Sramana: You have mentioned a few of the companies that you have founded. What was involved in going from zero to one million dollars in revenue? What were some of the highlights and strategies you used?
Roman Stanek: The first company did not actually reach a million dollars in revenue. This is a great question. There is something fundamentally different about companies that can reach a million dollars in revenue. I don’t think my first company ever had the chance to reach a million dollars in revenue simply because we were building a tool that had a very low business impact. It competed against open source tools. Our ability to sell was minimal. At the end of the day, we were fairly lucky that we were founded early enough to interest Sun Microsystem enough for them to purchase us.
The second company did reach a million dollars by spending time and money on product marketing. The product had substantial business value, and we had companies willing to spend a million dollars on it. There was an upper limit on that business value, and we knew that at some point we would have to sell the company to somebody like HP.
I do believe that when you start a company, the types of business channels define how much you can get out of the company and what the defensibility of the product is. You have to know the business value you create. Are you building an independent company that is going to go public, or is it going to be a point tool that you have to sell?
My first company was a tool-based company and it sold for $10 million. The second company had higher business value and greater than a million dollars in revenue, and we sold that company for a hundred million dollars. That taught me to focus primarily on the business value of any company that I start.
Sramana: Now that you have had two successful startups with vastly different valuations, what is your methodology for determining what business to start? What business value is worth creating?
Roman Stanek: There is no better validation than going out and selling the product. That price is what people are willing to pay. There are some indications and signals. The closer to actual businesses processes you are, the more value you are going to create. Selling the business people with existing budgets will likely result in a company that is able to achieve a higher valuation. It is harder to build a company that sells to individuals. Those are my personal guidelines. I know very successful founders of consumer-based companies. They are able to sell on very a large scale, so they have to rely on the high-volume, low-cost strategy. My approach is always to focus on business users by getting as close to the actual business process as possible in order to maximize value.