iContact

How Ryan Allis Dropped Out of College and Built iContact to a $169 Million Exit

Monthly Revenue

$4.17M

Starting Costs

$5K

Founders

Employees

250 (est.)

Profitable

Yes

Days To Build

365

Year Started

2003

Customer

B2B & B2C

Founders

Employees

250 (est.)

Profitable

Yes

Days To Build

365

Year Started

2003

Customer

B2B & B2C

Who is Ryan Allis?

Ryan Allis is a technology entrepreneur from North Carolina who co-founded iContact while attending the University of North Carolina at Chapel Hill. Prior to iContact, he ran a web marketing consultancy and has a deep interest in social entrepreneurship.

What problem does iContact solve?

iContact alleviates the challenge small businesses face in effectively managing and tracking email marketing campaigns by providing an easy-to-use, web-based platform, helping them retain customers and generate revenue efficiently. Small businesses often struggle with the time-consuming and technically complex task of email marketing, and iContact's affordability, automation, and user-friendly interface address this pain point.

How did Ryan come up with the idea for iContact?

Ryan Allis co-founded iContact by recognizing a pain point early on through his experiences with digital marketing. His journey began as a young entrepreneur who started various ventures, like a computer consulting business when he was 11 and a web marketing consultancy by 16. While handling web design jobs, he noticed how tedious and inefficient existing email marketing solutions were, especially as most were desktop-based and not user-friendly.

This revelation came to a head when he partnered with Aaron Houghton, whom he met through the Carolina Entrepreneurship Club at UNC. The duo discussed creating a web-based email marketing tool that would simplify email newsletter distribution for small businesses. They validated their idea by offering free services to local businesses, such as Jimmy John's Sandwich Shop, to demonstrate the tool's effectiveness. Learning from initial user feedback and adjusting their approach, they managed to generate recurring revenue and acquire paying customers.

One of their early challenges was managing their resources; they bootstrapped the company, working in frugal conditions without a salary for years. Additionally, an instance of a critical server crash taught them the importance of system reliability and customer trust. Surviving these hurdles with persistent efforts and smart pivoting, they refined their product, proving the business model was not only feasible but scalable. By focusing on getting things right with the product and maintaining a close relationship with initial customers, they learned the importance of real-world validation and adaptability in their startup journey.

How did Ryan build the initial version of iContact?

Ryan Allis and Aaron Houghton built iContact through a meticulous development process that spanned several defining stages. Initially, they developed a web-based email marketing tool, opting for web technology over desktop software, which was the norm in the early 2000s. This decision notably reduced barriers to entry for small businesses.

For the first prototype, Allis and Houghton worked with a single server housed in a closet, sustaining operations on a tight budget. They invested about $4,000 for a state-of-the-art server with 128 megabytes of RAM and a T1 internet connection costing $400, though this initial setup faced significant challenges, including a major server crash in December 2003 that almost crippled the business.

The product development process was incremental and heavily focused on user feedback. Real-world usage data was collected by offering free services to local businesses like Jimmy John's, which helped shape the feature set and UX design. Allis lived in the office for the initial months, and both founders worked without salaries for three years, supplementing income with side gigs and staying hyper-focused on optimizing customer acquisition costs.

By January 2006, they had figured out critical metrics such as Customer Acquisition Cost (CAC) and Lifetime Value (LTV), which were essential for scaling the product. The development cycles were punctuated by constant iterations and enhancing the tech stack, transitioning to more scalable solutions as user numbers grew and securing additional funding as required to support development and infrastructure upgrades. The process of building iContact was arduous and fraught with technical and financial challenges, but their relentless focus on solving customer problems and optimizing the operational model ultimately paid off.

What were the initial startup costs for iContact?

Bootstrapping: Aaron and I worked without a salary for the first three years, and I lived in the office, cooked on a George Foreman grill, and showered at a friend's house.
First Server: We initially used a server that cost us about $4,000 and a $400 T1 line hookup.
Emergency Loan: In December 2003, when our server crashed, we got a $5,000 loan from a friend to buy a new server.
Early Funding: In 2006, we raised a $500,000 seed round of funding which was primarily invested in Google Ads.
Additional Funding: In 2007, we secured an additional $5.3 million in funding to build out the senior management team and expand operations.
Major Investment: In 2010, we raised $40 million from JMI Equity to scale further.

How did Ryan launch iContact and get initial traction?

Giving It Away

Ryan and Aaron worked with a local sandwich shop called Jimmy John’s by offering iContact services for free initially. They placed a fishbowl on the counter for customers to drop in business cards and manually compiled these into a newsletter database. Jimmy John’s saw increased customer visits after receiving the newsletters, which convinced them to become a paying customer. This initial practical trial took a few weeks to demonstrate value and secure the first paying customer.

Organic Marketing

To continue acquiring customers without a high budget, they focused on organic search engine optimization (SEO) and affiliate marketing. By optimizing their website for search engines and leveraging affiliate programs, they were able to steadily build their customer base without significant upfront costs. Within the first year, they acquired 10 customers, leading to $12,000 in sales.

Sales Metrics

By the end of 2003, iContact had achieved $12,000 in sales from 10 customers, though they incurred $17,000 in expenses. This left them with a negative $5,000 in earnings. However, the average customer stayed for three to four years and paid around $50 per month, making each customer worth $2,000 in revenue over time. It initially cost around $500 in marketing expenses to acquire each customer, but each customer generated $5 in earnings for every $1 spent on Google ads thereafter.

Email Outreach

To further grow their customer base, they employed direct online contact methods. They would subscribe to newsletters from competitors like Microsoft ListBuilder and ConstantContact and then send follow-up offers to the subscribers, often offering better terms. For example, this approach with Microsoft ListBuilder helped them gain their first 500 customers, even though it resulted in a legal "cease and desist" letter.

In summary, the early growth of iContact relied on free trials with local businesses, strategic organic marketing, leveraging online email contact methods, and optimizing cost-effective customer acquisition methods. The company quickly grew to 10 customers, then 78 by the end of 2003, with an initial revenue foundation laid in these grassroots efforts.

What was the growth strategy for iContact and how did they scale?

Pay-Per-Click (PPC) Ads

One of the most effective growth channels for iContact was their use of pay-per-click (PPC) ads, particularly on Google. They discovered that for every $1 they spent on Google ads, they earned $5 over time, making this an incredibly efficient way to acquire customers. By closely monitoring the return on investment (ROI) for these PPC campaigns, iContact could see that spending more on these ads could yield proportional revenue growth. This clear, mathematical model allowed them to confidently increase their ad spend, doubling their company size in a short span of time.

SEO and Content Marketing

iContact also leveraged strong search engine optimization (SEO) and content marketing strategies to drive organic traffic. They created content around their email marketing expertise, which drove up their search rankings for relevant keywords. This organic traffic funnel was incredibly valuable because it did not require a direct ad spend, and brought in high-intent customers who were actively searching for solutions that iContact offered.

Affiliate Programs

To further boost their growth, iContact implemented affiliate programs. Affiliates promoted iContact in return for a commission on sales, which expanded the reach of the company's marketing efforts without a significant upfront cost. This strategy also benefited from social proof, as affiliates typically recommend products they trust to their audience, lending credibility to iContact's offerings.

Customer Referrals

iContact took advantage of word-of-mouth marketing by encouraging their customers to refer others. Knowing that referred customers often come pre-sold on the benefits, this helped iContact grow its customer base organically. They offered incentives for referrals, creating a win-win for both the referring customer and the new sign-up.

By using these key growth channels effectively and creating a product that customers found valuable, iContact was able to scale rapidly and sustainably.

What's the pricing strategy for iContact?

iContact offers tiered email marketing plans ranging from $15 to over $300 per month, with a popular average of $50 per month, including varying levels of contact management, email sends, and reporting features.

What were the biggest lessons learned from building iContact?

Start Small and Bootstrap : iContact began with minimal resources, working without salaries and reinvesting revenue. Living frugally and focusing on acquiring initial customers allowed them to build a sustainable foundation. This demonstrates that you don't need significant funding to start; persistence and resourcefulness are key.
Understand Your Unit Economics: A pivotal moment came when iContact understood their customer acquisition cost and lifetime value. This allowed them to scale effectively by investing in marketing with a clear understanding of returns, which is essential for any founder seeking to grow a business profitably.
Invest in Team and Culture : Building a strong senior management team was crucial as the company grew. iContact emphasized values like community involvement and work-life balance. This not only improved operations but attracted dedicated employees. Aspiring founders should prioritize creating a supportive and mission-driven culture.
Integrate Social Responsibility : iContact implemented a 4-1s model, donating a percentage of payroll, equity, product, and employee time to social causes. This didn't just benefit the community but also enhanced employee engagement and company image. Founders should consider ways to embed social impact into their business model for long-term benefits.

iContact Acquisition: How much did iContact sell for and what was the acquisition price?

iContact was sold in February 2012 for $169 million to Vocus, which was later acquired by Cision. Co-founder Ryan Allis made about $15 million after taxes from the sale.