Could Spigit Be Close To Profitability After Years of Mounting Losses?

By Kym McNicholas , written on April 13, 2012

From The News Desk

At first glance, the situation at Spigit is not a pretty picture: Spigit’s CFO, Mark Tisdel, who was hired in 2010 to help prepare the idea collection and management software company for an IPO, resigned. Weeks later about 7% of its workforce was layed off. Granted, 7% of a workforce just 130 strong, is a mere nine employees. But that still doesn’t bode well for the startup, which launched in 2007 and has racked up increasing losses.

But CEO Paul Pluschkell insists his company, which makes a software platform that helps customers with idea generation and social collaboration, is still on the right track. He says he and Tisdel both knew that, despite Tisdel's talent, he was simply not the right fit for the size of IPO Spigit hopes for in the next two years. As for the other nine laid off employees, Pluschkell says it was to "right-size our business.” Turns out the big hiring frenzy the company did over the last 18 months was a little over-zealous, bringing in more than 80 employees.

To give Pluschkell the benefit of the doubt, Spigit is a subscription-based Software as a Service (SaaS) model, and those models take longer to generate large cash flows then perpetual licensing models. However subscription-based billing is favored by Wall Street, because it has more predictable revenue, and the companies don't have to reinvent themselves every quarter.

So minor corrections are forgivable, and Pluschkell deserves credit for taking action quickly. Sure competitor, BrightIdea was able to become profitable in 2002, just two years after its launch. But it's the exception to the rule. Jive, which launched in 2001, had an initial public offering worth $1.7 billion, and it's still not profitable, even laying off 40% of its workforce (versus Spigit’s 7%) in 2008, in the middle of the nation's financial crisis.

“Direct sales strategy is expensive and hard,” explains Pluschkell. “Freemium is the future.”

Do I sense a pivot coming soon?

Spigit's competitor BrightIdea is doubtful. Said CEO Matt Greeley, "Spigit launching a Freemium model is a joke. It's a last ditch effort to try and fix a non-scalable business model after too much capital has already been exhausted. You can't pivot after you have invested $40 million dollars and built a 100 person team. You scaled prematurely. You failed." (OMGPOP might beg to differ on whether it's ever too late to pivot as long as there's something in the bank...)
Greeley's comments not withstanding, it would make sense. A freemium model would help Spigit bring traffic to its website, which has dropped more than 35% since December (, as the company has moved away from tradeshows to promote its product and focused more on lead generation programs, webinars, and inside sales. It would also make a difference, in terms of its cash-flow. But for the first time since the company released its first product in 2007, Spigit expects it will be cash flow-positive this quarter.

The company did about $10 million in revenue and $27 million in total bookings in 2011, and in 2012 it expects $30 million in revenue and $55 million in bookings. It has already signed 30 new customers and 50 contracts in the first quarter of this year -- several of which are million and multi-million dollar deals.

So while losses for the company have continued to mount, things are starting to turn around. Yes, even after raising more than $35 million dollars in 2011, led by Warburg, Spigit still reported a loss of $25 million -- $15 million greater than in 2010. But in 2012, Spigit projects losses to drop to $7 million and is looking forward to profitability in early 2013.

“The loss landscape is changing dramatically for us,” explains Pluschkell. “We are continuing to run as a potential billion dollar software company.”

They're even planning to expand later in the year to between 175 - 200 employees, including expansion in Singapore. Hopefully this time the company's bottom line will be ready to support the growth.

As Khosla Ventures Partner Vinod Khosla once said, "Vision is about more shots on goal, more at bats at the plate." And this is something Pluschkell knows first-hand. He's as committed to hitting a home run in the boardroom, as he is on the baseball diamond.

Take a look at the video below. I interviewed him while I was at Forbes, when his boys baseball team won the Babe Ruth World Series, not once but twice!