Sramana Mitra: Awesome. Can you talk about cash flow in all this? The startup story is all about cash flow. How did you navigate your cash flow journey in all this?
Jagan Reddy: I bootstrapped the company, and then we sustained the business with our own cash flow. We manage the business very lean, but our license was priced very high. We were generating a lot of cash in 2010. We, in fact, ended 2010 with a cash balance of more than $4 million.
Sramana Mitra: How many people did you have on staff in 2010?
Jagan Reddy: Maybe close to 40. Most of the people were implementation teams. We had a very lean development team. Implementation team is paid by the customer.
Sramana Mitra: What happened in 2011?
Jagan Reddy: 2009 to 2010 were very high growth. Then in 2011, we saw some slowness. We burned some of the cash we saved in 2010. We built a bigger team and were expecting a lot of demand, but 2011 went slow. We were almost flat on the bookings, but 2012 was a year of amazing growth. It has been a bumpy ride. It was not a very smooth ride year over year.
One of the reasons for that is because we are selling perpetual license. Every year, we need to go and find new customers and generate new cash. In 2012, we decided as a company that we want to turn this into a subscription model. The subscription model will allow us to get constant cash into the company and will be paid by existing customers. We have a clear visibility into the cash flow and revenue. We started moving the company into the subscription model.
Sramana Mitra: In 2011, how much did you do in terms of bookings based on your perpetual license? How did that turn in 2012 when you shifted the revenue model?
Jagan Reddy: We dropped our bookings and revenue by half. The reason was because we were collecting bookings upfront, but those dollars are spread over years. We went down by 50% in 2012.
Sramana Mitra: You were at about $10 million in 2011 and then you went down?
Jagan Reddy: We went down to $4 million.
Sramana Mitra: How much cash did you have on reserve to go through this transition?
Jagan Reddy: We had good cash levels from 2010. We carried around $4 million. Due to this conversion, we burned almost everything in 2011.
Sramana Mitra: You started the transition in 2011?
Jagan Reddy: 2011 was not transition year, but the sales went down. Since there was a deadline issue in 2010, a lot of people were coming to us and moving very fast. Once the deadline passed, people took their own time. That’s when we started realizing that our sales cycle was longer than what we encountered in the beginning. 2011 was a very slow year for us. We burned a lot of cash. We also invested in building teams to support the growth. That was also burning our cash while we were not generating enough bookings.