Every successful business has a story to tell. The following interview is part of our ongoing Small Business Spotlight Series, starring some of the most talented business minds of our time.
When Davinci Virtual Office Solutions was started in 2006, the company’s early marketing copy almost wrote itself. The virtual office provider simply used the robust economy to attract small businesses and lean, bootstrapped startups that had begun to proliferate across the U.S. “Business is booming!” most of the company’s messaging began. “Thousands of startups are being created every day. How do you compete? Give your company the image it deserves — get a virtual office.”
Martin Senn and his business partner Bill Grodnik rode that messaging, backed by the soaring economy, to profitability in the company’s first six months. Davinci continued its rapid growth throughout 2007—until the global economic crisis (that would soon be known as 'The Great Recession') brought everything to a halt. All of a sudden, the small businesses, startups and solopreneurs behind Davinci’s growth worried less about office space and more about staying afloat.
“The recession was a wake-up call for us,” says Senn, now Davinci’s CEO. “We had to very quickly figure out what it meant for our customers and then put that in the context of what it meant for us. But we realized we were still the most affordable solution out there and that it might open up a whole new market for us to explore.”
But Senn didn’t realize at the time just how crucial the Recession would be to Davinci’s next phase of growth.
Before describing just how Davinci managed to thrive during the worst global economic downturn in a generation, it’s important to explain how Senn and Grodnik created the company in the first place.
The two met in 2005 through a mutual friend who suggested that Senn might be able to help Grodnik, a real estate developer and office space operator, get a new venture off the ground. Grodnik believed that mobile technology and the growing work-from-home culture would one day dramatically reduce the demand for physical office space. He wanted to build a platform that would allow companies to have access to office space, conference rooms and receptionist services, but only when they needed it.
Senn had his own consulting firm at the time and, as an expert in telecommunication services, call centers, web platforms, and billing interfaces, agreed to help Grodnik research the competitive landscape for a company like the one he envisioned. Senn determined that there were few, if any, companies offering what Grodnik was imagining.
“I told him he would essentially be creating an industry,” Senn says. “There was no such thing as global virtual office platforms at the time.”
Senn prepared a report and the two met for lunch to discuss his findings. Grodnik asked Senn how to go about building the platform, and Senn drew out a plan on the back of a napkin and told him what he thought the company should look like. “I still have the napkin,” he says. “Miraculously, it’s still somewhat accurate, even today.”
Nine months later, Grodnik and Senn were partners, and by April 2006, Davinci Virtual was ready to launch. The two serial entrepreneurs decided to self-fund their new startup, refusing to take on investors — something Senn describes as “the first and best decision we made.”
“We knew it meant we would grow slower, but that’s okay, because it also helped us grow profitable,” he says. “If you bootstrap your venture and take money as late as possible, you not only maintain your equity position, but you’re also spending your money more efficiently. When it’s your own money you’re putting back into the company, you question your decision-making process on spending to a much higher degree than you may if you’re venture-funded.”
To keep costs low, Senn and Grodnik launched Davinci with only a couple of employees. For their own office space, they holed up in one of Grodnik’s brick-and-mortar business centers. They focused all of their marketing efforts online using AdWords, Google’s then-brand-new advertising system. Almost immediately after the ads went online, the calls started rolling in. In the first month, Senn and Grodnik signed seven customers — all of which came through those initial ads.
“We put this thing online and watched it grow,” says Senn. “We realized very quickly that people wanted to buy our products.” The market, Senn says, was there from the beginning. But the customers that made up that market were about to change.
Davinci’s earliest target customer was the small business owner or startup entrepreneur who, as Senn describes, “wanted to leverage an image of a larger company.” All of the firm’s marketing was tied to that buyer persona. But when the recession hit in December 2007, just 20 months after Davinci launched, everything changed. Soon, those larger companies were the ones knocking on the door.
Davinci’s relative affordability compared to the cost of a permanent office space allowed the company to keep most of its existing customers, but Senn says it was clear that new business would take a hit unless they could figure out a new direction. The first thing they did in those initial, frantic days after the global economic meltdown was to change the message they were sending to their prospective customers. Where it had once been “business is booming!” now it was “reduce your overhead!” That message resonated even more with enterprise companies.
One early call came from the global accounting firm KPMG. They explained they were about to lay off a large number of administrative assistants and were looking for a solution to keep their phone lines in operation. “That’s what told us, right from the start, that we had an opportunity to attract the larger companies,” Senn says. “We knew we were going to be okay.”
Without being tied to giant traditional advertising campaigns that can take months to wind down, Davinci was able to further tweak its message to attract more enterprise customers. “That’s the beauty of online marketing,” Senn says. “You can change your ad copy within minutes. When I say we changed our message overnight, we really changed it overnight. We could create a message that resonated with a whole new type of customer. The ones with tons of real estate and office space holdings, the ones who needed to get leaner and get big pieces of overhead off of their balance sheets.”
That pivot has continued to pay off. Today, Davinci works with more than 50,000 companies around the world and operates virtual office locations in all 50 US states, in more than 50 countries, and on five continents. The company was nimble and decisive enough in the face of a crippling downturn that it was able to grow each quarter throughout the recession — something Senn says can be a lesson for other small businesses at a time when many are worried about the next great economic disaster.
Senn says he advises entrepreneurs and startups to be careful in determining where to cut costs when an economic event threatens their business. Too many businesses, he says, make the mistake of cutting for the sake of cutting, without first looking to identify where there might be opportunities to pivot and find new customers.
“Marketing, for instance, is not a place where you want to cut because that means you’re simply operating a company and not growing a company,” he says. “If that’s your first response at the sign of trouble, you might as well stop and really alleviate the damage. If you’re not committed to growth, no matter what the market conditions are, then you probably shouldn’t be doing it for very long.”