Software Industry in Sun Belt Takes Different Growth Path

Photo by Kate Taylor

Bradley Taylor of Rails Machine

When Bradley Taylor’s software services company experienced a surge in revenue in 2009, he did what any smart entrepreneur does — reinvested some of the profits. But for Taylor, 39, whose company is based in Savannah,Ga., that meant buying a 500-acre heritage livestock farm to raise Pineywoods cattle, Gulf Coast sheep, and Ossabaw Island hogs, among other rare local breeds — not more computer servers.

Welcome to the software industry, Southern style.

Taylor, founder and CEO of Rails Machine, which provides support for tech startups using the Ruby on Rails web application framework, has nearly 20 years of experience as a software developer, including stints at big-name firms in California and Colorado.

But in many ways, he seems far removed from the go-go world of venture capital financingand big-money IPOs. Rails Machine, which Taylor started in 2006, has six employees and an annual revenue growth rate of around 75 percent. Unlike a lot of young tech companies, however, it is not pounding the pavement for outside funding or going on a hiring spree.

“Do we really need 50 employees?” says Taylor, who clearly thinks not.

Taylor prefers to view his software business in the Jeffersonian tradition of the farmer who tends his own small corner of the world, primarily to meet his own physical needs and those of his employees.

“We’re a yeoman company,” he says. “Our model drives toward a deeper relationship with a customer. We don’t need to be a 10,000-acre cotton plantation.”

Taylor says he hopes to apply some aspects of the accelerated, so-called “agile,” software development approach to his farm business.

Clearly, launching a tech startup in Atlanta is different from launching in California or New York. Due to the relative dearth of venture capital money, a lower cost of living and a lifestyle-oriented culture, Southern-based software companies seem to take a slower approach to growth than their West and East Coast brethren.

Geoff Graham, CEO of GuildQuality, an Atlanta-based software-as-a-service company that provides consumer feedback and monitoring data for real estate developers and builders, calls firms like his “slow-cooking barbecue,” compared to Silicon Valley companies, which he says are “igniting flambé.”

“We get a lot of calls from venture capital firms,” says Graham, 38, a real estate developer who co-founded his company in 1998. “But we spent a decade bootstrapping the company. We’re interested in recapitalizing, but not exiting.”

GuildQuality has 11 full-time employees and 24 part-time ones to service approximately 750 customers, mostly small- and medium-sized businesses.

The Atlanta area contains around 13,000 technology companies employing tens of thousands of Georgians, according to the Metro Atlanta Chamber of Commerce. Most of those companies are startups, many of which veer toward a model of down-home customer service and prudent growth.

Graham says GuildQuality’s motto is “Be Nice,” but it’s not just about Southern politeness. “We’re very high-touch, and we do very little marketing.”

Southern software firms may be conservative, but they’re also apparently resourceful.

David Cummings started his first software company 11 years ago while he was still a student at Duke University. He tried to raise money, but no outside investors he approached were interested. He decided instead to focus on adding customers to grow the business.

In 2007, when he and a partner decided to start their company in Atlanta, digital marketing hub Pardot, they made a conscious decision to bootstrap their business.

Today, Pardot boasts a growth rate of 100 percent annually and employs 70 people. Cummings, who is originally from Tallahassee, Fla., says Atlanta is suited to the work-life balance he prefers.

“The cost of living here is so much cheaper,” he says. And thanks to local universities such as Georgia Tech, he is able “to staff up with smart people.”

Another southern strategy for achieving revenue growth might be called benign neglect.

Ben Chestnut, CEO of MailChimp, also in Atlanta, describes how he launched his company as a “really rudimentary” online tool to help companies create email newsletters in 2001, and then did virtually nothing to maintain it.

At first, that was because he didn’t have enough paying customers and also needed to devote his time to web design to make money. But then MailChimp began to grow on its own: By January 2007, MailChimp had 9,000 users.

Later that year, Chestnut and his partners decided to “build the system up” by introducing a free-mium plan that offered all new customers a 30-day trial that then converted to a paid $15 per month subscription.

Now MailChimp has some 1.6 million users, 114 full-time employees and thousands of paying customers, all achieved without a significant marketing budget or VC money. Chestnut calls it “spreading the monkey love.”

Unlike Chestnut, Patrick Clements, president of Atlanta-based ASP solutions provider bigWebApps, was never opposed to taking outside funding. But both times his company tried to raise capital, in 2001 and 2009, they failed.

Then he had a revelation: “When you raise capital, you have to take your eye off revenues.” While Clements complains that the tech community isn’t as robust in Atlanta as it might be elsewhere, he likes the local focus on “solid, secure companies.”

Selling software in the South also offers its own business lessons.

Rail Machines' Taylor says that raising livestock has even taught him a few things about the tech industry. He notes how important it is to control costs on the farm and how his farm animals mirror his own mood, especially when he is feeling low.

“I can put that kind of feedback into practice back at the office," he says with a laugh.