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Bootstrap First, Raise Money Later from Houston: Onit CEO Eric Elfman (Part 5)

Posted on Friday, Sep 25th 2020

Sramana Mitra: You went straight to legal again?

Eric Elfman: It was about who we knew. Not only did we go back to legal but we also ended up configuring a solution for the same problem that our first company addressed. We realized that despite our last company being one of the dominant players in the space, the technology was 15 years old.

There was room for a breath of fresh air. It’s a story as old as time – an entrepreneur starts a new business to compete with the old business. We didn’t start that way, but that eventually drove 50% of today’s revenue in competing in the space that we helped create in 1998. 

Sramana Mitra: What was the use case that the first company did and redid in Onit?

Eric Elfman: It’s called enterprise legal management. It’s going to be boring if you are not a corporate lawyer. It is essentially a database that corporate legal departments of Fortune 500 companies use to store all of their legal work. This includes litigation, transactions, and mergers and acquisitions.

All of the matters that a legal department works on gets stored in our technology. We are also the e-billing platform, so all the invoices come from law firms through Onit to Onit’s customers. Over the years, we’ve processed $30 billion of electronic invoices from law firms. 

Sramana Mitra: So it was an invoicing app again.

Eric Elfman: Yes. If you look at the first half of this year, it’s only 25% of new sales. Our model is to preconfigure new solutions that we are selling to markets that we are not already in. Every single year, we enter a new market. They are all expansion products for our existing customers.

We are trying to build new products as the older products start to tail off. This is how we are going to scale this organization from $40 million to $100 million and beyond over the next two years. 

Sramana Mitra: What was the revenue trajectory?

Eric Elfman: It was flat in the early days. I’ve judged the Rice business competition for more than 20 years now and I’ve seen it change. Once someone hits a million dollars, that’s an inflection point. I like to say that I don’t believe that everybody can sell $300,000 to $500,000 worth of software.

If you sell a million, there is a market. The question now is how big the market is, what the pricing strategy is, how big you can grow it, and how you can attack it. Those are all the problems, but I no longer question if there is a market.

We started slowly. At the end of our first year, we ended at $25,000 in recurring revenue, much less than what we had originally for. We are writing the Onit playbook as we are executing. 

Sramana Mitra: I don’t get worried about the first year being $25,000 as long as you’re finding a product-market fit. 

Eric Elfman: The first four years, we were finding our way. Along the way, we grew it to $2 million of licensing revenue ARR. We were four years old when we looked at the space our old company was in and saw that there was an opportunity. The Fortune 500 market is saturated for that type of market, but we believe that a third of them are going to refresh their software, which cost $0.5-$1 million a year. It was a rich market. We said we can attack this market not by writing something new or pivoting but by targeting our workflow platform at a bigger enterprise class problem that we can go after and make some impact.

The company that I founded was merged with a $140 million a year business. It was a big competitor in the space owned by private equity firms.

In 2016, we said we were going to attack the space, and by the end of the year we were in every RFP cycle because of our reputation. By 2017, we were winning half of the deals in the market against these bigger guys.

If you plot backwards when we did our private equity transaction in 2018, we were at $16 million and in 2017, we were at $8 million. In 2016 to 2017, we were at about $4 million. There was doubling of revenue in each of those years. That was our breakout. 

This segment is part 5 in the series : Bootstrap First, Raise Money Later from Houston: Onit CEO Eric Elfman
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