ExactTarget accurately predicts its fast growth

ExactTarget Inc.'s 2005 announcement that it would be moving into 30,000 square feet on Monument Circle and hiring 100 people over seven years seemed ambitious.

Indianapolis was littered with the ashes of once-high-flying technology startups that had flamed out. The not-quite-5-year-old software maker was promising to succeed where others hadn't.

The firm left space at 47 S. Meridian St., the former address of one-time tech star Eviciti Corp., and moved to space in the Guaranty Building once occupied by V4 Consulting, a health care technology startup that garnered city incentives before being snapped up in 2002 by PricewaterhouseCoopers.

Far from flaming out, ExactTarget is fast becoming one of the city's biggest technology success stories.

A year after moving to Monument Circle, ExactTarget already had met its seven-year hiring plan and was plotting another 100-worker expansion at its 20 N. Meridian St. headquarters.

Since its founding late in 2000, just after the technology bubble burst, the permission-based e-mail marketing company has grown to $31.2 million in annual revenue and 275 employees, nearly 200 of them at its downtown headquarters.

It has become one of the giants in a field crowded with competitors–an achievement that earns it IBJ's 2007 Enterprise Award, an annual prize recognizing risk-taking and entrepreneurial excellence.

Chairman Bob Compton said ExactTarget has succeeded because of its solid client base–more than 6,000 and growing–and because it focused on becoming profitable before it became big.

Using less startup capital than many of its competitors on the coasts, ExactTarget eked out its first profit in early 2006 and remains in the black, allowing it to plow more money into growth.

The company also has focused on keeping clients happy, said Compton, a former venture capitalist who over the years has invested in more than four dozen companies in Indiana and elsewhere.

"They built the product the customer wanted and then were extremely attentive to customer service," he said.

Today, ExactTarget is one of the dozen largest e-mail marketing vendors in the country, according to Massachusetts-based Forrester Research Inc. Hundreds of companies, most of them small, vie for a share of the $900 million e-mail marketing industry, but large companies like Exact-Target control about 65 percent of the market, according to a 2006 Forrester report.

Marketing with e-mail

The company that became ExactTarget started with Scott Dorsey and Chris Baggott, who are married to sisters, discussing the Internet and technology at family gatherings.

Together with Peter McCormick, a former colleague of Dorsey's now based in Minnesota, they hatched a plan for software that would allow businesses to leverage the customer data they already had and use it to better communicate with their customers. E-mail then was far from ubiquitous, but the trio realized its potential for creating and delivering targeted messages.

They founded ExactTarget and set up shop in the basement of a building on East Washington Street. Its early clients were small businesses like dry cleaners and pizza restaurants, which used ExactTarget's software to communicate with customers as they needed to, without buying an expensive software package up front.

"Most people think of small businesses as being stupid," said Baggott, who remains on ExactTarget's board after leaving to found Compendium Software, a startup that helps businesses create and manage blogs.

"They're not–they're just resource-constrained."

Along with small businesses, ExactTarget soon found itself signing big-name customers like The Home Depot and Gannett Co. Inc., which were drawn by the power to reach tens of thousands of customers more effectively and less expensively than with mass-media or direct-mail marketing.

Dorsey, the company's 40-year-old CEO, said scalability is patterned after San Francisco-based Salesforce.com, whose software allows users to view contact information, sales patterns and trends for existing and potential customers.

An early user of customer-relationship-management software, Dorsey and Baggott saw potential in making it available to every client, regardless of size, but having them pay only for the number of e-mails sent and functions used.

It's a model that requires more service, and more technology infrastructure, than simply building software and shipping it on disks to clients who install and manage it themselves, Dorsey acknowledged.

"It has to be available every second of every day," Dorsey said of the company's product. If it's not, "communication comes to a grinding halt."

That happened in late August, when an outage left some local media outlets, including IBJ, unable to deliver daily news e-mails until the next day, in some cases. Next month, the company will open a third data center in Las Vegas to complement its two local ones and to add another layer of protection against outages, Dorsey said.

In addition to the "always-on" technology, ExactTarget offers marketers several functions traditional advertising doesn't, said Bruce Hetrick, CEO of locally based Hetrick Communications, which uses the software in-house and for clients.

One advantage is that when it forges relationships with Internet service providers nationwide, it assures them its clients send messages only to people who have requested them, thereby avoiding spam filters.

"It's permission-based messaging versus sending out junk," Hetrick said. "We don't do junk. A system like theirs makes it easy."

But perhaps the biggest advantage to companies is the tracking and monitoring functions of ExactTarget's software, Hetrick said. The software helps update customer information automatically, and also provides detailed, immediate results about the effectiveness of the message–always a challenge in marketing.

"For instance, if we have an open rate of 97 percent, then we know we've got a really good list and we know we're sending something that's really relevant to the list we're sending it to, and we know the subject line was appealing," Hetrick said.

ExactTarget also is moving beyond e-mail. Next month, at a user conference in Indianapolis, the company plans to launch its next-generation software, which uses other forms of targeted communication such as voice and text messaging.

As with e-mail, the messages would be permission-based and would allow, for instance, a sports team to send out voice messages from its star player, or a retailer to send a text message about a last-minute sale.

Capital challenge

Building a technology and customer service infrastructure to handle those capabilities isn't cheap. ExactTarget's founders started their company the old-fashioned way–hitting up friends and family members to invest–but soon found themselves needing more capital.

Compton, now based in Memphis, was one of the first outside investors. He put in about $750,000, plus made a $250,000 loan, making him its largest individual investor.

Dorsey's and Baggott's leadership was what drew him to the then-fledgling firm, Compton said, and was also key in drawing a $10.5 million investment from New York-based Insight Venture Partners in 2004.

The company also has twice snagged economic development incentives. ExactTarget received $1.1 million in state and local incentives for its 2005 expansion, and this spring received up to another $2.2 million to help fuel its latest round of growth.

Economic development officials became familiar with ExactTarget shortly after its founding, said Jeb Conrad, executive director of Indianapolis Economic Development Inc. The group helped ExactTarget find its first downtown office space and was so impressed with the company's product that it became a customer, Conrad said.

More important for the city, however, ExactTarget is something of a technological ambassador for Indianapolis, he said.

"That type of business is so impactful," Conrad said. "Their customer list is a who's who of the corporate world. It's the kind of company we really want to see. The fact that it's downtown is a bonus."

The company could take on an even higher profile if it launches an initial public offering–a topic of widespread speculation in the technology community. Dorsey doesn't exactly dismiss the idea, saying that "we are funding expansion from our existing cash flow. We continue to evaluate additional funding sources."

ExactTarget might have had an easier time raising existing capital if it were on one of the coasts, but its heartland location and its lean, but profitable, balance sheet have worked to the company's advantage, Dorsey said.

"Clients want to work with companies they know are going to be around a while," he said.

So far, the vast majority of those clients are in the United States. But Dorsey sees huge untapped potential in foreign markets. The company already has resellers working in Great Britain and Australia.

"The total market opportunity is enormous," he said. "Every enterprise is a candidate for our software."