Sometimes an app is just an app. But sometimes it's a potentially huge business. That distinction isn't always easy to spot; consider it a variation on " ... another man's treasure" for the phubbing age.
Kathryn Loewen, a former developer and software product manager, had racked up years of experience in financial services by the time she started business school at Royal Roads University in Victoria, British Columbia. When she graduated in 2013, she also had a head full of ideas, and methods for plugging them into business plans, and headed to her hometown of Vancouver.
Back home, she found herself in a good place. She had fellow developers to collaborate with in Vancouver, and together they could build something, test it, and drop it if the app or software didn't stick. But within months, one did. She'd been tinkering with Stripe, the PayPal-competing payment processor popular among startups. It appealed to her financial-services savvy. Along with another developer, she built an app onto its API that would allow business owners to monitor and manage their Stripe accounts on their Android devices. She called it Control.
It launched in the Google Play Store in early 2014 and gained some traction--but what did that prove? It was free, after all. And Loewen wanted to know how far it could go. She knew what she'd have to do to build a sustainable business: convert its free users to paying subscribers. But this idea of app-for-enterprise was almost unheard of at the time. (Although a nascent messaging service called Slack was taking off, and Control's small team was already using it internally.) Loewen's team was skeptical of any price other than free. So she kept bootstrapping, and kept giving away her product.
Meanwhile, in Mesa, Arizona, an entrepreneur named Billy Coover, the founder of Nearby Now, a company sometimes dubbed Foursquare-for-service-professionals, felt like he was hitting a wall. He'd created an app called Pay Pad that was pretty similar to Control, strictly to use for his own business.
"I just needed to be able to run my business on the road, see transactions, and refund customers quickly, so I built Pay Pad to work with Stripe," he told Inc. Urged on by friends and associates, he gussied it up and launched it in the iTunes Store. Within a year, he had about 2,000 customers, who'd each paid $8 for the app. It ranked high on the iTunes Store when one searched for "Stripe," and had a cool feature: It made a pleasing cha-ching sound whenever a new payment went through--something pretty fun for a small-business owner to hear drifting up from her pocket during the day. But it wasn't long before these paying customers wanted more services, and more maintenance from Coover and his tiny (and mostly virtual) team. He was spending hours a week on Pay Pad--and he was already working up to 80 hours a week on Nearby Now.
Back in Vancouver's Gastown neighborhood, Control was slowly adding developers to its business, and Loewen was meeting with investors while pouring her own savings into improving her product. It was easy for customers to find Loewen's app, which ranked prominently on the Google Play when one searched for "Stripe," and it was doing just fine, with more than 1,000 users. But she knew about a couple of competitors, including, most notably, Pay Pad. She started following Billy Coover on Twitter, and paying close attention to his Pay Pad-related tweets--particularly when he noted hurdles.
One day in spring of 2014, he tweeted, sarcastically:
Got to love the "I paid you $8 once, so you owe me frequent feature updates for life" mentality.-- Billy Coover (@billycoover) May 6, 2014
Loewen wrote to him, saying she was building a similar product. She wanted advice--and she wanted intel on whether he was planning to expand Pay Pad to other platforms, or to work with financial tools other than Stripe.
"I was a little guarded at first," Coover said. "I don't really respond to cold emails, but she seemed friendly, so I basically told her, 'No, I wasn't really planning on it.'"
They didn't exactly hit it off, but they did stay in touch. "He had really good advice," Loewen said, "about his experience so far. And he said, 'I really like your model,'" which was aimed at eventually offering a broader array of services and upgrades--and charging a subscription fee to users.
It became clear to Loewen that Coover was more focused on his primary business than Pay Pad--even though it by now had nearly four times as many users as Control. She also understood Coover's model--a one-time fee--meant he had little incentive to continually update or improve the Pay Pad app.
So she arranged a phone call and made an offer to buy it.
She did so by laying out his addressable market, and pointing out that her team at Control would be working fiercely to take some of his market share. She estimated his future profits using his current pricing model. Then she proposed absorbing Pay Pad into Control, turning them together into a software-as-a-service business, and charging his customers for future upgrades, should they want them. And, for the next three years, she'd give him 25 percent of the upgrade-related revenue.
Coover wasn't sure. He said he might want to entertain other, more lucrative offers. But he liked her style--and, as a small-business owner himself, he also liked the specifics she proposed in terms of giving customers more services, such as forecasting, dunning (all those tasks surrounding asking for a payment), and managing failed payments.
"All these things she wanted to build were exactly what Nearby Now needed. Pay Pad was my baby, but to take it to the next level it would need Control--or someone like Control," Coover said.
Loewen countered by adding in a cash offer, to be paid out 25 percent right away, 50 percent once most of the technology was migrated over to Control, and 25 percent once it was set, and the companies were ready to send out a release about the acquisition.
"I never thought I'd acquire him. It was just sort of a big, hairy, audacious goal," Loewen said. "But it worked."
That whole process took just a little more than two months, from when the deal was signed to the release going out. Suddenly, the bootstrapped Vancouver app had more than four times as many customers, after absorbing the roughly 4,000 Pay Pad users, as well as a huge boost of credibility from those who'd loved Pay Pad--thanks to their existing reviews and ratings, on the iTunes Store. And suddenly, Silicon Valley investors were taking note of this woman founder who'd bootstrapped her business-finance app, then successfully ate up her competition.
"All of a sudden investors started paying attention, because clearly I had the gumption to go out and acquire my biggest competitor--and that transaction went almost seamlessly," Loewen said. Within months, she had rounded up $1.5 million in investment from individuals and institutional investors, such as BDC Capital and Vanedge Capital.
By the time the Pay Pad technology was integrated into Control's system, and Coover was on board as a technical adviser, there was just one more big switch to pull. It wouldn't be just tweaking her business model--it would be reworking it entirely, by applying SAAS to the apps--and charging customers as a business would: monthly.
Her team wasn't totally on board with the idea. Nor was everyone she turned to for advice. But, again, Loewen went for it. "If this is the valuable business app you say it is," she told skeptics, "people will pay to use it--every month."
With the installation of the paid model, Control entered the new and more lucrative app-for-business space, for which it charges between $5 and $100 per month of use. Control now has 11 employees and more than 7,000 customers; the vast majority of them are iOS users. That is, folks that would likely be still using Pay Pad, had she not made the deal.