The tech startup maxim of putting growth before profits has started to reverse itself, as the venture capital boom of the past few years slows down and public investors reward companies with healthy balance sheets.
The latest example of the shifting mindset is Localytics. The mobile analytics and marketing software firm has raised $60 million from investors, making it one of Boston’s better-funded tech startups. Launched in 2009, the Techstars Boston alum has garnered more media attention over the past couple of years, thanks to its funding, a growing list of big-name clients (among them ESPN, HBO, Nordstrom, and Under Armour), and a hiring spree that put it at 250 employees worldwide this past October.
But the company’s hiring outstripped its business growth last year, and in January Localytics laid off 15 percent of its employees, or about 37 people, according to various media reports. The company increased its annual revenue by 76 percent in 2015, “but we had planned to grow even more,” CEO and co-founder Raj Aggarwal (pictured above) tells Xconomy. (He wouldn’t share specific figures.)
“While we were happy with our growth,” he says, “we knew that our cost base had to come down in order to align with where we were at as a business, which is still a very healthy, growing business.”
It’s difficult to determine from one short visit, but there are signs Localytics is rebounding from that stumble. The startup surpassed its first-quarter sales goal by more than 25 percent and signed three big customer deals in the past two months, Aggarwal says. And last week the company celebrated moving into a new, 30,000-square-foot office overlooking Boston’s City Hall Plaza—an upgrade from its 18,500-square-foot previous space downtown.
Still, it’s clear in talking with Aggarwal that the layoffs affected his approach to leading the company. For one, he wouldn’t disclose Localytics’ current staff count. He also spoke a lot about making the company more efficient, lowering its costs, and trying to “get the most out of every dollar.” In other words, he’s focused not just on continuing to boost sales, but advancing down the path toward profitability.
Aggarwal declined to share the company’s timeline for turning a profit, but his goal is to get there without raising another round of venture capital. (The last was a $35 million Series D round in March 2015.)
“We want to be masters of our own destiny,” Aggarwal says. “Money isn’t as freely available, and therefore you’ve got to be more thoughtful about how you use that money. It doesn’t mean it’s not available, but it’s not as easily available.”
Aggarwal says Localytics has always been cost-conscious, but he has seen more tech companies prioritize that lately.
“Growth was the number one thing and efficiency was number two,” Aggarwal says. “And now it’s flipped … or, at the very least, [on] equal footing. We’re just adjusting with the industry, and that’s just reflective of what the environment out there is like.”
He says companies are rethinking the growth versus efficiency equation because of the performance of both publicly traded and big private tech firms that have poured money into growing quickly. “Is it yielding the kinds of sustained growth they want? The answer might be no,” Aggarwal says. “It doesn’t mean they’re not valuable companies, it just means the expectations have to be leveled. That permeates down the stack to impact funding, to impact all types of companies.”
Large investors like Fidelity Investments and T. Rowe Price have slashed their valuations of a number of private tech startups in recent months, and even the most valuable ones (on paper)—Uber and Airbnb—aren’t immune. Meanwhile, only two U.S. tech companies have gone public this year: Atlanta-based cybersecurity firm SecureWorks (NASDAQ: [[ticker:SCWX]]) and Maynard, MA-based network technology provider Acacia Communications (NASDAQ: [[ticker:ACIA]]). SecureWorks had a disappointing IPO, but Acacia has performed well, perhaps because it is profitable.
Aggarwal says he feels good about Localytics’ current position and prospects, partly because of the talent on staff and the product they’ve built, and partly because of trends in the market. More than 60 percent of digital media usage takes place on mobile devices, he says, and the big brands and marketers that Localytics targets “are opening their budgets meaningfully toward getting mobile right.”
As for Localytics, Aggarwal says, “We went through our lull, which you’re going to have after a shocking event like a layoff. But if you look around and walk around, that energy and enthusiasm is more than back.” He adds, “There continues to be an opportunity to build a very important company here.”
