Uptown Treehouse is a seven-person company, based in Los Angeles, that creates social media campaigns for media and product companies. Just 3 years old, it earns an annual profit of more than $300,000 on revenue of $1.3 million.
THE CHALLENGE
Founded by Aseem Badshah, Uptown Treehouse creates campaigns employing elements for Facebook, Twitter, LinkedIn,StumbleUpon and Outbrain. It helps companies introduce new products and initiatives and has worked, for example, with both Guess Jeans and the television show "Breaking Bad."
While building the company, Badshah and a programmer, Kevin Yu, created software that searches social media and other Web sources to generate sales leads, and that software has taken on a life of its own.
In fact, the lead-generation software was so effective that Badshah and Yu created a separate startup, Socedo, to develop and sell the software. Thus far, however, they remain uncertain as to how to finance the startup and how to divide their time between the two companies, which are in different cities. They believe Socedo, based in Seattle, could earn much larger profits, but with much greater risk.
THE BACKGROUND
Badshah, 24, graduated from the University of Washington in 2010 with a business degree. He moved to Los Angeles with the idea of starting the marketing agency that became Uptown Treehouse.
As part of the promotional campaign for the agency, Badshah started looking for ways to find sales leads that might turn into clients. His team created software that scanned social media for words that would identify potential customers. Then they used those words to start a conversation with the target customers through social media channels.
When the Microsoft development team was looking for people to create Windows 8 or Windows phone apps, for example, Badshah's software scanned social websites and public forums for people who were commenting on mobile application development and let the development team contact them, offering links to Microsoft resources and connecting them to others who could help them develop new applications. Badshah found this new referral system more effective than cold-calling for customers.
Inspired, he teamed up with Yu, a former Microsoft engineer he had met during a University of Washington entrepreneurship event, to start Socedo, choosing the name because it was a combination of social and succeed, and because they considered it short and "brandable."
Over the last year, the programming team has continued to develop the lead-generating software, which is now being tested by some 200 companies - mostly small outfits but also a couple of big names in Badshah's Seattle hometown, Zillow and Microsoft.
Thus far, Badshah said, the testing has indicated that some 20 percent of the sales leads Socedo generates for its clients are of high enough quality for those clients to include them in their sales pipelines. With about 10 percent of the companies indicating they are ready to pay for Socedo on a monthly basis, he now hopes to introduce the software for sale in the next few weeks.
THE OPTIONS
Torn between the two ventures, Badshah has come to a decision point. He could continue building the Uptown Treehouse business and invest all of his time in that. There would be less financial risk because it is up and running and requires less investment in technology, but the company offers a linear growth curve based on the number of customers served and the number of employees that will have to be hired.
Option No. 2 is to sell or close Uptown Treehouse and use 100 percent of his time to raise capital to build Socedo. This option would be the riskiest because it is an early technology startup, but it also offers greater potential rewards because he would be selling a software product, not a customized service.
The third option is to delegate the running of Uptown Treehouse to a general manager and use its profits to finance Socedo. Badshah would try not to spend much time on Uptown Treehouse but concedes he could be distracted by it.
There would be a risk in tying together the two companies financially because the loss of a client at Uptown Treehouse could affect cash flow at Socedo. Also, there are other software companies with similar ideas, and they may be able to grow faster than the Uptown Treehouse profits would permit Socedo to grow. If those competitors grow faster, they might capture the market first.
In this last option, Badshah's eventual goal would be to raise money from outside investors so that Socedo would not be dependent on Uptown Treehouse for long. He would then be able to reinvest the Uptown Treehouse profits in Uptown Treehouse and keep it healthy and growing. By enrolling in a Microsoft accelerator program and by attending the South by Southwest conference, he has started building a network of potential investors.
So far, Badshah is pursuing option No. 3, but he is still unsure how realistic it is to leave the running of Uptown Treehouse to a manager. Will he regret putting a successful, profitable company at risk to finance a far riskier venture? Will he have the time, energy and mental resources to build both?
WHAT OTHERS SAY
Fred Dewey, former chief executive of Kachingle and current chief executive of Emotional Intelligence at Work, a training company: "Over the past three years, I was the CEO of a startup and spent some of my free time on another idea. We had a weekly conference call on my 'spare time project,' where I gave input. Now it's ready to fly and I've moved over to focus on it.
"Badshah should separate the two companies financially and divide his time 90 percent-10 percent between Socedo and Uptown. With discipline and a good Uptown general manager, he will be able to keep the value and profits of Uptown, while putting most of his energy into Socedo. Socedo's funding plan A should be to raise outside capital with a plan B of using Uptown profits."
Dan J. Cunningham, a financial and cash flow analysis consultant for small businesses over the last 35 years: "The revenue Badshah is making from Uptown Treehouse puts him in the top 1 percent of all American earners, so from a financial perspective, it would be difficult to see why anyone would want to give up that situation.
"It looks like he thinks his original company is not very exciting and that he won't get a big payout one day where someone comes in and pays him millions and millions of dollars for his company. The risk of the new venture is, if the planning and assumptions are wrong, there will be no buyout and no millions and millions of dollars. There's definitely something to be said for plodding along with a sure thing and making a lot of money while you do it."
Steve Blank, an associate professor at Stanford and author of "The Startup Owner's Manual": "Pick one business and commit to it. Betting on one idea focuses your heart, soul and all your energy on its success. If you are not fully committed to your idea, why would an investor commit to you? You can't give your whole self to multiple girlfriends or boyfriends - it's the same with business."
