When Your First Company Is Working, but

Another Is Beckoning

Uptown Treehouse is a seven-person company, based in Los Angeles, that

creates social media campaigns for media and product companies. Just three
years old, it earns an annual profit of more than $300,000 on revenue of $1.3
million.

THE CHALLENGE Founded by Aseem Badshah, Uptown Treehouse creates

campaigns employing elements for Facebook, Twitter, LinkedIn, StumbleUpon
and Outbrain. It helps companies introduce new products and initiatives and has
worked, for example, with both Guess Jeans and the television show “Breaking
Bad.”

While building the company, Mr. Badshah and a programmer, Kevin Yu, created
software that searches social media and other Web sources to generate sales
leads, and that software has taken on a life of its own.

In fact, the lead-generation software was so effective that Mr. Badshah and Mr.
Yu created a separate start-up, Socedo, to develop and sell the software. Thus far,
however, they remain uncertain as to how to finance the start-up and how to
divide their time between the two companies, which are in different cities. They
believe Socedo, based in Seattle, could earn much larger profits, but with much
greater risk.

THE BACKGROUND Mr. Badshah, 24, graduated from the University of

Washington in 2010 with a business degree. He moved to Los Angeles with the
idea of starting the marketing agency that became Uptown Treehouse.

As part of the promotional campaign for the agency, Mr. Badshah started looking
for ways to find sales leads that might turn into clients. His team created
software that scanned social media for words that would identify potential
customers. Then they used those words to start a conversation with the target
customers through social media channels.

When the Microsoft development team was looking for people to create
Windows 8 or Windows phone apps, for example, Mr. Badshah’s software
scanned social Web sites and public forums for people who were commenting on
mobile application development and let the development team contact them,
offering links to Microsoft resources and connecting them to others who could
help them develop new applications. Mr. Badshah found this new referral system
more effective than cold-calling for customers.

Inspired, he teamed up with Mr. Yu, a former Microsoft engineer he had met
during a University of Washington entrepreneurship event, to start Socedo,
choosing the name because it was a combination of social and succeed, and
because they considered it short and “brandable.”
Over the last year, the programming team has continued to develop the lead-
generating software, which is now being tested by some 200 companies —
mostly small outfits but also a couple of big names in Mr. Badshah’s Seattle
hometown, Zillow and Microsoft.

Thus far, Mr. Badshah said, the testing has indicated that some 20 percent of the
sales leads Socedo generates for its clients are of high enough quality for those
clients to include them in their sales pipelines. With about 10 percent of the
companies indicating they are ready to pay for Socedo on a monthly basis, he
now hopes to introduce the software for sale in the next few weeks.

THE OPTIONS Torn between the two ventures, Mr. Badshah has come to a
decision point. He could continue building the Uptown Treehouse business and
invest all of his time in that. There would be less financial risk because it is up
and running and requires less investment in technology, but the company offers
a linear growth curve based on the number of customers served and the number
of employees that will have to be hired.

Option two is to sell or close Uptown Treehouse and use 100 percent of his time
to raise capital to build Socedo. This option would be the riskiest because it is an
early technology start-up, but it also offers greater potential rewards because he
would be selling a software product, not a customized service.

The third option is to delegate the running of Uptown Treehouse to a general

manager and use its profits to finance Socedo. Mr. Badshah would try not to
spend much time on Uptown Treehouse but concedes he could be distracted by
it.

There would be a risk in tying together the two companies financially because
the loss of a client at Uptown Treehouse could affect cash flow at Socedo. Also,
there are other software companies with similar ideas, and they may be able to
grow faster than the Uptown Treehouse profits would permit Socedo to grow. If
those competitors grow faster, they might capture the market first.

In this last option, Mr. Badshah’s eventual goal would be to raise money from
outside investors so that Socedo would not be dependent on Uptown Treehouse
for long. He would then be able to reinvest the Uptown Treehouse profits in
Uptown Treehouse and keep it healthy and growing. By enrolling in a Microsoft
accelerator program and by attending the South by Southwest conference, he has
started building a network of potential investors.