He Sold Adify to Cox for $350M, Then Spun the Next Company Out of It
Jim Larrison sold his ad-tech company to Cox for $350 million, built the next one as a division inside the buyer, and left with signed deals. Year one revenue was a couple of million.
On this page
Most companies open with nothing. Jim Larrison opened with a couple of million dollars in revenue, because he built his second company inside the corporation that bought his first one, and took the signed contracts with him on the way out.
Latka spotted the mechanism mid-answer and stopped the interview to name it.
This is a strategy that works for a lot of people. You’re internal to a business, especially founders trying to get their earn-out, and they’re like, five years left in this damn earn-out, how do I get out of this but still make money? Oh, let me spin a piece of technology out and take a few customers with me. That’s basically what you did, is that right?
Nathan Latka, interviewing Jim Larrison
“Yeah,” Larrison said. Then he explained why it worked, which is the part worth keeping.
The $350 million that came first
Larrison and his co-founders had worked together for about twenty years. Their previous company was Adify, an ad-tech business they sold to Cox Enterprises about three years in.
The idea for the next company came from a pricing observation inside the old one. Adify sold to media companies, and Larrison remembered exactly how they behaved: “We had set-up fees that were in the 10 to 20k range and they would just go nuts about that — too much money. And then we sold it to General Mills at 10 to 20 times that and they didn’t blink an eye.”
“So we knew we were going down the right path as far as what business to go after.” The customer who does not flinch tells you which market to build in.
Building it inside first
The company did not start as a spin-out. It started as a division. Cox funded it, Larrison ran the P&L, and they operated it as a business unit — and that arrangement, he says, is what taught Cox it did not want to run it.
They knew probably going in that they just didn’t have the appetite to run a quote-unquote startup business. They’re an operator, that’s what they’re good at. So innovation and forecasting potential revenue three years out isn’t something that they want. They want to know what their revenue is tomorrow.
Jim Larrison, co-founder and president, Dynamic Signal
Latka, characteristically: “So the exit — I’m sure you went above and beyond to make sure they felt it was going to be a lot of trouble.” Larrison, laughing: “It was very troublesome for them.”
Cox kept a small piece — under five percent — and invested in the initial round. That is a far better outcome for both sides than an earn-out fought over in a boardroom.
What the company actually sold
Dynamic Signal built top-down employee communications for very large organisations, and the problem it solved is more physical than it sounds. “Big companies struggle to communicate with employees, especially people out in the field. You have retail employees, you have people in factories, and reaching those employees is very difficult — especially since a lot of them don’t actually have email.”
What those companies did instead: “Every large company that has employees remote will print four-colour glossy newsletters and mail them to their home.” Latka’s response — “gosh, that’s brutal” — is the correct one.
Asked the inevitable Slack question, Larrison drew the line cleanly. “Slack is more of a collaboration tool, where employees come to communicate with each other. This is a top-down communication tool. It allows companies to push content or news to employees.” His illustration: “Jeff Bezos obviously doesn’t want a hundred thousand employees reaching out to him directly.”
The original idea had been something else entirely — systematising relationships with advocates and influencers, working with companies like General Mills and their food bloggers. What they found was that the strongest advocates were already on the payroll. “In companies like that, and like Oakley and Nike, the biggest advocates were their employees. And the engagement on these programs was off the map.” Latka: “Plus you can kind of force an employee to share an article about their own company.”
Three cohorts, two orders of magnitude
Pricing is per employee, which means the segments are separated by the size of the customer’s workforce rather than by feature tier.
25,000 to millions of employees — McDonald’s, GE, Nestlé. “Anywhere between a hundred grand up to a million per month depending on the service.”
McDonald’s has close to three million employees5,000 to 25,000 employees. In the $10,000-plus per month range.
Fewer than 5,000 employees. Typically $5,000 to $10,000 per month.
Latka floated the usual 80/20 concentration rule. Larrison corrected it downward: “It’s probably more of a 70/30 versus 80/20, but it’s trending that way. The big customers continue to grow, and every quarter, every year, they’re growing at sort of massive rates, whereas the smaller customers have a tendency to stay at the rate they’re at when they start.”
Around two thousand customers in total, including 20 percent of the Global 200. Gross margin in the mid-eighties. Roughly 200 employees, about 80 of them engineers and 40 in sales, mostly in San Francisco. Total raised: $68 million.
Zero churn, and a 240-day sales cycle
Asked about logo churn, Larrison gave an answer he immediately worried about jinxing.
Zeroenterprise customers who launched a programme and then walked away
“I can’t think of any customer we’ve had churn that’s launched their program,” he said — qualifying it to the enterprise business, and allowing that the corporate segment might be different. The reason is the same reason the deals take forever.
The average sales cycle ran close to 240 days, with some deals taking a couple of years. “A lot of that has to do with the decision they’re making being a long decision. It’s not something you can test — this is going to touch every employee.” And once it does: “GE pushed this out to hundreds of thousands of employees that have it on their phone. It’s not something you’re going to pull back, especially if employees like using it.”
Expansion was the unsolved half. Larrison had tried seat-bucket licensing — you grow, you pay more — and found it counterproductive, because it turns each new hire into a cost. “Now I have a new employee coming on and that employee’s effectively costing me another $5,000 a month. So we’re trying to get away from that.” What worked better was pricing on divisions and usage. “The way we drive growth is a hundred percent based on getting more usage, and that’s it. Our customer success team, that’s what they focus on.”
Payback he wanted at eighteen months, and admitted was “closer to a couple of years than that” — the price of a 240-day sale into the Global 50.
A note on the name, and the date
This conversation is filed on GetLatka under Firstup, and the guest never says that word. The profile carries Dynamic Signal’s 2010 founding year, Dynamic Signal’s funding rows from 2011 through 2018, and the revenue and headcount figures from this interview. The name on the record changed; the record underneath is the company Larrison describes.
The interview date was wrong too, and wrong in an instructive way: it was stored as December 2010 — the year Dynamic Signal was founded, six years before the conversation happened. The tape is episode 761, published in August 2017, and its team of 200 matches the June 2017 rows on the profile exactly. It has been corrected.
One figure has been marked as an estimate at the same time. Asked whether he had broken $50 million, Larrison declined: “Obviously I can’t talk too much detail. We’re probably close, I mean we’re close to that number… you could probably back into the numbers based on what I said.” That is a deflection, not a disclosure, and the $50 million recorded against him now says so.
What he was certain about was where it was going. Asked what a company needs to be worth going public, Larrison said the rule of thumb is a hundred million — “but you know, every business is different based on how many customers you have, or how much usage or engagement you have, what’s your churn look like.”
And on the question of why someone financially free after a $350 million exit builds internal communications software rather than rockets, he gave the least glamorous and most credible answer available: “My co-founder Russ talks about this a lot — he’s our CEO, we’ve worked together for a long time. If you want to get rich, go work on Wall Street. That’s where you can get rich. If you want to get rich starting a company, that’s a complicated and difficult thing to do. Not everyone sells their company for 350 million dollars. So we’re doing it because we want to work with people that we enjoy working with, and we just enjoy working in the weeds and doing technically complicated things.”
Sources — Jim Larrison interviewed by Nathan Latka, episode 761, published August 2017. Revenue, headcount and funding figures from the Firstup profile on GetLatka, with dates as recorded.
