Automattic for the People: WordPress as a Regenerative Business

From time to time, you hear heart-wrenching stories about entrepreneurs who loses control of their startups. Trace these stories back and the origins often lead to unfortunate decision around how these entrepreneurs brought in outside investors.

So, when I hear a very different story – particularly about a company I love – well, I want to shout it out from the rooftops.

Automattic is the company behind WordPress, and today it’s CEO, Toni Schneider, announced that privately held investment management firm, Tiger Global Management has just invested $50 million in “Automattic secondary stock purchases.” This is a very smart move by Automattic and it supports my sense that this company is a powerful example of a real-life, working Regenerative Business.

Automattic for the People:

So what exactly is a “secondary stock purchase”? Simply put, it’s buying the stock from anyone but the company whose shares you’re buying. In contrast, buying stock directly from the company, as you would in an IPO, is called a primary stock purchase. So if secondary stock purchases are so common, why is this Tiger-Automattic announcement such a big deal? Because Tiger is using the $50 million to buy shares from Automattic employees and early investors in the company.

To understand why that matters, listen to how Matthew Mullenweg, the founding developer of WordPress, describes the Automattic-Tiger deal:

Automattic is healthy, generating cash, and already growing as fast as it can so there’s no need for the company to raise money directly — we’re not capital constrained. The minority of stockholders that elected to participate are holding on to the vast majority of their shares. We’re building an independent company that’s going to be a growing part of the fabric of the web for many years to come, so allowing early investors to lock in some returns releases any short-term pressure there might be on the company for a liquidity event and allows us to focus fully on the long road ahead.

In other words, these funds help reward Automattic’s early investors and employees receive cash they can use to lock-in gains and diversify their sweat-equity investments in the company or even just put a payment down on a house. It’s a smart way to take care of the people who have built so much value for the firm, and do so in a way that doesn’t expose the company to the tumult and short-term pressures of being a publicly traded company.

“The Long Road Ahead”

The Vital Edge website is actually built using WordPress software, so I guess you’d say that I’m an Automattic stakeholder. I have a stake in their success. I care about their ability to, as Matthew puts it, “focus on the long road ahead.”

On Monday May 27th, 2013, WordPress will celebrate its ten-year anniversary. Today, it powers nearly one-in-five of all websites. It’s an amazing product, but even more amazing (in my view, at least) is the business model that Automattic has built around WordPress. In fact, it’s that business model that I believe is behind this software’s true role in powering so many websites.

You see, WordPress.com is different than WordPress.org. There are a number of important differences between the two, but essentially, the .com is a fully-hosted service from Automattic and the .org is an open source software project that allows you to run the software anywhere you want. In my case, I host The Vital Edge at Dreamhost. I pay Automattic for some spam fighting tools, but I don’t pay them for the core software. Millions of other websites around the world do the same thing.

Going into the details of the WordPress business model is beyond the scope of this post, but something I hope to come back to soon. What I will say now, however, is that with WordPress, Automattic has built a wonderfully rich and diverse ecosystem of individuals and businesses that all have huge stakes in the project’s continued success. Automattic has been extremely smart about supporting this stakeholder network. They know the lessons of the golden goose, and make long-term investments in its health – investments that the company might have a hard timing making were it publicly traded.

Or as the company puts it:

“Just remember, every contribution counts, no matter what it looks like. It takes every one of us to make WordPress better.”

Regenerative

These are the words not just of a business, but of a group of people on a mission. You will find the words “We are passionate about making the web a better place” splashed quite large across the home page of the Automattic website. This is a company that is clearly mission-driven.

Is Automattic a regenerative business though?

Regenerative businesses regenerate themselves by reinvesting profits back into what makes them great in the first place – their mission and their stakeholders.

When you look at the huge investments that Automattic has made into WordPress.org, it’s pretty clear that they invest heavily in a mission that goes beyond their financial health. Whether this latest round of funding from Tiger truly is a deep investment in its stakeholders or not, I really don’t know. I don’t know how broadly the stock is held within the company. I also don’t know whether Automattic has made it possible for key partners to take an equity stake in their business.

These are important questions to ask for a truly regenerative business. What does seem pretty clear though is that Automattic takes good care of its staff. They have remarkably low attrition. The company currently has 170 employees, but at this time last year, when that number was 106, they had only ever hired 118 people. That means that over the course of seven years, they’d only lost twelve people.

That kind of retention is the ultimate sign of a deeply engaged, deeply loyal staff and a company that reinvests in its people. It’s also what made me stand up and take note of this deal with Tiger, because it too is a way of taking care of the company’s core stakeholders – giving staff the liquidity they need to sustain themselves in the short-term while retaining their ownership over the long run.

Solving this liquidity problem is an important one for sustaining a regenerative businesses over time, and it looks like Automattic is being disruptively smart about solving this problem.