Small software firm avoids a race to the bottom
Minneapolis-based TheDataBank struggles before discovering a pathway to expansion.
MINNEAPOLIS — CEO Chris Hanson and Mark Paquette, the chief technology officer of TheDataBank, never planned to get rich when they formed a software firm 20 years ago that would link nonprofits and progressive political causes with supporters over the then-emerging internet.
Hanson, 59, a veteran marketer, and Paquette, 60, an electrical engineer and technologist, raised $250,000 from several minority owners. They built a company that has posted subscription-based revenue of up to $1.5 million annually and a good living for up to 15 employees.
They were innovative pioneers in web-based fundraising software that spread infrastructure costs across several hundred clients who could connect with supporters and raise money for as little as several hundred dollars a year. They grew modestly without fanfare amid the late-1990s tech boom, followed by the “dot-bomb” implosion that lost billions for investors.
“We’re still in business and still the majority owners,” Hanson said. “We’re a forprofit ‘social enterprise.’ ”
That’s not to say the owners didn’t tweak the model.
A decade ago, they jettisoned most of TheDataBank’s political campaign work, which amounted to about 30 percent of revenue and 65 percent of effort.
“It was a bunch of over-caffeinated, sleep-deprived people and a lot of whining,” recalled Paquette. “It was a good decision.”
The Minneapolis-based firm sailed through the Great Recession, but business was softening by 2010-11.
A few big fundraiser software firms, including publicly held Blackbaud Inc. of South Carolina, a cloud-technology firm that supports nonprofits, had emerged with low-cost products. And decent off-the-shelf software is available for as little as $20 per month. TheDataBank was languishing.
“We were entering a race to the bottom,” Hanson said. “We were underutilizing our talented employees. The market had become commodified. It was tough to compete. And we were in a rut.”
The company, blessed with about 350 sustaining nonprofit customers, treaded water for a few years as it struggled to find an expansion strategy.
The stalwart customers include such outfits as the Texas Association for the Protec tion of Children, a Dallas-based agency focused on reducing child abuse and neglect through research, education and advocac y; the Minnesota Environmental Partnership; the Tennessee Immigrant & Refugee Rights Coalition; Wisconsin Lakes; the Institute for Food and Development Policy; and the Iowa Environmental Council.
The expansion blueprint started to emerge in 2015 from meetings with consultants and visionary long-term employees who wanted a growth future as much as the owners. The solution started to emerge from a sev- eral-year-old engagement.
TheDataBank had done data analysis and web-based engagement work for Ramsey County, the home of St. Paul, and its workforce solutions projects that link people with training nonprofits and employers, and track such things as minority and female employment in workforce development and construction projects.
Other local governments are looking for low-cost solutions that help them serve citizens and their own desire to measure effectiveness.
In recent months, TheDa- taBank entered a $160,000, 16-month contract with the Minnesota Department of Employment and Economic Development’s Pathways to Prosperit y initiative with Minneapolis, St. Paul and other communities that are linking high schools to training programs and employers in worker-hungry trades such as construction, manufacturing and health care.
TheDat a Ba n k i s working with the state to determine what works best to get high school kids interested, trained and delivered to employers in high-demand fields. The Legislature has charged the Department of Employment and Economic Development with getting more minorities into these good-paying jobs. That’s also critic al to the state’s economic future because minorities are the fastest-growing component of the population.
“It’s an exciting collaboration,” Hanson said.
And TheDat aBank has a t wo-year, $60,000 contract with the city of Denver to maintain certain electronic files and analyze citizen engagement.
The company secured last year up to $500,000 in credit that it’s using to finance what is starting to look like a second-stage growth company.
Ha n s o n a n d P a q u e t t e have talked informally with employees, most of whom own at least a small amount of stock, about eventually selling the company slowly to an employee stock ownership plan, or ESOP, as the two founders move into their retirement years.
H o w e v e r, t h e y k n o w ESOPs only work when the terms are manageable and there’s enough revenue and profit to buy out the owners over time without adding too much burdensome debt.
“We expect to be a $3 million to $3.5 million company within three years,” Hanson said. “We should be up to 30 or 35 people by then. It’s taken more time than we thought, but we are starting to get traction.”