Hootsuite, Canada’s Extra-Rare Unicorn, Says the Cash Is Flowing the Right Way Now

  • Startup has trimmed payrolls and shaken up executive suite
  • Founder vows to take on Salesforce and become $10 billion firm

Hootsuite Media Inc., one of Canada’s few unicorn tech startups worth $1 billion dollars or more, says efforts to shore up operations -- including cutting staff and hiring a new chief financial officer -- have helped it become cash-flow positive. The news is a welcome bright spot after a tough year and could help pave the way for a public offering.

Hootsuite software helps manage social media accounts for consumers and companies looking to communicate more effectively with the world. The Vancouver-based company says it has 10 million users, mostly individuals and small businesses, and counts more than 800 of the Fortune 1000 companies among its customers.

But with competition stiffening from big U.S. tech companies like Salesforce.com Inc. and a host of startups, founder and Chief Executive Officer Ryan Holmes has set aside growth for growth’s sake and now talks up operations and profitability -- an increasingly common refrain from Vancouver to Silicon Valley as impatient investors push startups to focus on business fundamentals.

In an interview at his office, Holmes, wearing his trademark plaid shirt, acknowledged Hootsuite needed to grow up. “Across the board we weren’t performing as well as we wanted to and if we look into the future and look at best of breed public companies, we weren’t where we needed to be,’’ he said. “As you start to scale, from that incredible growth, you have to put the systems in place to be able to manage it.’’

Holmes started what would become Hootsuite in 2008 after struggling to manage multiple social media accounts at once for his digital design and marketing business. It was a familiar challenge for big companies trying to harness the immense marketing and communication power of Twitter, Facebook et al without getting burned by ill-considered posts or rogue employees publicizing embarrassing information.

Hootsuite pioneered a suite of services that brought a semblance of order to social media accounts by letting companies and individuals schedule posts ahead of time and monitor what people were saying about certain topics in multiple streams. Early customers included Telus Corp., HBO and the provincial government of British Columbia.

Hootsuite quickly became Canada’s hottest startup, and millennials across the country wanted to work there. When the company posted 100 new positions in the fall of 2014, a line of 1,200 job-seekers snaked around the Vancouver headquarters and 4,000 online resumes poured in. Holmes had managed a rare feat for a Canadian tech entrepreneur -- building a successful homegrown company without selling out early or decamping to Silicon Valley. He talked of going public within months.

Instead, Canada’s other favorite unicorn, Shopify, went first -- scoring an almost $2 billion valuation in an oversubscribed listing. Meanwhile, Hootsuite suffered the indignity of a markdown when in March Fidelity Investments cut the value of its stake in the startup by 13 percent below the cost of its original investment.

The setbacks called for drastic action. In an effort to rein in costs last year, Hootsuite fired almost 100 of its roughly 1,000 employees worldwide. To shore up operations, Holmes replaced several longtime executives with veterans from larger companies, including hiring as chief financial officer a top accountant from Canadian enterprise software giant Open Text Corp. 

The tough love generated blow back. The Vancouver Sun newspaper dubbed the job cuts “hootfires,” a reference to the company’s annual Hoothire job fairs. Greg Gunn, a top Holmes lieutenant since 2010, sued for wrongful dismissal, alleging key responsibilities were taken away and that his departure was announced in front of the whole company before he knew about it. Hootsuite disputes his version of the story, saying the firing wasn’t announced at a company meeting and he was let go after declining to accept a new position.

The cost-cutting is aimed at helping Hootsuite take on the competition. The company operates a freemium business model, where the basic product is free but starts costing money once customers opt for such features as advanced analytics or better customer support. To become profitable, Holmes will have to sign up more paying corporate customers.

But Salesforce, Oracle Corp., SAP SE and Adobe Systems Inc. have all bundled social media management services into the corporate software they already sell customers -- often at bargain prices. Meantime, a wave of startups has been scoring funding and building products that put more pressure on Hootsuite.

“It’s definitely gotten more competitive,” said Jenny Sussin, an analyst at Gartner. “It’s a relatively low cost to entry.”

Still, Sussin said Hootsuite has at least one competitive advantage. While Salesforce and Oracle’s social media managers are designed to work with their own software, Hootsuite offers more flexibility by connecting with third-party apps like MailChimp for e-mail marketing or Zendesk for customer service. Holmes calls his company a “social media Switzerland” -- a neutral player that sits in the middle of a customer’s different social media accounts and customer service products without preferring one over the other.

“We’re creating an open ecosystem,” Holmes said. His competitors’ products often trap their customers’ data, he said. “You’re not able to connect it to the myriad of services that are out there.”

Holmes said the decision to fire long-time employees was one of the hardest things he has done as a leader. “It was sad for everybody,” he said. “But on the other hand, a lot of people realized that it needed to happen. I think of it as a metamorphosis where you shed your skin and you move on bigger and brighter.”

Holmes predicts that the social media management industry will consolidate into three or four players as he and his rivals snap up the best remaining startups. Ultimately, he sees Hootsuite becoming a $10 billion company. “I think it’s ours to lose,” he said.

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