Mr. Britton: At first it was a matter of just finding a customer who would believe in
us enough to go forward with it. That's pretty much what we
started and limited our growth to.
Luckily, we were able to convince our first
customer—someone that I had worked with for quite awhile—to
come on over and try us out. From there, we just started
building outward to see who else we could find that would take
the chance with us. It
was mostly based on their relationship with me and the trust
they had that I wasn't going to let them down.
From there, it
was a matter of looking at all the customers we had and asking:
What do the majority of our customers have in common?
What industry are they in?
We grew from there, but, in the very beginning stages when I
came up with the concept, it came more from working in public
accounting and seeing the industry as a whole with all of the
different options and choices out there.
It came down to getting that first customer to trust us,
building that relationship, and taking as much care of them as
you can. Then they start becoming evangelists for you and
helping sell your product.
Mr. Robertson: Let's move on to the third category, building a team in the early days
without any or very little money.
How do you attract the right talent and incent them? How do you decide which talent to pick from the start versus later
on down the line? I
think it's a nice transition because it's that team that's going
to allow you to serve those customers. I would be curious as to
where you started in terms of building your teams.
I'm thinking particularly about Alba, where a group of you
formed this company, and Duke, where you started out with five
individuals initially. Why don't we start with Duke?
Mr. Chung: When we started the company there were five of us and we were all very
technical. We were
all in school, and I think that sort of gave us an advantage. We all knew each other and we had either worked together before on
a project or were good friends. In the beginning, it was the old
story of sitting in a coffee shop and throwing around ideas with
somebody you know, whether it's a business partner you've worked
with before or a friend or acquaintance.
It started that way, and it was important for us to find the
right people to make it happen.
Of the five people who started the business, everybody could
do something very well. I think that five was a very good number
for us to start with. I've
seen different business management teams that started with two
or three or four. For us, the number five worked out well for
several reasons. We
were building a product and we had members who were very, very
technical and could sit there all day and all night just coding
and building out products. A week later, we would have a
beautiful product that we could deliver to our customers. We had other people, myself and another partner, who would travel
all over the East Coast, meet with investors, listen, and pitch
our idea to different venture capital groups. We’d get
feedback and their opinions and a free assessment.
If you can get in front of an investor or a potential buyer
of your product, it's a matter of taking advantage of that free
advice. The five of
us are still here today; in fact we share a very clear vision of
where we want to go down the road.
We also realize
that starting a business without having a lot of money means
that the only incentive you really have to keep everybody
engaged is either distributing the equity so that everyone feels
like they're very important in the business, or finding some
other ways to keep them attracted and focused on the business
model, like sharing the long-term vision with everybody to make
sure that they're with you. It's critical in a startup that the
people who join you in the beginning share that vision and are
with you from day one until you can at least get to the next
phase, then you constantly reevaluate your situation.
Mr. Robertson: Alba?
Ms. Alemán: This might seem a little harsh, but in our experience the people who
start with you are not necessarily the people who are going to
be with you for the long haul.
The people you can afford on day one in your basement with
the crickets and spiders, they need a job.
They're not looking at your vision because you're very
charismatic, they're with you and they believe in you.
They just are coming in and they're running payroll; bye-bye
at the end of the day.
The people we
have attracted today, $10 million later, are very different
people. I'm hiring
vice presidents from Fortune 500 companies left and right. They're knocking on our doors right now because of the aggressive
growth that we have experienced.
They've bought into the vision. It
was so difficult for us to do this, but don't be afraid to
let go of the fact that you want everybody that started there in
that basement to be with you today. “We're getting there. It's
going to get better,” we told them. We wanted them to believe.
It's like the
resources, the tables we could afford back then and the chairs,
and the computers. How we agonized over every expense back then!
We only had a certain amount of funds to spend and we could not
afford the very best in overhead positions to run the
billable positions, we got the hired guns, the mercenaries, the
very best because that was our first foot in the door at the
customer's site. There was a difference in our business model
and the types of people we would hire, but those hired guns are
out for themselves. They're
not interested in your vision.
I had two or three of them that came on board as hired guns
and have completely changed their tune.
They're on board, they're my best, my very most loyal folks.
They surprised even me.
Don't be afraid
when you realize that not everybody that starts with you will
last, other than your partners. Your partnership has to be intact. As Duke said, you've got to have a vision and everyone has to have
bought into that vision. That's
critical. The core
team that starts the company, whether it's one or two or five,
has to be bought into that vision.
Don't assume that everybody else is going to know and
understand the vision for quite some time.
It's not until things start to evolve and you start to gain
success and momentum that light bulbs start to go off in other
people's heads. Some
people may never catch on.
You'll be at a spot where you will outgrow people in your
organization and you're going to have to make a very tough
decision. Am I going to hold back the rest? Am I going to
sacrifice the whole for one individual? Those are tough decisions. The
tough part of owning a business is that you have to make tough
calls that affect people's lives.
Do you want to sacrifice 40 people for one individual
who’s not performing or has no desire to?
Mr. Robertson: Thank you. Let's move on to
the fourth category, attracting customers when you don't have
any. Don, besides the
obvious need for cash, when do you know that you're ready for
prime time? When did you know that you were ready to start with that first
customer? How did you know when you were ready to go beyond that
customer, in terms of infrastructure, refining your offering,
and so on?
Mr. Britton: For us, it came at the beginning as a belief in ourselves.
First it was us, a core team, getting on the system, using
it ourselves, figuring out the flaws, and working out the bugs.
Then you get that first customer who will come on board with
you. It takes awhile to convince them to use the system and to
use it the way that it needs to be used so that you can work out
the kinks, to assure them that the bugs they're working through
will all be fine, and that it will all be hunky-dory afterwards.
Once that was done, we knew to go out and start looking for
more customers actively. Our first customer helped us go out and
find more customers. She is our biggest evangelist. Those next two customers went out
and found more customers for us.
It was constantly making those customers happy that grew our
Mr. Robertson: Did you approach that first customer in the way you described, telling
them that they were a bit of a beta customer and that there
would be kinks to work out? Were there extra things you did for
them to incent them to be that first customer?
Mr. Britton: She's here. Basically, I
worked with her for a long period of time. She was starting her
own business and needed the type of service that we offered, so
she was a prime candidate.
It was just a matter of talking to her and convincing her
that I wouldn't let her down. Once she believed in that, she
came on board.
Mr. Robertson: P.V., was it the same for you? My
recollection is that when you were trying to make your case to
investors, you were also out talking to potential
customers—some of whom you knew, some of whom your investors
suggested to test these waters. How did you decide when to approach customers and who to approach?
Mr. Boccasam: You can't convince customers that they have pain. It's simple; they either have pain or they don't have pain.
If you're out there trying to convince them that they have
pain, they're probably not a good prospect or suspect for you.
What we did very early on, and actually the first dollar that we
spent of VC money, was to fly in seven or eight Fortune 80
companies, one of them was Microsoft, and we spent about two
days locked up in a room. We spent the money to make them feel good, that we were a real
company. We spent a lot of time preparing for it, asking the
right questions, and digging out the pain. At the end of the
session, the goal was to come up with our list of features and
benefits for all the products we were going to build for them.
The end goal was to be able to articulate the pain as they
may sound a little cliché or basic, but the hardest part is
trying to talk to a customer about their pain the way they see
it. Trust me, it's
not an easy thing. To
me, that's a strategic inflection point for a company. If you
can go to someone and say something, and the person replies,
“Yes, I see that,” and then spends more time talking about
how they could use your product for their pain than you spend
talking about your product, then you've actually changed the
game. It takes awhile to get there, but, when you do, you'll
begin spending more productive time with customers rather than
having a bunch of slides that say: “Is this your pain? Is this
your pain? Is this your pain?” That is just brutal for the customer as well as for the sales guy.
It just kills them. A
lot of the motivation around finding these customers is really
around targeting the pain.
thing that I think is valuable is that all pain is not equal,
just like all money is not green, right? The point is that you may have nine things that your product does
and you may have fallen in love with all nine, but if Johnson
& Johnson and Anheuser-Busch care only about number
eleven—that yellow thing that you don't care much about—if
that's important to them, don't say, “Yeah, yeah, we do that,
too, but look at all these nine other features.” That's what most people end up doing, minimizing the kind of pain
that they address.
We spent a
tremendous amount of time doing vertical market segmentation.
Different customers have different levels of pain. We became
able to talk about the pain specific to those vertical
it's healthcare, the federal space, or financial services, each
one of them has their own unique sort of pain that you need to
articulate. There is
a level of homework that you just have to do because what
they'll nod to is different from what you understand the problem
To me, that is
one of the clutch factors for any successful business. Can you
articulate the pain? Are there enough customers out there with
that pain? Now, quantify how big that pain is. Some people might say, as one person did, “Yes, I do have that
pain, and, if I had some of that, I'd pay you $15,000 for it.”
That was a revealing factor. It's how they valued that pain,
but that wasn't the goal. You found a customer who had the pain, but you were looking for a
$500,000 contract for it. Maybe his big pain is somewhere
else and you have to have a dialogue about where you can find
your sweet spot.
Mr. Robertson: There's an interesting balance between what you're saying and what Alba
said earlier. From the customer perspective you have to
understand who has pain, what it is, and the value they place on
it. Yet, at the same time, you can't drift away from what you
know well in terms of your ability to cure that pain.
Mr. Boccasam: Absolutely.
Mr. Robertson: Let me move to a specific question in this category. I'll just read it
again. “I have
designed and am beginning to develop a system that will compete
with three big Internet players in the electronic messaging
world. I have an
extensive network of people from which I can draw talent to get
up and running. What strategies can I employ to keep the big
three at bay long enough to garner the amount of market share
needed so that I won't get instantly squashed by them?”
I would like to
direct that towards Duke because your market of customer service
alternatives can be a pretty crowded space. There are some
pretty big players in it.
How did you deal with that issue?
Mr. Chung: That's a good question and something we look at every day.
There are a lot of vendors out there in the online customer
service space. You probably know some of them, ranging from
Seybold to smaller vendors who provide very specific products.
When we entered the market, to be frank, I guess we didn't
know which marketplace we were in. I like how P.V. worded it. We went to a customer and we realized
they had pain. They were building a solution to solve it, and we
went in and said, “We'll build this solution for you if you
tell us the requirements to make it successful for your
business.” We took
that model and went after a lot of customers who had the same
pain, and that worked very well for us.
When we began
to realize what industry we were in, we were beginning to
develop our marketing strategies and to understand the
marketplace, that's when we began to realize that we were in a
fairly crowded space. We began to see competitors from different
angles. That's when you have to look at your product and ask how
it differs from all of the other vendors.
There are several ways to do that.
You could build specific things into your products that
could make it stand out; you could price it cheaper—that's the
easiest way to get your leverage; or you can segment it, either
into vertical markets as P.V. mentioned, or into other
structures, such as for enterprise, midsize, and small clients.
You have to
look at all the different perspectives and, given the capacity
of your business today, ask what you can do in the next six to
12 months. Which
market do you want to focus on? Can you be the leader in that
one small quadrant or in one even smaller than that with all the
vendors out there? A lot of companies do very well because they're a market leader in
one specific niche. If
you can identify that market early and have a vision to be a
leader in it, you begin to mold your product and adapt it to the
customers in that space.
bowling pin theory in which you build a product for one industry
then you go out and find another industry that could use the
same product. Then you build another product that works in both
of the first two industries.
You begin building your product cycle based on that model,
and, eventually, you have a product line that works very well
for multiple industries. It comes down to your marketing and how you approach each industry.
should look frequently at who's out there doing what. Along the
way, you'll see competitors who are shifting their focus.
You should be constantly looking at where you may be able to
get an advantage by doing something today to attack the market.
Mr. Robertson: Let me move on to our final category, the issue of capital. How far you
can take your company on your own, and how do you make the
decision of timing? I would like to split the conversation into
two pieces—going after venture capital and not.
Let's start with not. I'll ask Alba and Duke, since you did
not go down that path, why did you consciously avoid it and what
were the benefits to your business?
Ms. Alemán: I want to go back to a conversation we were having before the event
started. My business partner was talking about venture capital
and I felt at first
that we were the anomaly on the panel, because we're a services
company and because we're not funded externally by anyone.
Then he mentioned that, well, we are VC funded, we're just
internally funded. In
essence, we take every penny of profit that we make and reinvest
it in the people we're able to hire and retain and the benefits
we offer and the things we can do for them.
This year we're going to reinvest $1.5 million in the
company through the people that we're going to hire. In essence,
that's our venture capital right there.
are a cash business. It's
a service for a fee so, from that perspective, we were not
attractive to angels or venture capitalists.
Our model was not attractive even to the banks because our
money was coming to us. We didn't really need it, in their minds. For us it became a cash
flow game. It became very strict cash flow management, not
spending until money is received and all sorts of creative
financing mechanisms to increase how quickly payments are coming
in and slow down how quickly payments are going out.
For 14 months the two of us did not take salaries; we lived
off our savings. When you talk about bootstrapping, I don't know
how many other bootstraps you can pull on. You're talking about
draining and depleting your entire savings, including your
retirement savings partially, on the vision, on the belief that
this is doable and that it is going to return something in the
We were not
attractive for VCs, so we focused our energy on the cash flow
model. How many people we could bring on, although we could not
bring on too many too quickly because then we'd be in a
situation where we needed the cash to pay people.
It’s slowly growing in the beginning until there are
enough reserves so you can start growing exponentially larger
and larger. Then the banks are knocking on your door to give you
money. That's how it
started for us.
Mr. Robertson: Duke, how about you? You
started in that bootstrap model, then went the angel investor
route instead of venture capital.
Why did you make those choices and what have been the
Mr. Chung: We looked at a lot of venture capital, and there were times when we were
presented with a term sheet to take on some financing. If you look back two years ago when a lot of people were
blind-sided or confused by the market, a lot of people were
seeing that others were taking on venture capital and built
their business based on that philosophy.
I agree with a lot of what Alba said, but I also think
there's one difference in that Alba has a very successful
services firm, whereas we have a products firm. Eventually, to build a product business up, you will need some sort
of substantial capital.
The reason I
think we took angel funding is because we looked at it from a
strategic standpoint. We
realized that we didn't need a lot of money, but we needed
people. More importantly, we needed people who could help us
build the business. A
lot of the venture capital arena is largely funded by a lot of
angels as well.
you build your business, you want to have set expectations and
milestones. You want the right people to be on your board or
your team to help you take it to the next level. Working with an angel, especially one that has done it before or
who has experience building a startup and taking it to the next
level is even more important than the money itself.
I talked about our Chairman as an example.
I told him, “If you can put any money in the business,
that would be fine, too.”
With him involved, the business is already closer to the
The other thing
I agree with Alba about that is if you bootstrap a business and
everybody's expectations are set, you're not paying yourselves
any salaries, especially in a products business where you need
to build a product to prove that it works. Then you go find
customers. It's a very difficult business and you're going to be
bootstrapping for a while.
The most important things you learn are the fundamentals of
building a business. Taking on a lot of venture capital may
actually be harmful to your business because your expectations
are set differently. Go
back and look at the last two years and see all the
venture-backed businesses that had expectations set way beyond
their capacity or what they could achieve. Look at them now. Very few are able to sustain the same type of
business that they were anticipating two years ago.
Mr. Robertson: Let's get some input on the flip side of this from the two people who
ultimately thought that venture capital was the right answer for
them. It's a little
bit different in each case because P.V. went straight to the
venture capital market for his funding, whereas Don took a more
circuitous route to get there and decided to wait. Since you
strike a balance, Don, I'll finish with you. P.V., why did you decide that the venture capital route was right
for you right from the start?
Mr. Boccasam: My father once advised: Never give your brain and your money to the same
capital is two words, “venture” and “capital.”
Most VCs focus more on the C than on the V. Nothing
ventured, nothing gained, so you want to look for people who are
willing to put out money for high risk/high reward options.
Typically, you get 10X, 15X returns, if not more.
concept behind raising venture money is different, and you've
got to look at it in a completely different way.
If you look at it from a control aspect like we were talking
about earlier, then I think it's not a good option.
You've finished a fairly nasty negotiation across the table,
now you want them to be on your side, right?
You want the bad people to be on your side because they can
be bad to other people. I think the important aspect about having VCs is that you've got to
view them as business partners. It's true that some angels are
limited partners and they invest in a lot of the large funds,
but, typically, limited partners don't get involved in portfolio
companies. They're too busy playing golf somewhere and are just minimizing the
losses right now.
The level of
interaction between, say, the board of a company and the VCs is
really around maximizing opportunity.
We've got world-class investors in our company.
If you wanted to talk to the CFO of Citibank, he's maybe two
emails away from us, but the hard part is when you get to him.
What do you say to this person when you've got 30 seconds?
Well, in order to get that 30 seconds in front of the CFO,
you’d better know what the heck you're doing.
If you're in this figuring it out mode with VCs, maybe it's
better if you go off in a back room, talk to a few customers,
then go out and build a business. If the goal really is to build
a company during an economic downturn, the whole value
proposition to the VC is to say, “Look, this is the best time
to build a company because I can find the best people. I don't
have to go out and sell because I have nothing to sell.
We can focus on the right sort of things because the DNA in the
company is different and the times are different.”
In the venture
market right now, I don't know if you've seen the reports, but
they're coming back. There
is significant value in going the venture route if you believe
that there is a significant upside opportunity for both sides of
the fence. The reason
why I preferred not to go to the angel route, and I know a lot
of friends who have, much like Duke's company, is that, at a
later stage when you do want to get VCs in, it gets a little
messy. It depends on
valuation. There are egos involved, people want to cash out a
little bit because the big folks are coming in.
It does get messy. If
you want to keep it clean, there are equity issues that people
worry about. At the end of the day, if you focus on making the pie bigger, I
would rather have 3% of a $3 billion pie than 50% of a $10
Mr. Robertson: Don, tell us why you chose to delay going with venture capital and why
you ultimately decided it was the right answer.
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