning. Another one came in 2014, when the company launched its Small Business Innovation Program - their ultimate way of supporting entrepreneurs and startups working on services and products for small businesses.
Although things were going smoothly, the company was acquired by Endurance International, for $1.1 billion in 2015. This didn't make a significant impact to the company's appearance, as EI usually allows companies to continue operating under their own names, only moving their IT infrastructure to India.
Today, Constant Contact's revenue is over $330 million. In the meantime, Randy started another startup called Brevi, focused solely on using various companies' cloud data to help them improve their marketing.
Nevertheless, Constant Contact is still rocking the market, serving millions of small businesses worldwide. Randy Parker is a shining example of how a good base education, an entrepreneurial mindset and courage to dive into unexplored waters can help create a billion-dollar startup!