On AIOCF and MITK

On AIOCF and MITK

A few days ago Foodles asked me the following question:

Hi Saul, just one question on your thinking. Regarding MITK, you say, they let us know in advance that they would be spending to build out the business. And it sounds like you feel that is OK here and you’ve kept your position.

How come for AIOCF, you sold because of a similar company plan of spending to build out the business? Although I know it worked out great for you to get out of AIOCF when you did (and you can get back in if/when you want), why wouldn’t you get out of MITK if they’re doing the same thing? Is it because it seemed like it would be a much longer period of “investing in the business” (a couple years) for AIOCF and you don’t think it will be that long of a spending period for MITK?

I responded that I guess I didn’t have the same confidence in AIOCF because there were a lot of companies in the security camera business.

But there was another major factor that I forgot. The AIOCF seemed interested in building revenue at any cost, by hiring lots of sales people etc, and ignoring profitability. BUT, their sales of security cameras were a one-time deal. Once you sold a customer your well made security cameras there was one less potential customer out there in the potential customer pool. Except for adding a few potential camera around the edges, you were through.

MITK was different. Every time you sold your system to a customer, he’s a customer for life as he continues to use your system and you get paid per transaction. It’s recurring revenue. That’s worth postponing profits and grabbing first-mover market share, it seems to me. Remember also that I have a quite small position in MITK, which is a risky small company.

Saul

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