Bootstrapped SaaS Gains Critical Mass

I got into numerous arguments with people recently when I insisted that you can build sizable companies by bootstrapping (See “ Why B-Schools Set Up Entrepreneurs To Fail”). Well, here are some Software-as-a-Service ventures that are steadily gaining critical mass. Many of them will create enormous fortunes for the entrepreneurs who founded them. I hope the stupid myth can be erased ASAP.

On Sept. 10, 2001, data analytics company Medallia pitched to its first customer, a top five hotel company, as a pilot customer. Then came Sept. 11. Much to Medallia’s surprise, the hotel called back on Sept. 12 and said it would like to move forward with Medallia’s services After six months the hotel replaced its traditional search system with Medallia, a platform that uses SaaS and Web-based technology to collect customer intelligence at every point of contact, allowing companies to measure customer sentiment accurately. The platform delivers real-time feedback and prompts employees to act on that feedback continuously.

More than 50,000 businesses and business units in more than 100 countries use Medallia, which currently targets the hospitality, retail, financial services, health care, call center, e-commerce and other B2B and B2C tech sectors. Customers include Fidelity, Four Seasons, American Express ( AXP - news - people ), Hilton, Hyatt, eBay ( EBAY - news - people ) and Sephora, among others. Eighty percent of top global hotel companies are Medallia customers. Entirely bootstrapped, the company has been profitable almost since inception and has grown rapidly year over year. It marked its seventh straight year of growth in 2009, when revenue topped $20 million. (Read more in Deal Radar 2010: Medallia.)

Another company, Krawler , created Deskera, an on-demand enterprise application suite that offers a full suite of products aimed at small and mid-sized businesses. Applications include customer relationship management, project management, accounting and human resource management systems. In 2009 Krawler generated $5 million in revenues and was profitable. The company is currently completely self-funded but is open to raising money from VCs now. If and when it does raise money, it will do so at a high valuation. (Read more in Deal Radar 2010: Krawler.)

Oh, and did I tell you about college bootstrapping buddies Siamak Taghaddos and David Hauser? They met at Babson College and went on to start
Grasshopper, a company that created a virtual PBX system that lets small companies present a more professional front.

“It is a capability [that lets] a one- to five-person team of entrepreneurs sound like a big company,” Taghaddos says. “They can work remotely and have a phone number regardless of where they are working from. If you and I wanted to start a company right now and we did not have a physical office or $10,000 to buy a phone system, we could then just sign up with Grasshopper to get phone numbers with multiple extensions. That would let us start a company from wherever we are and let all phone calls be forwarded to your home office or my cellphone.”