Sramana: Two years into the company, you started to get consulting revenues. What was the ramp from that revenue from those projects, and how did you staff them?
Amith Nagarajan I don’t remember the exact revenue amounts. I know in 1996 we achieved over 1 million dollars in revenue total. We had significant revenue growth in 1996. In terms of staff, we had three full-time employees as well as me and my business partner. Everyone we hired at that time was from Cal Poly, most of them computer science folks.
Consulting businesses are attractive as startups because they are somewhat self-funding once you have a customer on board. The challenge is scalability. We found they were a great way to get us a significant amount of revenue, but we quickly realized that it was limiting based on staff. There are always questions about how you scale quality. We knew we did not want to be a pure play consulting business. We did that work to project the capability of our software tools.
The whole point of our tools was to give our customers increased agility. Our consulting increased our ability to develop the right tools for our customers, and it dramatically increased our customer’s agility. In terms of getting those contracts, we had instant credibility because we had some of the leading tools in our space. Companies would call us asking about the tools, and we would refer them to our consulting group.
Sramana: That strategy is working all over the open source world now as well. Once credibility is established and relationships are built, then you have built-in customers.
Amith Nagarajan Another beneficial, although unintentional, strategy was that every consulting project we did was aligned with our tool set. Every time we did a project, we gained momentum. We did not get diluted and spread across a variety of problems. For a product company that does consulting as a mechanism to advance its product strategy, that was very advantageous.
Sramana: In our program, we use bootstrapping with services as a standard methodology for people who are self-financing. We categorically encourage people to seek projects only in the domain area of the product they are building their business in.
Amith Nagarajan That is great advice. I spend a fair amount of time these days advising to early-stage entrepreneurs. I like to see product companies maintain an ear to the ground in terms of customer relationships. Even if they don’t view consulting as a strategy from a revenue perspective it is an excellent way to gain insight into the customer thought process.
Sramana: It teaches customer intimacy and provides cash. Both are critical to an early stage startup. In 1996 you had a million dollar run rate. What came next?
Amith Nagarajan At that time we decided to focus. We had done consulting projects ranging from Fortune 500 down to much smaller companies. We had also aggregated our tools into an overarching platform. The platform abstracts out the commonalities across any enterprise business application into a generic approach. Every business application is different. At the same time, every business application shares common requirements. We abstracted those commonalities into a generic platform, and that platform was reused. We scaled that platform in its extensibility and its ability to modify its core.
We realized that we had technical expertise around the platform, but our scope was very broad and we had not targeted any vertical. We also happened upon an interesting vertical which is the not-for-profit membership market. We decided to focus on that vertical because it was dramatically under-served at the high end. In 1997 we decided to focus on that market 100%, and we built the first series of applications that we started to sell into the association markets. In 1998 we took off in terms of selling association software.