Steve Martocci: from idea to exit in 15 months with GroupMe

Steve Martocci, GroupMe

Steve knows how to execute on an idea to get it to where it is real – real product, real users, real value. In the social media hype space where lots of new ideas percolate to the surface, GroupMe stands out as a simple solution to a prevalent problem – group text messaging. I know; I use it!

What happened. GroupMe has gone from 0 to exit in 15 months. Here is the timeline of how Steve and Jared accomplished this:

• May 2010, GroupMe was created by co-founders Steve Martocci and Jared Hecht at the TechCrunch Disrupt Hackathon in New York
• August 2010, GroupMe closed on its Series A round, raising $850K from investors including Lerer Ventures, betaworks and SV Angel
• September 2010, the product launched in beta at TechCrunch Disrupt in SF
• Later in September, GroupMe reached 1M cumulative text messages
• October 2010, GroupMe released iPhone app
• November 2010, GroupMe released Android app
• January 2011, GroupMe closed on its Series B round, raising $10.6 million from existing investors plus Khosla Ventures, General Catalyst Partners and First Round Capital
• February 2011, GroupMe released beta Blackberry app
• March 2011, GroupMe announced Featured Groups, a brand engagement initiative with partners including Oxygen Media, MTV, Bon Jovi, Bonnaroo Music & Arts Festival and Coachella
• March 2011, GroupMe participated in SXSW:
  • distributed over 2M text messages within SXSW
  • gave out free branded grilled cheese sandwiches and beer at the “GroupMe Grill”
  • threw a “Major Rager”
  • won the SXSW Breakout Digital Trend award
• May 2011, GroupMe acquired Sensobi
• June 2011, GroupMe was named by Time as one of “10 NYC Startups to Watch” for Internet Week 2011
• July 2011, GroupMe released preview version of Windows Phone 7 app
• August 2011, GroupMe was acquired by Skype

Steve as a student. Steve Martocci was my student at CMU (2004 BS in Information Systems.) I will never forget him because like some other notable students, Steve was not the best student, nor did he get the best grade. However, Steve was (and is) memorable. As I recall, in fall of 2003, as a senior in Information Systems, he was a recovering MMOG and MMORPG player (massively multiplayer online game; massively multiplayer online role playing game). I think that he had blown some of his best intellect on the games and came to entrepreneurship to recoup his education and to feed his desire to do something big and something different. I gave him a B in both the fall semester for Entrepreneurship I and the spring for Entrepreneurship II. Geesh, I feel like Fred Smith’s infamous professor at Yale.

His project was an internet-based predictive television program called OnTheNext, where he wanted to encourage the serious series watcher to predict what was going to happen on the next episode. He worked hard, but it wasn’t an idea that he pursued beyond the class.

Steve states with a smile, “The entrepreneurship classes at CMU gave me the foundation that I needed to start and then learn the really important lessons. There is nothing like learning on the job to prepare you for startup life.”

Once he graduated. I didn’t hear from Steve for a few months until he launched his first startup, Sympact Technologies, a startup focused on developing dynamic images for real-time email marketing. While his idea showed promise, and they raised a friends and family round of financing, plus made money for over three years, eventually Steve called it quits because: “Things got bad. We tried to raise money but it wasn’t going well. The sales cycle was too long. We realized that we couldn’t turn the business around.”

Briefly, Steve tried another one: Bandwith.us, a friends and family ticketing platform for Lollapalooza and Austin City Limits and nationally touring acts.

Steve realized some key lessons about entrepreneurship: “There are people who plan and people like me. And I built a business around a product. What I eventually realized was that trying to do it by myself was my biggest flaw. I needed to find a co-founder. So that’s what I did, for the next one…”

Steve Martocci and Jared Hecht, GroupMe co-founders

What happened next. Steve got a great offer to go to Gilt Groupe as a lead engineer. He stayed there for over a year. When he was ready to do the next startup, his new partner was also ready. Jared Hecht was the business development manager at Tumblr and had agreed to start a company with Steve.

The two brought to GroupMe complementary skill sets: Jared’s experience in operations, finance, and business development; Steve is more versed in technical and product development.

In a TechCrunch TV video, Jared and Steve explain that GroupMe is a group text messaging app that works over SMS. But Steve tells me how it really started: “We built this originally to go to a music festival.”

GroupMe origins. Steve and Jared had been friends for almost five years. Steve recounts the story, “Music brought us together. We went to the same concerts and stuff. It turned out that one day I had won an internal hackathon at Gilt Groupe. I wanted to do a bigger one, and I decided to build a tool to send Hugo Chávez a hate message every time that he tweeted. Jared thought that was hilarious, but he also told me about a problem around group communications at festivals. Like, once you are there, no one checks their email and so there is no communication. He thought that was where the opportunity for us lay.”

Steve tells me, “At first I was skeptical of the whole idea, but then I really liked it. I called him back the next morning and asked him: ‘What could this be in 18 months?’ We wanted to work together and start something that could really be something in a year and a half.”

In May of 2010, Jared and Steve stared the project at the TechCrunch Disrupt Hackathon in New York. They raised a Series A in August and in September they launched the beta product at the TechCrunch Disrupt conference in San Francisco. The idea and early traction led to a lot of interest and the pair continued to improve it and to show it to friends and users. Word spread. People used GroupMe. The numbers grew.

From there, GroupMe was off to the races. By early 2011, they closed a $10.6M Series B round of funding from leading investors and by June 2011 the service was used to send over 100 million messages a month.

Steve continues the story: “We kept growing in 2011. At SXSW in March, we blew it out of the water and generated a lot of buzz. Users were using and people were happy. We got our own office space; the team grew to 20.”

Exit. Skype came knocking as a potential partner. As the talks deepened, the talk turned to acquisition, which closed in August 2011. Skype was then acquired by Microsoft in October.

Steve’s goal with the acquisition is to stay together as a group: “We have been able to keep our independence. We are staying in NYC and executing our plan and vision – we will bring the GroupMe product to a billion people!”

Advice. Steve is adamant: “As an entrepreneur you have to solve a problem that you know well. Then you have to take off small bites. Don’t do too big a problem at first.” Steve notes that the agile software development philosophy works well in his space.

But it wasn’t easy. He grimaces when he tells me, “Even my peers made fun of me about my companies. It was kind of funny that I was able to raise almost $12M for what they thought was crazy.”

Steve also counsels to stay in touch with trusted advisors. He uses advisors from his days at CMU, former students of mine, Josh Baer (founder of Skylist and now Other Inbox) and Luke Skurman of College Prowler, who I had asked as a graduate of CMU to TA my class when Steve was my student.

Finally, Steve admits that, “Timing is at least 30% of success. We leveraged the convergence of smart phone, web experience, text messaging, and the lack of group features. We saw a pretty tremendous opportunity. For us, it was a mixture of good technology, good business and great timing.”

GroupMe today. Steve admits that the exit was pretty tremendous for someone aged 29: “We have smiles on our faces. We have had lots of fun and we learned a lot.”

What’s ahead for Steve? “Learning to scale a business with the resources that Skype and Microsoft have is awesome. I mean how else do you learn that part of the puzzle? At the end of this experience I will have known what it’s like to span the spectrum, from startup to a really big company.”

And I want to hear what he has to say as he experiences it. I will share it with you!