Bloomberg News

EHarmony Founder Breaks Up With Investors to Reboot

December 03, 2012

EHarmony Inc., the operator of a website designed to help guide singles into happy marriages, is ending some relationships of its own.

At age 78, Neil Clark Warren, who founded the company 12 years ago, is taking back control. Since becoming chief executive officer in July after a series of CEO changes, he’s fired 100 people, cut the board from nine to two and bought back stock from Sequoia Capital and Technology Crossover Ventures, which invested $110 million in 2004.

An initial public offering, which had been expected in 2010, is now off the table and Warren said in an interview he has no interest in selling the Santa Monica, California-based company. Instead, the trained theologian and psychologist will spend next year building EHarmony’s portfolio to add services that help people find the right job, understand themselves and build relationships to reduce loneliness. Gone from the company are the business degrees, and in are social scientists.

“Building a relationship business is so different from trying to build something with machines or widgets,” said Warren, who’s been chairman of EHarmony’s board from the beginning. “To put it in the hands of people that only want to look at it as a source of business success, revenue success doesn’t make sense anymore.”

Not that Warren views EHarmony and its $60 monthly subscriptions as a nonprofit. If run correctly, he says the company can be worth $1 billion in two years and $5 billion in five years. With 14 percent of the U.S. dating-services market, the company trails only IAC/InterActiveCorp, (IACI:US) parent of Match.com, which has 24 percent, according to industry researcher IBISWorld.

Brand Recognition

EHarmony, which targeted single Christians in its early days, has plenty of brand recognition after spending $600 million to $700 million on advertising throughout its history, according to Warren. The company claims its service has led to at least 560,000 marriages.

Sales in the U.S. market are expected to increase 5.1 percent annually, on average, over the next five years to $2.6 billion in 2017 from $2 billion this year, IBISWorld said. The business has gained entrants, with companies including Plentyoffish Media Inc. and Zoosk Inc. tapping a younger demographic, and Badoo Trading Ltd. going after consumers more inclined to use smartphones than computers.

“There are 1,500 online dating sites in the U.S., so the industry is highly competitive,” said Caitlin Moldvay, an analyst at IBISWorld in Santa Monica.

Stable Relationships

Warren has to start by re-establishing stability. Greg Waldorf, one of the company’s founding investors and an alumnus of Stanford University’s Graduate School of Business, resigned as chief executive officer in January 2011 after five years on the job. He was replaced on an interim basis by Greg Steiner, the chief operating officer at the time.

In August of last year, Jeremy Verba, a graduate of Harvard University’s business school, took over the top spot after working at Zynga Inc. (ZNGA:US) A year later, Warren replaced Verba. Now, it’s up to Warren to revive growth. He has seven full-time psychologists on staff and has replaced many of the business- focused executives with social scientists.

“We didn’t feel that our company had been run the way we would’ve run it,” Warren said.

Sales growth slowed from 16 percent in 2008 to 6.3 percent in 2010 and an estimated 3.8 percent this year to $275 million, according to IBISWorld. EHarmony doesn’t disclose its finances.

After Warren’s return, EHarmony bought back the 30 percent of the company it sold to Sequoia and TCV. It paid a “healthy premium” to the $110 million the firms invested, Warren said. Because he doesn’t want to sell the company and has no plans to take it public, Warren said repurchasing the shares was the best way for investors to make money. Seven board members resigned, leaving only Warren and Greg Penner of Madrone Capital Partners.

Rich Targets

Warren sees multiple opportunities for growth. He estimates that of the 120 million single people in the country, only 5 million are on a dating or relationship site, so just getting more to gravitate to the Web will expand the market. Beyond romance, Warren said EHarmony’s matching service can help lonely people find friends nearby. Facebook Inc. (FB:US), by contrast, usually connects individuals who already know each other.

Another service EHarmony plans to introduce in the first half of 2013 is a job-searching site. It will be designed to help people understand their strengths, passions and the type of environment that best suits them, Warren said.

“We really want to try and help people get into jobs as early as possible that really satisfy them at a deep level,” he said. That philosophy led Warren to fire 100 of his own employees after coming back, dropping the workforce to about 160.

Warren now has control and ownership of EHarmony, and he plans to stick around for five years. That’s how much time he has to build a $5 billion company with an unconventional approach. He’s confident he can do it.

“I think I am more productive and wiser today than I’ve ever been,” he said.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net


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Companies Mentioned

  • IACI
    (IAC/InterActiveCorp)
    • $68.18 USD
    • -0.73
    • -1.07%
  • ZNGA
    (Zynga Inc)
    • $3.06 USD
    • -0.02
    • -0.65%
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