SM: What does the financial structure of a business spun out of Stanford look like? Do they take an equity position?
CC: I get that question a lot, and I can’t comment directly because each case is unique. The thing to remember about Stanford is that they license more than startups. They license a lot of technology to major corporations. Because of that, their terms have a very wide range. It can include royalty, payments, quarterly minimums, and things like that. It’s a deal negotiation and can spread all over the map. In our case, we gave them a small equity position as they had done in Google and other startups.
SM: What came next? Did you raise money?
CC: No. We’re fans of bootstrapping. We all decided to bootstrap this.
SM: So it was yours and Chris’s money?
CC: Chris Chabot, Pat Hanrahan, and me are the co-founders and initial funders. We all recognized early on that we had skepticism towards external sources of financing too early. For the first 18 months we just worked in the warehouse out in Mountain View. We were actually getting our space from the back half of another startup.
SM: Did you have any customers?
CC: Step A was to spin out of Stanford and the rights to commercialize the technology. Step B was basic patenting and company formation. Step C was to start working on the software to an extent that it could be packaged up and used in some product form.
When I give entrepreneurship advice to people, I often tell them to sell early and sell often. Even if it’s just PowerPoint slides, you have something. Go to a local company can sell them an early adopter package. You are only getting get the real opinion when you start talking money. You have to qualify them by asking the right questions. We took that strategy and created the 0.5 version; it did not deserve a 1.0 designation.
SM: That’s okay. The iPhone version 1.0 didn’t do cut-and-paste.
CC: Exactly. We started selling a very early version directly to companies.
SM: Can you tell us some about your first couple of customers?
CC: The business strategy we chose was one where you could start small. You could start by buying a couple of copies.
SM: At what price point?
CC: Our entry point is $1,000. That is a single copy for personal use. As a result, we have some customers who invested a lot in our product line, and other customers who have just a couple of licenses. I would say the first 100 customers gave us the best product validation.
SM: Were these 100 customers from a single industry?
CC: We collectively decided that a horizontal strategy was the right move. This was controversial at the time. It was not obvious. We wanted to come across as being the company to use for broad horizontal use. We had no vertical specialty.
People typically call our industry the business intelligence industry. The traditional sets of vendors have names like Business Objects, Crystal, and there are more than 15 other companies. Those are the product lines that are still out there. Without exception every one of them is complicated. They have heavy architectures originating from the 1980s. They are very expensive and difficult to configure. They have high services ratios and their sales teams are trained at off sites to go sell two dollars of services for every one dollar of licenses.
We came into the industry with a fresh approach. The thing that was differentl was obvious because they were a dying set of companies. There are others in a new generation. One of those was called SpotFire. They were also a university spin-out, from from the University of Maryland. They got up to a couple hundred people before they got bought out. It was a real company. They were strong students of “Crossing the Chasm.” They really believed in perfecting a vertical before moving on. We think the exact opposite. Pharmaceuticals was their vertical, and then they went after oil and gas.