Monday, January 24, 2005
Interview with Jim Howard, CEO and Founder of CrownPeak
My interview today is with Jim Howard, CEO and Founder of Los Angeles-based CrownPeak. I interviewed Jim a few years ago when CrownPeak was just getting started; recently, the company has been lauded by the industry press and received a number of awards. I thought it would be great to hear the story on how CrownPeak has grown and succeeded--all without venture funding.
BK: For those readers who aren't familiar with CrownPeak, tell me a little bit about where your hosted content management service is nowadays, and the value proposition you offer to your customers?
JH: Web Content Management (WCM) Software enables non-technical business users to manage websites. CrownPeak is a software service, meaning that we host our software applications and our customers access the software via their web browser. We also have CrownPeak Search, a website search service we launched last year, which is doing very well. Our customers pay monthly to use our software services. So, another way to think of CrownPeak is Salesforce.com for Web Content Management and Search.
Our value proposition is this: we provide world-class solutions to web site management more rapidly, less expensively, and with lower risk. Our customers have no software or hardware to buy, don't need to make changes to their existing systems, and have no risk of project failure. Just call us and we do the rest.
We're really turning the industry on its head. Think about it for a moment: a traditional software vendor sells a customer its software and the customer takes the risk that the project will launch on time and on budget and that the users will like the system. When a customer chooses a software service like CrownPeak, the risk is transferred to us. If the system doesn't work well or the users don't adopt it, we get fired. The good news is that we know how to deliver. After more than four years in business, we've retained about 95 percent of our customers and have zero project failures. That's amazing in an industry that has an average application life of less than three years and about a third of the projects typically fail, according to Jupiter.
BK: I'm impressed by the traction CrownPeak has shown, especially with recognition from many industry magazines, and a growing roster of high profile clients. What would you attribute your success to, and what is it about your service that has been so popular?
JH: We are here to make Web Content Management simple and cost effective. We tell our customers -- forget about the technology. How do you want your business to work online? That message is selling very well in a world where website management is so expensive, time consuming and poorly done. We deliver high quality and great service for a low monthly fee, and we guarantee the results.
With all of our products, our approach has been to develop the best software application on the market and deliver it as a service. That means that we're able to have success selling into large companies against established vendors, or to mid-size enterprises who have sophisticated requirements but have never been able to afford world-class software before. It's a pretty diverse customer base, ranging from the Fortune 500 (Honeywell, Hyundai Motors), to non-profit (ACLU, Heifer Foundation), to Government (State of VA, Office of the US Trade Representative).
We routinely perform all of the customization and configuration for our customers. Our software is integrated with a set of market-leading applications, enabling us to offer a complete website management service. We offer web hosting (with IBM and Verio), email campaign management (with EmailLabs and DoubleClick), web analytics (WebSideStory), and a few other popular services. We set them up and ensure they are interconnected and always working. The customer gets one monthly bill and has a dedicated customer service representative available 24/7. And best of all, the customer receives all this at a fraction of the cost of buying or building software internally.
Finally, we've made the core of our software available to external developers. Many of our clients have sophisticated IT organizations or partners who want to integrate our application with back-office systems or other services. That has been a big help in penetrating some of the larger organizations.
BK: I understand you're still under 20 people--how have you managed to scale your business without needing to grow your staff?
JH: Of course we've needed to grow staff and will continue to do so, but the software service model really helps to keep that growth limited as revenue increases. We've concentrated on efficiency of delivery, and it's really paid off. Because our software is configuration-based and doesn't require a great deal of custom code to implement, our professional services group is relatively small. Likewise, our product development group is small. We have the great luxury of making mini-releases of our application very frequently, and so don't have the huge overhead of making annual mega-releases. The remainder of the organization is sales and marketing and a bit of overhead, like the CEO.
Another great thing about the model is the stability and predictability of revenue. We bill our clients monthly, and so know exactly how much is coming in every month. Every quarter is a new sales record, because we're just building up from our existing base. That has enabled us to be comfortably and reliably profitable for years now. We have almost no danger of falling into the classic software company trap of getting big and then laying people off when there's a bad quarter. We just hire as we grow, and the growth is steady and predictable. We're also experienced business people, and have been disciplined about keeping our overhead low.
BK: What has been the toughest part of bootstrapping your business, and have you ever thought twice about your choice not to tap into venture capital?
JH: The toughest part about bootstrapping is cash flow in the early days, of course. And it's even tougher for a software service, where even large deals still bill monthly, and so aren't nearly as helpful with short-term cash requirements. As with most bootstrapped companies, we invested cash to operate the business and didn't take salaries for the first couple of years. That's another tough one - it's nice having a paycheck! Luckily, my partners -- Steven Gentner, Carl Sutter and Sean Lally -- and I were part of a previous startup that did well, so we were able to wait out the build-up process.
Regarding funding, absolutely we've thought twice. As we all know, venture money can be a Faustian bargain, but it can also be a requirement to start up some businesses or a great accelerant to existing businesses. We have a process of revisiting the venture question twice a year. At this point, we have begun to generate a lot of cash and so can fund growth at a pretty rapid pace. Still, it's important that we keep in touch with various sources of capital and model the costs versus the benefits as they change over time. In our fifth year with no outside investment, the likelihood of us taking money has become smaller. Still, we reality-check the usual things -- momentum, new competition, shifting market conditions -- and take meetings with those who do their darndest to tempt us into taking the money.
BK: As an entrepreneur, what has been the biggest lesson you've learned in getting CrownPeak off and running?
JH: A thought for new startups: spending the first six months (and every subsequent six months after that) concentrating on sales is the most important thing you can do. The best salespeople should be the founding executives. Especially in the early months and years, nothing matters more than cash flow, and the only way to generate cash flow is to sell -- and you've got to do it yourself. Don't get caught up in writing complex business plans and choosing the right office space and hiring people you don't absolutely need. Start selling immediately, while the product is being created. Don't underestimate the length of the sales cycle.
Many entrepreneurs who might have built a successful business on their own fail by devoting all of their time to attempts to secure venture investment. Spending six months raising money is a very expensive and distracting task. If you can build the business on your own, then do it. Of course, some businesses require years of outside funding to build products or ramp to scale. As a business founder, however, don't forget the percentage of funded businesses that fail and the percentage of founders that get fired by their funders! I'm not saying don't take venture. Friends and family have done very well for themselves with venture-funded companies. I'm simply saying, only take the money if you absolutely have to.