Ryan Allis and Aaron Houghton founded Chapel Hill, North Carolina-based email-marketing company iContact in July 2003. Since then, the company has grown to 250 employees, 1 million users, 70,000 customers, and $48 million in annual sales—thanks, in part, to $52.9 million in capital raised from JMI Equity, Updata Partners, NC IDEA, and North Atlantic Capital.

But the company wasn't always rolling in venture capital money or flush with employees. Bootstrapping a startup was hard work, Allis discovered early on. And making tough decisions, like whether to stay in school or work on a hot idea, is just part of the cost of doing business for an entrepreneur.

Below he talks about what motivated him to start iContact, what kept him going during the lean days, and why he sees big achievements ahead. For another take, click here to watch a Portfolio.com video interview with Allis.

On Dropping Out of College

I figured I had little to lose and could always go back to school. I’d caught the entrepreneurial bug at an early age, setting up a computer consulting business when I was 11 years old. For $5 an hour, I taught local senior citizens how to use the Internet to keep in touch with friends and family. By 14, I had moved on to website design, and at 16, I founded a Web-marketing consultancy.

Bootstrapping It

For the first three years following the launch of iContact, Aaron and I worked without a salary to keep costs low. I lived in the office for the first few months. I was 18 years old, sleeping on a futon, cooking on a George Foreman grill, and showering at a friend’s house every few days. I once jumped into a dumpster to recover the proof-of-purchase tag from a chair box to claim the $50 rebate. We worked until we fell asleep, and we slept until we woke up. Time was amorphous. Our fundraising strategy was simply to acquire customers and reinvest the revenue. We started by giving iContact away to a local sandwich shop called Jimmy John’s. There was a fishbowl on the counter for customers to drop in business cards. Once a week we’d collect the fishbowl and type the contacts into Jimmy John’s newsletter database. When they began seeing an increase in returned visits from customers receiving the newsletter, Jimmy John’s became a paying customer.

Learning to Grow

By September 2003, iContact had 10 customers, and we even hired our first employee to help with customer service and marketing. By the end of 2003, we had a grand total of $12,000 in sales and $17,000 in expenses. We had spent a year of our lives building iContact, and all we had to show for it was negative $5,000 in earnings. Our sole server crashed that Christmas, bringing the website down and product offline for a week. We lost a third of our customers. But we persisted. iContact had a basic business model. We charged between $10 and $699 per month to manage a client’s contact database, send out emails to customers and potential customers, and track the results. The average customer paid $50 per month and remained a customer for three to four years. Over time, we found that, on average, it cost us $500 to acquire a customer who would pay $2,000 in revenue over time. It was clear, in other words, that if we could invest more in marketing, we could grow the company profitably—but we needed outside funding to make that happen quickly, before other companies filled the niche and the opportunity disappeared. In 2006, we hired a CFO to help us raise a $500,000 seed round of funding, which we invested primarily on pay-per-click ads on Google and kept a close eye on return-on-investment metrics. We saw that for every $1 we spent in Google ads, we earned $5 over time—so naturally we kept scaling the advertising model and doubled in size from 12 employees and $1.3 million in sales in 2005 to 30 employees and $2.9 million in sales in 2006.

Building a Team

With the scalability of our model demonstrated, iContact closed an additional $5.3 million in funding in 2007. We invested in building out iContact’s senior management team, hiring experienced heads of technology, sales, support, and marketing. I was now a 23-year-old managing a 100-employee company and overwhelmed with my new-found responsibilities. Fortunately, I was surrounded with a strong executive team to help grow the business. Over the next two years, iContact revenues grew 271 percent, ending 2009 with $26 million in revenue and 500,000 users. The execution was hard work, but the formula was simple. Build a product customers love and market it aggressively across search engines, websites, partners, and the radio within very clear mathematical guidelines.

Discovering the Bigger Picture

Our success turned bittersweet when iContact cofounder Aaron was diagnosed with thyroid cancer in late 2009. He underwent surgery and, happily, was declared cancer-free a year later. But the episode made us reflect deeply on our current situation and our goals. We wanted to build the company in a way that represented our belief that businesses earn the best financial returns when, in addition to driving returns for shareholders, they work to make a long-term difference in the world for customers, employees, and the community. We launched a program called the 4-1s, under which we would donate 1 percent of the company’s payroll, equity, product, and employee time to local and global communities. iContact hired a corporate social responsibility manager and became a B Corp, a designation from a nonprofit organization called B Lab certifying iContact as a socially responsible company. We firmly believe that to attract the best people you must create a fun environment and have a deep sense of collective mission.

The Next Phase

In 2010 we closed on a $40 million round of funding from JMI Equity, which we hope to use to grow to $500 million in annual revenue in the years ahead. Our customers send 1.5 billion emails every month to their subscribers. This quarter we’ll be launching a social-media-marketing product to propel iContact into new opportunities. We’ve come a long way from the days of sleeping in the office and eating Ramen noodles.

The author is a member of The Young Entrepreneur Council (YEC), an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. The YEC promotes entrepreneurship as a solution to unemployment and underemployment and provides entrepreneurs with access to tools, mentorship, and resources that support each stage of their business’s development and growth.