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October 08 Issue |
CEO Spotlight: Jim Howard, CrownPeak
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By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
His is a story of how true determination can help you achieve what
you want. From building a company with zero financing to making a success of
SaaS before it was popular, Jim Howard has faced and triumphed over many
challenges. Howard, CEO and co-founder of CrownPeak, talks to Angel Mehta,
Managing Director of Sterling-Hoffman, on the challenges he faces in making his
company successful, why delaying financing can be a good thing, and how to make
VC financing work for you.
Angel Mehta (AM): You spent almost 5 years building the
company with zero financing, which I find amazing. Tell me how you managed to
get a company off the ground organically?
Jim Howard (JH): A couple of different ways. First, my partners and I
didn’t pay ourselves for the first two years. We wrote checks into the business
ourselves, so we basically acted as our own angels. And then, as we were
developing the product, we took professional services work to generate immediate
cash flow. We sold to our first few customers in the first few months of
starting the company, and that was a great help in financing product
development. Selling early was the real key: lf you can’t sell, you don’t have a
business.
AM: Those first two keys seem like a pretty big sacrifice – to go with no
salary for 2 years! You must have believed pretty strongly in the vision for the
product to make that kind of personal investment.
JH: Well, web content management is something everybody who has a web
site needs to solve. We knew that. And the alternatives in the market place were
very poor. The other products were expensive, difficult to implement, difficult
to manage and had crummy user interfaces. And even when they were launched it
was, and still is, difficult for organizations to manage and evolve the content
management system over time. If felt to us like the market was crying out for a
well-managed, well-designed product, available economically, and married to a
service to work with the business managers over time. We saw the ‘software as a
service’ model before it got hot.
However, like most entrepreneurs, we were probably over-confident in the early
days.
AM: Was there any question in your mind that your vision for what the
market would turn into when you were getting the company off the ground would
not be validated? Was there a risk there or was it a no-brainer?
JH: Early on, it seemed like a no-brainer. We sold three customers in the
first few months. However, we founded the company in 2001, and when 9/11 hit, we
went almost a year without selling another customer. Eighteen months into the
company’s history, we had to make a second personal cash investment into the
company. That was a hard call to make, but we’re super glad we decided to give
it another six months and see if we could get back on track. At the end of six
months we had sold another half dozen customers and knew we had a business. At
the end of the third year, we still only had a million-dollar business, but at
that point everyone was getting paid, we were a break-even business, and we
could see the market starting to turn in our direction.
AM: What are some of the other unexpected challenges you faced trying to
get the company from its early stage embryo to where it is now?
JH: We were pioneers in the market, and in retrospect, were out there
before the market was really ready for us. So the length of time it took us to
gain momentum was very surprising to us. We thought we would be able to gain
size much more quickly than we were able. It took us about six years before we
were really of any size. We also had a partner who left the business on
difficult terms, which was quite distracting for a time. We’ve had to make major
changes to the way we pitch the product over the years – getting the marketing
message right isn’t a one-time thing. We’ve had to re-design our pitch every two
years, which we didn’t really understand when we started.
AM: So would you always recommend to other entrepreneurs that they delay
financing for as long as they can?
JH: Generally, yes. There are some businesses that absolutely require
capital to start. However, my advice is to delay or avoid investment money
unless you absolutely need it, or really have your business cooking and can add
fuel for very high growth. Operating with very little capital in the early days
makes the business efficient and teaches the management team to be focused on
cash. It seems to us that many businesses who get funding in the early days try
to do too many things at once. When you don’t have any cash, you prioritize
ruthlessly. Also, raising money is very time consuming. Imagine how much benefit
the business could have in the early days from the executives spending their
time selling deals, rather than pitching to venture capital firms! And, even the
best venture capitalists come with requirements that take time from the
management team once the funding is closed. Of course, the cash and the business
guidance offset those time drains when the match is good between the company and
the venture partners.
If a company can wait until it has a real business before seeking funding, I
think they will be better-off every time. Raising money will be easier, you will
get a different type of venture firm (not a super-early stage fund), and you
will get a better valuation.
AM: Was it easier to get meetings with venture capital firms because you
had a more established business? And how did your day-to-day experience change
after adding outside investors to the mix?
JH: I think our size and maturity level was helpful in getting venture
meetings. So was our focus on SaaS, which has been a hot topic in the VC world.
Connections and introductions into the venture firms were also very helpful, of
course. Even then, we had a long and challenging process to raise money. We
wound up with 28 pitch meetings and 21 follow up meetings. From those, we had
in-depth discussions with 7 firms. Because we had multiple offers, we were able
to select the investors we liked best.
Thinking about it, I pretty much screwed-up my first five venture pitches. It
was a good thing we had a lot of exposure, because the first meetings taught us
what not to do going forward, what not to say, and what people care about. I
became much better at the pitch with practice.
Our day-to-day experience changed more due to growth of the business than from
the outside investors. However, the investors have had a major impact,
independent from their capital. We are much more accountable to goals, we have
many more resources and connections at our fingertips, and we have very good
business advisors. We feel lucky there. Not all venture capitalists are good
business managers or have operating experience to draw from. They all appear to
have strong opinions, though. Finding venture partners who work well with the
company – that’s the real key.
AM: What are those things that an entrepreneur should never say to a VC
firm?
JH: Well, it’s a bit of a copout, but the wrong thing to say seems to
vary according to the type of venture firm and even the specific partner. Some
venture firms are really looking for something different than what you are, so
pretty much anything you say about your business is the wrong thing. Ironically,
venture capitalists are very risk-averse. They will look for a reason not to do
a deal, so anything they latch onto that seems like a problem could scare them
away. Generally, the issues with the business – and every business has them –
should be addressed upfront, and if possible, painted as a strength, or as
something your team has solved in the past. Practice your responses to the big
issues so that your answer is smooth, but always be honest. They will eventually
find out if you aren’t honest. If they find out after funding, you won’t have a
good relationship with your board and probably won’t be working there for long.
If they find out before funding, it breaks your credibility permanently.
Often the wrong answer is answering a question posed by a venture partner, as
asked. Don’t be afraid when a venture capitalist asks you the wrong question to
respond that they are asking the wrong question. Give them the right question to
ask and then answer that question, because nobody knows your business like you
do. Don’t assume they get what you do because they act like they do. Assume you
need to explain, or start an explanation, and ask if they want more detail.
You have to be able to think on your feet under pressure, and provide
structured, logical arguments that support how your business works and why
you’re the right people to lead the company.
AM: What are the key challenges that the business has right now? What
keeps you up at night?
JH: There’s nothing that keeps me up at night with this business. We’re a
recurring revenue subscription based software business. So we have great
visibility into cash flow and can only grow, as long as we retain customers -
which we do. Every new customer means growth. So because of the predictability
and stability of this model, I spend my time worrying about how to sell more
customers, and how to improve our product and service for our existing customers
– the fun stuff. This is the most fun I’ve had at a job.
AM: You talk a lot about investing in sales and marketing and selling
being the key. Given the choice between additional sales resources and
additional marketing resources, which would you pick? Which have you found to be
more important?
JH: You can’t separate the two. There’s a balance between sales and
marketing, where the number of leads coming in has to enable the sales team to
hit their quota and be excited about coming to work. However, a sales person
will never tell you they have enough leads or that you can reduce their
territory! You have to be ready to bring on new sales folks on a regular basis,
but match that growth with lead flow from marketing. Over the years, we’ve
tinkered with this formula constantly, and we’ll never stop. Suddenly, there
aren’t enough good leads and then we don’t have enough sales folks and then we
need to bring in somebody to parse and qualify the leads, and so on… The CEO has
to make sure the marketing and the sales groups communicate and brainstorm as a
frequent exercise. It’s so easy for them to become disconnected. That’s been a
key element of our success, that our marketing efforts have been very practical
and sales-focused.
AM: If you had a piece of advice to any entrepreneur starting a company
today, something they should keep in mind, what would it be?
JH: Sell early, sell all the time and be personally involved in sales.
The CEO is the best sales person, and his/her partners will be the next best for
a long time. You need to start selling before you start the business. I hate to
see folks spending a lot of time on a business plan. The best research you can
possibly do is go out there and sell a deal. Go out there and ask what they’re
looking for and sell it to them. The customers teach you how to build your
company and then they pay you to build it. So, the quicker you can get out there
selling, the better off you’re going to be.
Jim Howard is CEO of CrownPeak and is focused on advancing
CrownPeak's leadership in the software-as-a-service market. Under Jim’s
leadership since it’s founding in 2001, CrownPeak has become the market leading
company in on-demand web site management software. Jim was named by CMSWatch as
one of the 20 People to Watch in Content Management. His professional background
combines extensive startup experience with years of software development and
professional services delivery and management. Jim has spent the past eleven
years working with web content management and search technologies. Jim
previously held senior executive positions in professional services management,
sales and operational management with companies such as USWeb, MarchFIRST and
successful startup, W3-design. For interview feedback, contact Jim at
jim.howard@crownpeak.com
Angel Mehta is Managing Director of Sterling-Hoffman, a retained executive
search firm focused on VP Sales, VP Marketing and CEO searches for enterprise
software companies and lead investor in www.softwaresalesjobs.com, the #1 site
for software sales jobs. Angel can be reached for feedback at
amehta@sterlinghoffman.net
 
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